US investors and incubators explore Nigeria’s tech potential
Y Combinator has become the latest Silicon Valley investment group to run the rule over start-ups in the booming tech scene in Lagos, as US venture capitalists and incubators look to tap into the potentially huge consumer market in Africa’s biggest city.
YC’s visit, which follows Facebook founder Mark Zuckerberg’s recent Nigerian tour, is providing what one locally based VC investor called “flashlight value” for the country’s tech ecosystem — and a shot of optimism for the recession-hit nation of 180m people.
US tech giants Facebook, Google and Microsoft have made clear they are positioning themselves to grow rapidly across sub-Saharan Africa by connecting new smartphone users to their mobile platforms, apps and search engines.
But a number of VC investors are looking specifically to Nigeria’s commercial capital — a city of more than 20m people — as the next big emerging market, and exploring investments and links with local entrepreneurs and their start-ups.
Foreign capital has fled Africa’s top oil producer during the downturn sparked by the oil price crash. Investors in the once lucrative telecoms and retail sectors have been hit hard. But the tech sector — relatively free from cumbersome government interference and hurdles such as import bans — remains buoyant.
Nairobi’s “Silicon Savannah” is Africa’s established tech hub, but Lagos has become the first port of call on the continent for San Francisco-based investors hunting for the next possible start-up “unicorn”. The continent’s first company to be valued at more than $1bn — Africa Internet Group — was founded in Nigeria in 2012.
There is ample room for more investment. African tech start-ups raised $185m in 2015, according to GSMA Intelligence, which analyses data from mobile operators globally.
Although that figure is tiny compared with the numbers in African private equity deals, for example, GSMA argued in a July report that the investment ecosystem for tech start-ups on the continent is “increasingly active” and cited the range of companies funded and the size of the deals.
The size of VC deals is rising slightly, according to Africa Private Equity and Venture Capital Association, which said the average reported deal value in 2015 through the first half of this year was $6.4m, compared with $5.7m in 2013-14.
Encouraged by the success of Paystack, a Nigerian online payments platform that it funded, the Y Combinator accelerator was in Lagos to promote the intensive three-month course it runs twice a year in the San Francisco Bay area to support start-ups.
“I met 120 companies on this trip. There are so many billion-dollar potential businesses that I have seen in the past week,” said YC partner Michael Seibel.
Nigeria’s falling currency, due mainly to low oil prices, means that even a very small investment in dollars goes far for tech start-ups in Lagos, according to Maya Horgan-Famodu, founder of Ingressive, an investment group that bills itself as a connector of African entrepreneurs and US investors.
“It’s less expensive to invest now, and on the continent there is a dearth of capital but a ton of fast-growing opportunities,” said Ms Horgan-Famodu, who organised YC’s visit to Lagos.
Some investors based in Lagos question whether the model of bringing Nigerian entrepreneurs to California is the best way to grow their start-ups to a bankable level.
On-the-ground mentorship is needed, said Adriana de la Cruz Duffo, who helps Nigerian start-ups raise funds and seek international backers.
But the interest of American investors in funding start-ups is good for the tech scene in a country where “having a good product isn’t always the path to success,” said Eghosa Omoigui. He founded technology-focused EchoVC in Lagos, after moving back home to Nigeria following a decade spent investing in Silicon Valley start-ups.
Mr Omoigui said he had to “unlearn a lot from the Valley” — such as that having a tech co-founder is not essential like it is in the US. One of his companies is Printivo, which delivers business cards and other printing orders made online. The start-up is showing 600 per cent year-on-year growth since EchoVC invested in it about 18 months ago, he said.
For Mr Seibel, the Lagos scene represents a chance for Y Combinator — an early backer of Airbnb and Dropbox — to help in areas it knows best in the start-up world. “I’m not looking for these mature, venture-backable things,” he said. “I’m looking for tech talent that is going after big markets and showing early demand.”
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