The year is 2001 and the federal government under President Olusegun Obasanjo has just given the approval for an international auction process for three national mobile phone licences.
Potential bidders including Econet and MTN would not only need to raise money, they must have a member of the bidding consortium who is an experienced GSM operator.
Econet met the requirements because a consortium of 100 percent local investors including two state governments (Lagos and Delta), leading Nigerian banks, and high net worth individuals (HNIs) pooled resources together to raise the $285 million licence, which at the time was the most expensive licence ever issued on the African continent.
Although Econet did not quite live up to the investors’ expectations, the company has changed many hands over time and it’s today known as Airtel, owned by the Bharti Group. The funding, nevertheless, was the one last time Nigerians took the funding initiative and executed it without overseas participation.
It is also the last time local investors have totally dominated investment in a technology firm setting a record of more than $200 million. After Econet, seven Nigerian banks tried to replicate less than a fraction of the investment in Interswitch when they raised N30 million in 2002 for the take-off of the switching and payment processing company. The seven banks later sold 75 percent of their stake to Helios Investment Partners which earned the banks about 1400 percent return on investment.
While states went to bed and have stayed asleep on funding tech firms, banks and some young Nigerians have in recent times written a few cheques to some early-stage startups but none so significant as to compete with the dominant foreign investors.
Funding in the tech space has surpassed record levels over the years with the dominance of foreign investors continuing to grow on a yearly basis. For instance, while foreigners controlled 87.8 percent of funding in 2018, they increased their stake to 95 percent of the total funds raised in 2019.
“It is a shame to Nigeria that we allow our tech space to be controlled by foreigners,” Victor Asemota, a member of the Board of PlaceFund told BusinessDay.
Nigeria sits prominently on the list of top ten richest people in Africa. The country is home to the richest black man in the world and it also occupies the two spots in the top three richest people on the continent.
According to Forbes’s most recent ranking, aside from Aliko Dangote ($10.1 billion) who has remained at the number one spot in Africa for seven years, Nigeria’s billionaires on the top twenty list include Mike Adenuga ($7.7 billion), Abdulsamad Rabiu ($3.1 billion), and Folorunsho Alakija ($1 billion).
Apart from Mike Adenuga who owns Glomobile, Nigeria’s third-largest telecommunication company, the rest billionaires have no form of exposure to the Nigerian tech ecosystem. Unlike MTN Nigeria which often collaborates and sometimes provides technical and financial assistance to local tech startups, Glomobile has practically played a silent role in the development of the community.
Jim Ovia, chairman of Zenith Bank, is currently the only billionaire with direct equity in a Nigerian tech company, through his venture capital (VC) firm, Quantum Capital. Quantum Capital’s $5 million investment in TeamApt in 2019 is the largest single equity stake in tech startups by a Nigerian investment firm and a billionaire in Nigeria.
As Nigeria’s billionaires dilly-dally, startups are receiving increasing attention from local venture capitals firms backed by mostly Nigerians in the diaspora.
“We have to back our own. We don’t want to be biting our fingers in decades to come. Moreover, several events have further cemented the role of local capital even in matters of corporate governance,” Kola Aina, founder of Ventures Platform one of the VC welcoming diaspora funding in the country. The company has funded over 20 local companies in Nigeria and Africa since it was founded in 2016.
In a Twitter thread in June, Asemota explained that foreign dominance in Nigeria’s tech ecosystem is akin to relinquishing the power of innovation.
“Power is the one who determines if you live or if you die. Power is resources at the early stage but it becomes the market at later stages. Those who provide resources at the early stages want to control the market at the later stages,” Asemota said.
He says, however, that local investment does not necessarily have to come from high net worth individuals (HNIs). Iyinoluwa Aboyeji, a co-founder of Andela and Flutterwave, recently revealed how his team was “politely” refused funding by an investment team representing a Nigerian billionaire, at the early stage of Andela. Some other local investors and government officials also turned down the opportunity to invest in the company because they erroneously thought it was a nonprofit.
While diaspora has a key role to play, there are the communities that Asemota says should typically be the first investors in a tech firm.
“Banks are showing up on cap tables and with the new regulation will soon be able to invest in venture funds. We need to focus on enabling more of that,” Aboyeji said.