• Sunday, July 14, 2024
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Why Nigerian billionaires are absent in scramble for local tech startups’ equity

Billionaires

In an interview with Bloomberg in October 2019, Africa’s richest man, Aliko Dangote said he plans to invest 60 percent of his total profit from his massive commercial real estate outside Africa, including the US and the UK, in order to preserve the family wealth.

While Dangote’s plan is in good company with the position of many Nigerian billionaires, it is nevertheless, a clear departure from a global trend in which many of the world’s wealthiest individuals and families are investing in technology companies, as a way to bet on the future at a time when fewer startups are going public.

For proper context, six out of the ten richest people in the US made their fortunes through technology. They also have significant equities in several tech businesses. Whereas in Africa, only one out of the ten richest people on the continent grew rich from a tech-related business. Egypt’s Naguib Sawiris’ wealth comes from the telecommunications industry. Dangote, the continent’s richest individual made his money from selling cement.

According to Forbes’s most recent ranking, aside from Aliko Dangote who has remained at the number one spot in Africa, Nigeria’s billionaires on the top 10 list include Mike Adenuga, Femi Otedola, Folunsho Alakija, Theophilus Danjuma, Abdusalam Rabiu, Tony Elumelu, Orji Uzor Kalu, Jim Ovia, and Oba Otudeko.

Only 3 of them have some form of exposure to startups in the Nigeria tech ecosystem.

Tony Elumelu and Oba Otudeko through their respective organisations – Tony Elumelu Foundation and Honeywell Group – provide risk-free support for tech entrepreneurs.

The Tony Elumelu Foundation in collaboration with many international organisations has so far provided support to 3,054 entrepreneurs across 54 African nations with non-refundable seed grants of $5,000. Honeywell through Itanna, promises a four-month incubator programme for tech startups at its enterprise factory. Each cohort receives $25,000 in initial funding as well as mentorship.

Although these intervention programmes go a long way to help tech entrepreneurs bring their ideas to reality, they, however, fell short of positioning the benefiting startups as serious players in the highly competitive tech world.

A Nigerian tech startup with a grant stands little chance against a competitor backed by a series of investments from Silicon Valley.

Even back home, these local tech startups are unable to compete with foreign companies that play in the same space. For instance, OPay, a well funded Chinese tech company that provides fintech and ride-hailing services, is outspending its Nigerian competitors leaving them flat in the dust.

Though equity funding in the tech space has grown over the years, it is primarily led by foreign investors. Nigerian startups have also consistently represented on the top three leaders spots of the most funded African tech businesses. Stakeholders nonetheless have stressed the need for local investors to drive funding in the tech space.

Jim Ovia, chairman of Zenith Bank, is arguably the only billionaire on the list with sizeable equity in a Nigerian tech company, through his venture capital (VC) firm, Quantum Capital. Quantum Capital’s $5 million investment in TeamApt is the largest equity stake by a Nigerian VC and a billionaire in Nigeria.

But some analysts say Ovia is not new to the tech space.

Ovia’s dalliance with the tech ecosystem goes way back to the time of Omatek Computers as an early investor. Zenith Bank, the financial institution he founded, also invested in a cybersecurity firm, Cyberspace Network Limited where Ovia is presently the chairman. He is also the chairman of both the Nigerian Software Development Initiative (NSDI) and the National Information Technology Advisory Council (NITAC). He is a member of the Honorary International Investor Council as well as the Digital Bridge Institute (DBI).

Collins Onuegbu, vice-chairman of Signal Alliance and an angel investor with Lagos Angel Network (LAN) says the billionaires had in the past invested in early tech startups and may not be so active today because the lines are still blurred in the space with no clear path to profitability.

“An African High Networth Individual (HNI) will understand investing in a bank better than doing VC or a fund,” said Victor Asemota, African partner Alta Global Ventures and a tech expert. “Even when you manage to get them into a fund structure, you’ll end up doing so much reporting to them on “their money” you will regret it. I have a VC friend who told me that he gets more grief from his local LPs [local partners] than he gives his founders. Imagine if he wasn’t there as a buffer?”

Onuegbu says that just like Ovia, there is a possibility that the billionaires are investing but through instruments other than themselves.

“Some may not want their investments known, I don’t think we should generalize. also, it’s not as if they have a duty to invest in tech. Tech has a duty to prove that it’s a good investment for old money. Has it done that? There is a promise but that’s in the future,” Onuegbu.

In terms of being a “good investment”, a few startups have burnt their share of midnight candles and are now pushing their way to the top tech space on the continent. Thus, there is certainly a case to be made for more “old money” taking a big-equity slice in the tech space.

Flutterwave, a Nigerian fintech startup founded by Iyinoluwa Aboyeji and Olugbenga Agboola was recently ranked 97 among the top 102 startups that have graduated from US-based global accelerator, Y Combinator.  It is Africa’s only representative on a list of companies valued at about $150m each. The startup has raised a total of $20.1m to date, with the latest known round made in October 2018. Much of the rounds were from foreign VC firms.

Co-Creation Hub (CcHUB) founded by Bosun Tijani and Femi Alonge has also set the pace by becoming the first incubator in Africa to acquire another incubator. Early in 2019, Carbon, formerly Pay later also became the first local fintech startup in the lending segment to acquire another fintech firm, Amplify.