December 05, 2021 / 07:10 AM / by FDC/ Header Image
In the first 10 months of 2021, a plethora of foreign and local investors have invested a combined sum of N412 billion (bn) ($992 million) across 35 Nigerian startups. Similarly, Google has pledged to invest $1bn in Africa over the next five years aimed at promoting digital transformation and innovation across the continent.1 On the regulatory side, the Nigerian government has developed the Nigerian Startup Bill, which is on its way to the Senate for approval. If passed, this bill will empower the Nigerian tech ecosystem by fostering cooperation between stakeholders in the startup space and Nigerian regulators to ensure that subsequent laws and regulations are in line with the best interests of the sector. The aforementioned factors all allude to the fact that Nigeria, in recent years, has witnessed the advent of a new type of company, one more forward looking and technologically savvy than those of the past. These companies typically leverage technology to disrupt already established industries and offer a new standard of value to consumers. Are we in the golden age of the Nigerian start-up?
What really is a startup?
The term 'startup' may seem self-explanatory, and traditionally refers to a company still in its early stages of operations. However, this word has evolved to encompass much more. Usually, it is used as nomenclature to refer to young companies rooted in innovation and offering solutions to the flaws of existing products. It is also used to develop brand new classes of goods and services. These companies disrupt and transform the landscapes of whole industries. Companies like Uber, Airbnb and Robinhood are perfect examples.
Africa and Nigeria, the next frontier?
The global boom in startup popularity is not exclusive to Nigeria or the West, Africa currently has about 577 registered startup companies. Nigeria accounts for the second highest number of these at 144, just behind South Africa which has 154 startups. By far the most popular startup class in Africa are the tech startups, consisting of fintech, e-commerce, e-health, ed-tech and agri-tech among others. In 2020, African tech startups raised a combined sum of $701.41mn; $625.66mn (89.2%) of that went to the 'big four' African technology investment destinations - Nigeria, South Africa, Kenya and Egypt.
Nigeria's eminence as a forerunner in the African startup space, has been on a steady incline over the past few years. In 2020, a total of $150.36mn, 21.4% of Africa's total, was raised across 85 Nigerian startups. This put Nigeria in second place in terms of secured investments for 2020, just behind Kenya which raised about $191mn. The number of Nigerian startups that secured investments in 2020 represented a 77% increase from the number recorded in 2019, which was 48. Nigerian startup funding has risen every year since 2016, with 2020 representing a 22.8% increase from funding secured in 2019. This trend is projected to continue as estimated funding secured in the third quarter of 2021 alone ($248mn) surpassed the totality of funding secured in 2020 by 64.89%.
The standouts of Nigeria
In 2020, certain Nigerian startups distinguished themselves from the pack by raising prodigious amounts compared to the rest of the startup industry. For example, Flutterwave, a fintech company, raised $35mn in its series B funding round. Flutterwave would later go on to raise $170mn in its series C round in 2021, which would elevate the company to Unicorn status. Fintech company Bitfxt and e-health firm 54gene secured $15mn each in 2020. Rounding out the list of the biggest funding rounds for 2020 were fintech company Kuda, e-health company Helium Health, and finally fintech Aella Credit, which each raised $10mn.4 Four out of the six above listed firms are fintechs, this portends to the fact that fintech is undoubtedly the most preferred class to bet on for investors.
About $89.34mn, accounting for 59.4% of Nigeria's total startup investment in 2020, was raised across 37 fintech startups. Just behind fintech are the e-health startups, which raised $31.07mn (20.7% of total funding) across nine startups. E-commerce secured $10.71mn (7.1% of total funding) across eight startups, and energy secured $7.2mn (4.8% of total funding) across four startups.5 A seminal event that took place in 2020, within the Nigerian tech startup space, was the $200mn acquisition of the Nigerian fintech company, Paystack, by the IrishAmerican financial services giant, Stripe. This represents a mounting growth in international interest and confidence in the Nigerian and African financial technology ecosystem. The availability of startup funding in Nigeria has become especially robust in recent years, attributed to a vibrant local investor scene and increasing attention from angel investors and venture funds such as Y Combinator, Microtraction, and the Future Africa Fund.
The future for Nigeria and Startups
If Nigeria is able to fully leverage the tailwinds brought on by the success and huge popularity of the startup and fintech sectors, the country will be poised to experience a phenomenal amount of growth and development in a short period of time. These companies, apart from obviously creating employment opportunities, bring huge swaths of foreign capital and investments into the country. A number of them also help to solve burning societal and economic issues that impede the living standards of many Nigerians. The copious amount of startup firms with decent value propositions, and the availability of a large market with active demand for their service offerings, coupled with the large influx of foreign capital, all illustrate the fact that we are at the genesis of the golden age of startups in Nigeria