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In April last year, it was announced that Nigeria’s economy had overtaken South Africa’s, making it the biggest on the continent. This coincided with some notable happenings in the tech space. For one, arguably one of the largest pan-African startup initiatives, Demo Africa 2014, was hosted in Lagos for the first time. Microsoft Ventures also announced that it’s expanding its mission to facilitate startups to include the West African country last month. Not to mention the massive rounds of investments that went to Nigeria tech companies — only seconded by South Africa.
To learn more about what makes this environment so special, Ventureburn recently chatted to the Nigerian accelerator 440’s founders about what trends are shaping the startup ecosystem.
The 440 accelerator programme is a joint venture fund between 88mph and the West African-based L5Lab founded by Kresten Buch and investor Chika Nwobi. Last year, the organisation saw just under 500 entrepreneurs apply for the three-month in-take of which nine (see them here) of them got investments through the programme.
As is reflected in the initiative’s interesting cohort of startups last year, the scene is very different from what you’ll find in Nairobi, Kenya, Cape Town, South Africa or Europe for that matter. “Entrepreneurs are more aggressive,” challenges Buch.
1. Unique culture
One of 440’s startups is PrayerBox, which Buch describes as being a Twitter for religion. “Religion is very big in Nigeria,” he says. “For instance, it’s not unusual for most of the founders of the companies to pay a certain percentage of their salary to their churches.” This is only one aspect which makes the local culture so interesting.
“Religion and mobile is not a real combination you would make in Europe. We normally don’t venture into these types of social media companies but looking at Nigeria, it could actually work compared to some place like Silicon Valley. It’s a risky play, but an interesting one,” Buch notes.
Another dynamic that fits in well with the ecosystem’s culture is the fact that Nigerians are aggressive. Aggressive in the sense that they are much more competitive and hard-working than people are in Cape Town or Nairobi. “When you’re in Lagos, you’re there to work,” quips Buch. “They are more hungry and work a lot harder than Capetonians or Europeans.”
In a survey conducted by the Omidyar Network in 2013, 72% of survey respondents believed the establishment of entrepreneurial ventures in Nigeria is driven primarily by necessity.
“Side hustling is a big trend here. People who build tools to manage their side business tend to be successful. One of our startups has built a tablet app that helps people see what’s going on with their store,” he explains. Moreover, other businesses like major ecommerce stores Konga and Jumia have created marketplaces alongside their primary business models that have proven to be successful.
Konga’s online marketplace wants to give the country’s many offline businesses, salesmen and entrepreneurs a storefront in the cloud with the ability to scale and expand their services.
There’s no denying the fact that ecommerce is big in Nigeria. Just looking at the numbers, last year we saw a record amount of investments flow into the market. An estimated 2 million people are using etailers in the country, which could contribute to about 20% of the GDP.
Exhibit A: Nigerian ecommerce player Konga secured US$40-million from South Africa’s Naspers. One month later, its competitor Jumia got US$150-million from Africa Internet Group, backed by Germany’s Rocket Internet.
“There are two critical things that make ecommerce in Nigeria so popular,” Buch points out. “Firstly, the market size is much bigger than, say, South Africa. Secondly, the retail space is extremely under-developed. From a selection point of view, there’s a huge opportunity to fill that gap and compete with prices.”
Given these trends, getting to the market early is a wise bet. Thus, four of 440’s startups are ecommerce related, from women’s fashion, men’s fashion, online fruit retailer and electronics. All of which are also the most resource-intensive, with one or two of them having secured investments of up to US$120 000.
Another one of the accelerator’s participating startups, called GingerBox, delivers fruit to company offices all over Lagos.
“The retail space is very underdeveloped in the Nigerian market which means there are a lot of opportunities to sale specific things via online channels,” reiterates Nwobi. “This makes these niche services very attractive investments.”
Another dynamic Buch mentions is that, unlike South Africa where ecommerce is purely a convenience play, Nigeria actually thrives on this scalable system. “In Lagos, where there’s a massive amount of traffic and not a lot of options, online shopping seems a natural fit,” he says.
3. Establishing leaders
Role models are important for startup ecosystems. In the US there are the likes of Mark Zuckerberg, Steve Jobs and so on, which have all created near cult followings. Even in South Africa there are a couple of success stories firing up some of the budding startups. These include big exists like Fundamo, Gyft and the recent iKubu.
Not only do these all play a role in validating that there is a lot of talent locally, they produce leaders and role models with large pockets, sometimes keen to give back to the community.
“We’re starting to see some of the older startups like iRoko, Jobberman, Konga, Jumia and WakaNow start new companies,” Nwobi points out.
He further says that alongside these leading tech companies are new Venture Capital funds. “Last year we saw about six or seven other Venture Capitalists enter the scene, so there’s an increased supply of seed level companies. We hope to see between 20% and 30% of this year’s applicants to be more experienced startups.”
To name but a few, president Goodluck Jonathan last year announced a US$50-million small business fund and billionaire Tony Elumelu launched the US$100-million Entrepreneurship Programme. Other funds include GroFin, Sahel Capital, Actis Capital and of course 440.
Many of these figures are staggering. And they should be, considering that more than 80 million of Nigeria’s 170 million citizens living in or close to urban areas and the total consumption projected to rise to US$1.4-trillion a year by 2030. Though having said this, the country still faces a lot of challenges including the fact that an estimated 70% live under the poverty line.
Image via TechCabal