Here’s Why Lagos, Nigeria is Africa’s Silicon Valley
This is a story you may have heard before: started in a college dorm in 2009, Jobberman has grow into one of the most popular job search engines on its continent with more than 1.5 million monthly visitors. The team secured investment capital, becoming one of few venture-backed companies in their region. The company was acquired last month by OAM, a portfolio of online marketplaces valued at $167 million.
But even if it sounds like the Silicon Valley dream, it’s taking place far away from San Francisco. Jobberman’s founders didn’t meet at Stanford, but at Nigerian University, and the customers they serve are not coastal Americans but Sub-Sahan Africans.
Does it seem like a fast-growing technology startup out of Africa doesn’t fit the “narrative” of the continent? You’ll be surprised: the hits out of Lagos keep on coming. Below are some of the best.
IrokoTV was started in 2010 and quickly dubbed the ‘Netflix of Africa.” The team has closed its latest round of venture capital, reaching a USD $30M valuation with the new backing of US-based hedge fund Tiger Global. It is now the world’s largest online platform for African entertainment, and one of the world’s most respected African technology brands, in addition to being one of the most well-funded. It’s at the heart of Africa’s exciting technology space, with founder Jason Njoku himself becoming a Nigerian angel investor with the launch of the SPARK fund.
The founder-investor revolving door is alive and well beyond the Valley, too.
Supermart was started last year in Nigeria, for the first time letting shoppers purchase groceries from leading supermarkets and local food markets from their phones. It has now become Nigeria’s largest online grocery delivery service as a result of its convenient service offerings and the investment from iYa Ventures, a North-America based venture capital firm that invests in technology companies in Africa. Even the notorious Lagos traffic has eased up as a result — which is no small feat.
Andela, also founded in 2014, has taken on venture capital rocket fuel — about $3 million so far. The truly impressive part isn’t just the sum, but from whom it was collected: Steve Case, Omidyar Network, Founder Collective, Rothenberg Ventures, Learn Capital, Melo7 Tech Partners, and Chris Hughes. Using its Lagos-based ‘campus’ and New-York office, Andela’s mission is to “find the brightest young people in Africa and give them the rigorous training and mentorship needed to thrive as full-time, remote developers for companies around the world.”
Nigerian companies like Andela are focused not just on profit, but also on impact.
Hotels.ng started in Q4–2012 as “a small scrappy startup tech firm” and, with the blood, sweat, and tears characteristic of great founders, has grown into the largest online booking agency for Nigeria’s 170 million residents. Supported with $225,000 from Jason Njoku’s SPARK in 2013, Hotels.ng is an example of a Nigerian venture supported by Nigerian investors. Just weeks ago, Hotels.ng brought even greater glory to Lagos with the announcement of having closed a $1.2 million Series A round from EchoVC Pan-Africa Fund and Omidyar Network.
As successful Nigerian entrepreneurs begin mentoring and investing in Nigerian startups, the ecosystem will begin to become self-sufficient.
These are just a few leading examples of the multitude of growingly successful tech startups in Lagos. The city is the economic capital of Nigeria — the country with the largest economy and population in Africa, and in which an increasing entrepreneur-investor turnaround is creating immense value in technology ventures that are creating robust ROI and meaningful social impact. “Africa Rising” is no PR stunt — and while Nigeria is at the forefront, the heart of the rise is Lagos.
African Founders: Success Against all Odds
The tenacity and enterprising spirit of Nigeria’s entrepreneurs is impressive, and the ventures that are sprouting out of an area facing the challenges typical of a developing nation are getting a lot of investor attention. I found their spirit captured perfectly in a piece from Albert Camus:
“In the midst of winter, I found there was, within me, an invincible summer. And that makes me happy. For it says that no matter how hard the world pushes against me, within me, there’s something stronger — something better, pushing right back.”
However, tenacity alone will not be enough to rally venture funds towards Africa — the promise of ROI will.
While robust, getting involved in Nigeria is not a plug-and-play proposition for venture capitalists. Having the most in common with Silicon Valley’s fifteen hundred square miles of innovation of anywhere in Africa, Lagos is similarly a city of paradoxes.
CNN recently crowdsourced opinions on Twitter, using the hashtag #CNNLagos, “to get a lay of the startup landscape [in Lagos].” It’ll make you both somber and laugh out loud: the resilience and cleverness demanded of Nigeria’s entrepreneurs to thrive in this country is incredible, especially in surmounting unimaginable man-made challenges.
Related Read: The VC Due Diligence Guide to Frontier Investing
So how can investors looking to become involved in Africa and achieve high ROI and/or social impact get involved in Africa’s Silicon Valley? How can these investors — perhaps like yourself — avoid the “challenges” highlighted by the CNN survey?
The answer is never easy, but from my past experience providing financial services to businesses in Nigeria, my ongoing experience in managing my own business in Lagos, and from my interactions with other entrepreneurs and stakeholders in the Lagos startup community, I want to lay out some pointers to finding and backing the potential winners.
How to Find and Back Africa’s “Rocket Ship” Ventures
Strong background blended with requisite characteristics: A peep into the background of the founders/teams behind all the Nigerian startup examples mentioned above would reveal that they all had strong and diverse backgrounds in both work and academia, as well as the requisite traits with which to nurture world-class startup firms and adapt to overcome local challenges. Let’s explore this in more detail.
Jason and Bastian of IrokoTV have a superb blend of street and formal education as well as the infinitely elastic attitude to build a successful pioneer-status startup business — being able not just succeed in spite of building in a developing country, but in being able to capitalize on the chaos.
Look for a blend of street and book smarts, especially if the former was forged in Africa.
