Nigerian start-ups cut the biggest slice of a record $4.2 billion investment in Africa tech companies in 2021, marking a pivotal year for the ecosystem experts believe is likely to continue in 2022.
Importantly, the New Year will see the companies with millions of dollars in investments pushing to expand user adoption and solving hard problems in the Nigerian society, experts say.
A report compiled by Maxime Bayen, senior venture builder for Catalyst Fund at BFA Global, and Max Cuvellier, head of Mobile for Development, GSMA, shows that $4.2 billion came from over 800 fundraising deals completed in 2021.
Nigerian start-ups reportedly raised a total of $1.7 billion and contributed the most number of unicorns with the likes of OPay and Flutterwave joining the league this year.
Henry Mascot, the co-founder/CEO of Curacel, an African technology start-up creating innovative infrastructure for the insurance sector and which raised $450,000 in March, told BusinessDay that the main contributor to the increased attention in 2021 was due to three high-profiled exits that took place towards the end of 2020.
One of the exits was the acquisition of Paystack by Stripe. ROAM also acquired Jobberman. These acquisitions brought the validation foreign investors who were once sceptical of the possibilities of exit for African businesses were looking for. In 2021, the investors doubled down on funding the tech companies in the country.
For Femi Adeyemo, founder/CEO of Arnegy, a distributed utility company, another reason there has been so much success over the past few years is down to tackling issues around access to essential goods and services. This should remain a core part of the company’s strategy in 2022.
While the number of very large deals grew in 2021, the number of smaller (pre-seed) deals has exploded. 2021 also saw an increase in the number of organisations actively investing in startups in Africa, which doubled from 2020 to reach more than 810.
“During the second half of 2021, we have seen a large number of Africa-focused VCs closing new funding, meaning this additional money will be deployed over the coming years,” Maxime Bayen says. “I am quite confident the trend we have seen in 2021 will continue in 2022. When you compare with other regions, in 2021, while startups in Africa have raised $4.2 billion, startups in India have raised more than $27 billion and startups in Latin America closed over $12 billion. Things have just started for the continent.”
Funding links to market maturity
Ignatius Akpabio, head of growth and strategy, TradeDepot, says the funding is indicative of the maturity of the tech ecosystem in Nigeria, which now attracts a material share of high-growth capital and top-quality talent.
“Having multiple well-funded players all playing their part in driving innovation is a good sign of how far the ecosystem has come. There is, however, still quite a journey to travel and we are excited to see what the coming years will bring,” Akpabio states.
Celestine Omin, chief technology officer at Alta Labs, says the maturity of the ecosystem was evident in the increased involvement of local investors in the funding scene.
“We have grown to the point where local investors are taking as much as 50 to 70 percent in investment rounds as opposed to when almost everyone in a particular round was from abroad,” Omin notes.
For Iyinoluwa Aboyeji, founder/general partner at Future Africa, a fund that connects investors to mission-driven startups, the highlight of the investments in 2021 is the diversity and spread, which was not the case 10 years ago when the ecosystem was just beginning.
“Founders with more diverse backgrounds are getting funding,” he states. Noting, “There is an explosion of remote work and technical talent. The government has even acknowledged our contributions by working with us to do more with the Nigerian Startup Bill (NSB). Quite a lot has changed and I hope the current progress continues.”
The NSB is a joint initiative by Nigeria’s tech startup ecosystem and the Presidency to harness the potential of the digital economy through co-created regulations. The bill plans to ensure that Nigeria’s laws and regulations are friendly, clear, planned, and work for the tech ecosystem.
In December, the minister of communications and digital economy, Isa Ali Pantami said it had been approved by the Federal Executive Council and was now making its way to the National Assembly.
Aboyeji says he expects that the bill will be passed by lawmakers in 2022 and that states across the country will domesticate the NSB.
