Nigeria’s booming start-up scene draws foreign investment

by FT, Matthew Green

November 8, 2017 | 6:18 pm
  |     |     |   Start Conversation

Even with eyes half closed, the gritty Yaba district in Lagos bears scant resemblance to Shoreditch, the hipster heart of the start-up scene in London. That, though, is the comparison ’Bosun Tijani makes when he talks about Nigeria and a once-in-a-generation opportunity to invest in the future giants of African technology.

Mr Tijani is chief executive of Co-Creation Hub, an incubator for businesses and social enterprises in Yaba. He is both a participant in and an observer of the explosion of Nigeria’s digital economy, with hundreds of ventures spawned in the past three years.

“There is now a critical mass of people who believe they can build a sustainable and successful business,” Mr Tijani says, on the last day of a five-city tour meeting investors in Europe. “Serious money is beginning to hit the market.”

Venture capitalists are noticing a wave of internet entrepreneurship, including cashless payment companies, social networks and retail.

Bullish financiers see the sector as a way to tap growth in a market of 186m people without becoming mired in the politics of big energy or infrastructure projects, or falling hostage to oil prices.

“What I think is truly magical about technology is that it has shown growth that is completely uncorrelated to the GDP cycle,” says Pule Taukobong, a partner at South Africa’s CRE Venture Capital, which backs Nigerian start-ups. “We’re excited because this is a generational opportunity to be at the beachhead of that as it happens.”

Others agree. According to VC4A, an online community of Africa-focused investors and entrepreneurs, the average investment secured by Nigerian start-ups rose from $57,000 in 2015 to $73,000 this year — with just over 40 per cent able to secure external capital.

Several factors have jolted the industry into gear. Reliable internet is more widely available and telecoms companies have boosted data capacity, while new payments companies have made online transactions safe.

On a recent morning at Co-Creation Hub, young Nigerians pored over laptops at desks allocated to start-ups including LifeBank, which helps hospitals source blood and medical products; Mamalette, a social enterprise for expectant mothers, and Truppr, a tool to help users locate fitness events. Among the hub’s graduates is We­cyclers, a company which uses cargo bikes to help Lagosians earn money by recycling.

The fizzing start-up scene is attracting the attention of tech companies in the west. When Facebook founder Mark Zuckerberg made his first trip to sub-Saharan Africa in 2016, he visited both the Co-Creation Hub and Andela, a company co-founded by US entrepreneur Jeremy Johnson. The Chan Zuckerberg Initiative chose Andela for its first private sector investment.

Mr Johnson, 33, set up Andela after seeing the chance to generate thousands of jobs in Africa by running a programme to find “genius-level” software developers, who then work remotely for US and European companies.

“Across Africa you’ve got a pretty stark difference between perception and reality,” he says. “In this case, I’d say the excitement is actually pretty reasonable relative to what’s happening and what’s possible.”

The potential is clearest in financial services. Flutterwave, a company building a pan-African online payments infrastructure, processed $200m of transactions in the second half of last year. Between January and July this year, it handled $1.3bn.

Paystack, which helps businesses accept transactions online, has also grown rapidly. It was the first Nigerian company to enter the Y Combinator accelerator in California, where it raised the bulk of a $1.3m investment.

“Every day we think how we can make it easier for people to start accepting payments,” says Shola Akinlade, co-founder of Paystack.

Nonetheless, Kola Aina, who set up the Ventures Platform accelerator in Abuja last year, worries that seasoned digital entrepreneurs are scarce. “Yes there’s opportunity but we need to do better in developing the talent,” he says.

Although more investors are betting on Nigerian tech, Mr Aina says there is still a lack of capital in the $100,000-$1m range. Borrowing is also a problem, given the high interest rates charged by Nigerian banks.

Despite this, the ambitions of young Nigerians are shining through. They are creating opportunities that the so-called “political godfathers” who pull the strings of Nigeria’s elected politicians cannot fathom.

“We’ve tried this democracy thing and we’re still hopeful,” Mr Aina says. “I think that the entrepreneurs who build solutions are going to be a key part of Africa’s future.”

Case study: Software start-up connects local coders to global brands
When Tolulope Komolafe heard about a company offering to pay people to learn to write world-class computer code, she assumed it was one of Nigeria’s infamous email scams.

The computer science graduate decided, however, to find out more about Andela — and applied to join one of the organisation’s boot camp-style training programmes.

Priding itself on admitting proportionally fewer applicants than Harvard, Andela has received inquiries from more than 40,000 aspiring Nigerian software engineers since it started in Lagos in 2014. Fewer than 300 have been accepted. Ms Komolafe, 27, was among the first.

“It was intense,” Ms Komolafe says of the training. “This is something you have to put everything you have into.”

With hubs subsequently launched in Kenya and Uganda, Andela aims to identify Africans with an aptitude for coding and then equip them with the technical and teamwork skills they need to work remotely for technology companies in the west.

Partners range from tech giants including IBM and Microsoft to start-ups such as Everplans, an end-of-life planning platform based in New York’s Flatiron district, whose software Ms Komolafe has helped to develop from Andela’s office in Lagos.

With job vacancies for developers in industrialised countries far outstripping candidates, Andela believes it has captured only a fraction of the potential demand.

“We’re solving the global technology skills gap problem,” says Nadayar Enegesi, an Andela co-founder, speaking at the company’s Lagos premises, where dozens of coders sit tapping at keyboards in near silence.

Jeremy Johnson, a US entrepreneur who co-founded and developed Andela, says the company is spurring the broader evolution of the Nigerian tech sector, where online payments companies and retailers have set the stage for rapid growth in ecommerce.

The government is happy, too: President Muhammadu Buhari has cited Andela in three speeches.

Though the company is based on the principle that “brilliance is evenly distributed” between rich and poor countries, Mr Johnson emphasises that the philosophy does not make it a charity. “The companies working with us are generally not doing it because of interest in social impact. They are doing it because they need real talent,” Mr Johnson says.

Now approaching the end of Andela’s four-year cycle for engineers, Ms Komolafe is scouting for jobs with other start-ups — and aims to become a founder too.

“Four years ago, most people would probably say, ‘I want to work in a bank, or in Shell or Chevron,’” she says. “Right now, people are saying, ‘I want to be developer — because then I make a change, and I can actually say that what I do helps people.’”

FT, Matthew Green

by FT, Matthew Green

November 8, 2017 | 6:18 pm
  |     |     |   Start Conversation

Big Read |  


What Nigeria must do before signing AfCFTA

Nigeria’s President Muhammadu Buhari last Wednesday gave a hint that he would sign the African Continental Free Trade Area (AfCFTA)...

Top 100 (300 x250)

MTN banner 2


Newsletter Fixed income