Mark Essien of Hotels.ng is an engineer at heart and arguably one of Nigeria’s most impressive technology founders. After his bachelor’s and postgraduate Computer Science education in Germany, he built software products and companies that have been bought by large companies in Europe and the US such as Walt Disney and the US military.
As always, look for past patterns of success, and the ability to both build and sell.
Ultimately, as an investor, you are investing in the individuals behind the idea, and you’ve got to be absolutely certain that your resources will be an enabler for them. The entrepreneur must show that he or she has what it takes to use investment and other resources to make it worthwhile for the investors.
In his latest Letter From California post in The New Yorker, Tad Friend quoted Reid Hoffman, LinkedIn Co-Founder and Greylock Partners venture capitalist, as saying “I look to see if [the entrepreneur] has a marine strategy, for taking the beach; an army strategy, for taking the country; and a police strategy, for governing the country afterward.” So, Lagos, just like Silicon Valley, is hardly the place to bet the farm on untested or unproven personality.
Look for founders with a clear plan for the beachhead, the country, and for sustained growth — but adapted to the nature of Nigeria, not North America.
Formidable partnerships: Given the myriad of global and local challenges to overcome to build a business that survives and thrives, it is absolutely critical that startups looking to attract investment have formidable partnerships either already established or at an advanced stage of negotiations. This further lends credence to the need for strong background which would naturally provide the personal and professional networks. Founders will need to tap these networks for resources to gain traction, market share, human capital, and credibility towards overcoming all the peculiar local hurdles hell-bent on consuming startups.
Investable startups need channel partners for market access and credibility. Back those who are far along in their negotiations, not just starting the conversation.
The founders of Supermarket.ng were directors involved in the operations, from inception in 2012, of Jumia Nigeria — Nigeria’s no. 1 online retailer backed by Rocket Internet PT, the world’s largest internet startup conglomerate. This experience, along with their rigorous academic education, provided the vital resources and supply chain network to build Supermarket.ng
The importance of critical partnership can also be seen in Andela’s model as a global talent accelerator. In attempting to produce world-class developers from countries that aren’t exactly known as technology hubs, the company needed to have strong relationships with global companies which are competing for technical talent in order to succeed.
Rapid & Aggressive Scalability: African startups nearly never command millions of dollars in valuation at inception, nor will they easily reach the standard Western transaction sizes that tempt typical investor funds — and especially not in a short timeline.
Thus, global investors that hope to succeed here in Africa’s Silicon Valley must have the patience and long-term value mindset to nurture a strong startup’s potential with seed funding of between $300k & $2m into one with multiple-$100m funding in 1–3years.
IrokoTV and Hotels.ng corroborate this viewpoint. In addition, Konga.com has obtained almost $200m funding in under three years, starting with nothing.
The key insight is to correctly evaluate whether the company’s product or service has rapid scalability to grow into the desired valuation range. In the earlier mentioned New Yorker post, Marc Andreessen opines, “the key to investing is to be aggressive and to fight your instinct to pattern-match.” Investing in African startups demands the same or even more aggression than Silicon Valley.
Back companies whose growth is on a strong trajectory compared to local counterparts, and buy in aggressively for up to 3 funding cycles.
DDD (Detailed Due Diligence): In most African countries, there’s no Social Security Number nor is there a quick identification search process. Thus, Due Diligence (DD) as it is known and taught is never going to be sufficient to closing viable investment deals. Hence, the idea of DDD.
For a deep dive, I find the approaches of Ingressive and RENEW Strategies very useful in this regard as an entry platform into Nigeria and other African countries; otherwise, highly trusted referral may have to do in terms of the opening volley.
One of the undeniable deductions from the CNN “survey”, although unscientific in form: while startup life is really hard, it is definitely much harder in Lagos — as well in most other emerging markets. The risk probability of a typical Nigerian startup thus theoretically looks like it’d yield only negative return for investors’ capital. Whilst this deduction could be true and graveyard failure examples abound to corroborate it, another deduction weaved into the preponderance of these opinions sampled by CNN is that “the potential is endless — that the opportunity is buried in the chaos!”
Adapt your due diligence process to what is available, what is reasonable, and what is persuasive in terms of alignment with your investment thesis. Traditional DD processes may simply falter here.
The above pointers along with global startup investment best practices would help position investors to finding those viable investment opportunities in developing African countries, especially Lagos, the continent’s Silicon Valley.
The Decentralization of Innovation
Now, some parting food for thought from an investor also looking to the rest of the world for innovation:
“Technology gives us superpowers, makes us smarter, more powerful, happier.
Would the world be a better place if there were fifty Silicon Valleys?
“Obviously, yes. Over the past thirty years, the level of income throughout the developing world is rising, the number of people in poverty is shrinking, health outcomes are improving, birth rates are falling. And it’ll be even better in 10 years! Pessimism always sounds more sophisticated than optimism — it’s the Eden-collapse myth over and over again — and then you look at G.D.P. per capita worldwide, and it’s up and to the right. If this is collapse, let’s have more of it!”
-Marc Andreessen
Jason Njoku, CEO of IrokoTV & which owns SPARK said, after a nearly 10x return from the seed investment in Hotels.ng,
“Closing on this funding round is a big win, not only for Hotels.ng, but for all African internet start-ups. It is proof, if any more were needed, that the Internet market in Africa is extremely appealing for VCs, more of whom are now looking to create value and build big on the continent”.
Now’s your chance to get involved in the rising tide.
Written by Olumide Obasemo for Startup Grind.
Olumide is the Co-founder & CEO of Essential Infrastructure & CEO of NFC Ltd. He holds an MSc Degree in Infrastructure from The University of Nottingham & a Bachelor’s degree in Civil Engineering from Obafemi Awolowo University. Find him on Twitter and LinkedIn.