Diverse funding, diverse focus
The funding diversity meant that startups in other sectors of the Nigerian economy also got attention from investors. Some of the sectors include healthcare, energy, automotive, education, and agriculture. Some of the funding announcements in these sectors were record-setting. For example, uLesson’s $15 million Series B raise in December was the largest investment in an edtech company in Africa.
Ikenna Nzewi, CEO/co-founder of Releaf, an agritech startup that landed $4.2 million in funding in September 2021, says the focus should now be on reaching more consumers located outside the cities like Lagos, Abuja, and Port Harcourt. While these cities represent immense opportunities, the jobs and wealth they see are limited to the cities.
“Our rural communities already play a key role in providing the largest proportion of jobs and an increasing share of the food we eat. By innovating around the opportunities that already exist in these communities and developing technology solutions for longstanding problems, we can catalyse long-term growth across the nation,” Nzewi says.
AgroEknor, a floriculture company that exports hibiscus flowers grown in Nigeria, got funding from Aruwa Capital Management. Timi Oke, AgroEknor’s executive director, Operations and Strategy, tells BusinessDay that increased adoption of technology in the agric sector could rake in an additional $500 billion to the global gross domestic product by 2030. Nigeria and Africa can contribute a significant proportion of this due to the nature of the challenges that currently impact the agriculture ecosystem.
However, with all the funding, nearly all the tech companies face tough business operations with Nigeria’s grossly low power generation capacity. Currently, 43 percent of Nigerians do not have access to electricity from the national grid. The World Bank estimates the country loses $26.2 billion each year due to a lack of reliable power.
Femi Adeyemo states the COVID-19 pandemic led many people to work from home and made them realise the critical place of reliable energy sources. This led to a rise in demand for Arnegy’s services. The company has now developed a proprietary Solarbase platform on the cloud to enable full access and monitoring of the database to ensure there is no disruption for customers when they are working from home.
Read also: Alitheia hits $100m funding target to power female-led African startups
Looking ahead
Although there are concerns in the founders’ community that the $1.7 billion raised might be too much and tech companies may not be able to make returns, Henry Mascot says it is still good for the ecosystem.
“Time has also shown that investors still win even if not all of them,” Mascot states.
Going forward, a few areas that tech companies can focus on in 2022 include automation, leveraging artificial intelligence to drive business efficiency and continuity, according to Adeyemo. This is especially useful for generating data that provide an in-depth analysis of the markets the companies are in. He sees the complete digitalisation of businesses as being able to provide improved customer experiences, where the entire customer journey is seamless, easily tracked, and measured.
The founders acknowledge that COVID-19, which continues to be a major headache for the rest of the world, would play a role in the direction of funding in 2022.
However, Timi Oke says there is too much momentum behind the current wave of innovations with signs suggesting that the investment attracted in 2021 will continue to rise in 2022.
Mascot and Nzewi also agree that the pandemic will not reduce capital allocation; instead, it will reinforce the need for it. In 2020, the lockdown imposed as a result of the pandemic only led to increased adoption of tech innovations and accelerated digitisation.
“Some reports actually predict a sharp acceleration with funding for African tech companies expected to exceed $10 billion in 2025, and we believe the current trends we observe support this,” notes Akpabio of TradeDepot.
The major need still lies in using technology to improve the quality of life of millions of Nigerians. For long-term impact, Aboyeji and Akpabio say it is critical to partner the universities and the broader academic institutions to train more talent as well as leverage data and tools that are emerging across different sectors to drive further innovation, refine products and services, and reach new users.
There is also the intersection of technology and government policies. In 2021, many tech companies began to prioritise engagement with regulators. Some companies like Flutterwave went as far as bringing experienced people to handle new positions that interface with the government.
“We need to invest in quality data for targeting our customers,” he says. “We need to invest in product design and research that enables us to build products that are culturally aware and meet the people where they are. We need to partner with legacy companies to improve our distribution channels and build trust with consumers. There is so much to do so we can serve the people.”
