Nigeria’s tech startups this outgoing year were the shining toys of every foreign investor eyeing the Nigerian technology market, as they pulled in investments and ended the year as the top investors’ choice in Africa.
Unsurprisingly, experts whipped out their crystal balls to predict a bigger splash in 2020. No one saw COVID-19 in the ball, but it happened.
The impact of the COVID-19 on industries and businesses has been devastating. The government, which was supposed to provide a cushion in terms of financial bailouts for businesses, could not do so much because it was busy battling to save the economy from total collapse. But the impact was not exclusive to Nigeria; it affected investments and economies across the globe as well.
AfricArena, an accelerator, in its funding report released in the second half of 2020, projected that venture capital funding is likely to drop by at least 40 percent or about $800 million by the end of 2020. It is the first time in the last five years that funding from a current year will fail to surpass the previous year. In 2019 alone, the tech space on the African continent reached an all-time high of $2.02 billion in equity funding, representing 74 percent year-on-year growth with 250 equity rounds and an average deal size of $8.08 million. Nigeria took the biggest share of the investments.
Nonetheless, most stakeholders in the industry say it was not such a negative year.
“The technology industry fared better than most other sectors in the economy due to COVID-19,” Collins Onuegbu, executive vice-chairman, Signal Alliance, told BusinessDay.
Generally, many tech startups had a lot of growing up to do in 2020. By growing up, many had to shift their perspectives and strategies from looking for investments for survival to actually providing real solutions that were relevant to people’s lives and actively engaging regulatory policies.
For the past two years, Interswitch, for instance, has been seeking an opportunity to become a publicly listed entity so it can secure more funding to expand its products across the world, and had to come up with a different strategy. The company not only prioritised pushing its Quickteller as the go-to payment platform during the lockdown, in September, Mitchell Elegbe, CEO of the company, said Interswitch was resuming startup investment.
The fintech company launched a $10-million venture platform in 2015 through which it had invested in different Africa-focused companies. The first fintech unicorn now says an IPO is only one of the many options it has on the table.
“We have private equity investors and at some point in the life of the business, they want to exit,” Elegbe said during a presentation at TechCrunch 2020 conference. “When it is time for them to exit there are various options on the table and an IPO is an option.”
Flutterwave and Paystack were also forced to learn by the lockdown to diversify their portfolio investments. For Flutterwave that meant seeking new territories in the e-commerce industry with the launch of its Store, which allows merchants to virtually display their goods and get paid all in real-time. Beyond e-commerce, Flutterwave tips the scales in pushing visibility. The company was very visible during the BBNaija 2020, the largest reality programme on television this year. It also pitched its tenth with protesters during the EndSARS protest that swept through the country, even donating N1 million to the protesters.
Paystack also launched an e-commerce store but it did more than that. Its two founders, Shola Akinlade and Ezra Olubi signed what could be the deal of the year in the tech ecosystem, with US-based Stripe, the second-largest digital payment company in the world. The $200 million deal effectively transferred ownership of the company to Stripe while the two Akinlade and Olubi stayed as the leaders of the company to take it across the length of Africa.
While Flutterwave and Paystack were busy diversifying their business, the Co-Creation Hub (CcHUB) was consolidating its position as the largest accelerator in Africa and making inroads in education with the acquisition of eLimu, a digital educational content provider in the East Africa region. eLimu’s acquisition was completed by iHUB, which CcHUB acquired in September 2019.
Healthtech startups like Lifebank, 54Gene, Flying Doctors, and Helium Health emerged from the early days of the COVID-19 outbreak and became the rallying point for the various COVID-19 responses. During that period, Lifebank expanded to Kenya while 54Gene extended its funding chest with $15 million from Adjuvant and also secured a partnership to open a first-of-its-kind genomic laboratory in Nigeria.
“The opportunities created by COVID-19 saw investments that were targeted at companies that created value during the pandemic,” Onuegbu said. “E-commerce, edutech, health tech all contributed to helping the country manage its response to COVID-19. Even traditional institutions from government to banking relied on tech to deliver services to customers. Tech companies became the lifeblood of a struggling economy.”
Beyond expanding businesses and ensuring people are actually using their services, tech startups also faced significant regulatory pressure.
“The policies were long in coming, the approach may have been a little crude but it was expected, so that did not affect much,” Adedeji Olowe, CEO of Trium Networks, a venture capital, told BusinessDay.
Aside from the CBN, which has been the most active regulator in terms of issuing out guidelines, the Securities and Exchange Commission (SEC) was very active this year in releasing regulatory documents in new segments of the tech industry such as crowdfunding, cryptocurrencies and digital trading of securities. Just in December, the SEC placed a restraining order on Chaka Technologies for advertising and trading in foreign securities or stocks without a licence.
“The policy environment has been quite busy. Mostly reacting to the increasing influence of technology on the economy. One area of note is the increasing effort to build a national identity management system. With more Nigerians moving online and transacting online, it becomes easier to use policy and technology to drive national identity,” Onuegbu said.
Iyinoluwa Aboyeji, co-founder of Future Africa, Flutterwave and Andela, sees the increased regulatory heat on the tech ecosystem as just beginning, hence why tech founders should actively engage politics. Tech leaders around the world are getting their fair share of regulatory pressure.
“I hope Nigeria’s tech founders are seeing what is happening to our idols, Mark Zuckerberg and Jack Ma. We should learn from it. We cannot afford to leave politics to the politicians. I hope and pray that we are ready to use all our skills, money, and access to ensure that by any means necessary, the government that succeeds this one answers to us,” he said.
