Nigerian Tech Industry Report 2018

NIGERIA TECH INDUSTRY REPORT 2018

For enquiries and comments contact: Innocent Unah Tel.: +234 810 639 5676 Email: innocent.unah@businessdayonline.com Kelvin Umweni Amadin Tel.: +234 903 437 1149 Email: umweni.kelvin@businessdayonline.com

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NIGERIA TECH INDUSTRY REPORT 2018

NIGERIA TECH INDUSTRY REPORT 2018

NIGERIA TECH INDUSTRY REPORT 2018

BusinessDay Research & Intelligence Unit (BRIU) is a Strategic Business Unit (SBU) within the BusinessDay Group, publishers of Nigeria’s leading business & financial newspaper. BRIU operates as an independent department within the organisation. The Unit’s products and services comprise: • Cutting-edge business intelligence and market research studies; • Industry analysis & reports; • Feasibility studies & business plans; • Client-specific research projects and strategic planning; and • Polling and surveys covering industries and business segments.

Our areas of focus include market and industry research, data mining, and economic and financial analysis. BRIU’s sole purpose is to provide you with cutting edge insights with tried, tested and proven economic forecasts.

Our clientele comprise state governments and federal government agencies, as well as private sector businesses. BRIU has consulted for across banking, insurance, financial services, manufacturing, healthcare, ICT, etc.

Our team of research analysts also contribute business intelligence and economic research articles to the BusinessDay newspaper. We are committed to providing you with the latest insights and perceptions, as well as current trends and developments on business and sectorwide issues within our economy and nation space.

For further details and enquiries, please contact the Authors of this Report. © August 2018 – All rights reserved

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NIGERIA TECH INDUSTRY REPORT 2018

4 Contents

Pages

Objectives of the Report

5

Executive Summary

5

Overview of the Global Tech Ecosystem

8

Africa’s Tech Landscape

14

African Tech Landscape: Funding, training and support

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Nigeria’s Tech Ecosystem: blossoming in bliss • Tech Developments in Lagos • Tech Developments outside Lagos • The Tech Space of Northern Nigeria: galvanising a shift from the old • Tech Hubs of South-South: more than just the oil • Tech Hubs in the South-East: driving escape from the rudimentary • Tech Hubs in the South-West: buoyed by Ogun State • Funding Options For Tech Start-Ups • Bootstrapping • Angel Investment • Venture Capital • Crowdfunding • Initial Coin Offering (ICO)

18 20 23 24 25 26 27 28 28 28 28 30 31

Investors In The Nigerian Tech Ecosystem • Lagos Angel Network • Leadpath Nigeria • Venture Capital for Africa (VC4A) • Omidyar Network • Y Combinator (YC) • 500 Startups • EchoVC Partners

32 32 32 33 33 33 34 35

Tech Hubs In Nigeria • E-Commerce In Nigeria: Growth Drivers And Challenges • Financial Technology (Fintech) In Nigeria: The Opportunities And The Challenges

37 38 40

Exploring The Level Of Government Participation In The Tech Ecosystem

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Nigerian Tech Sector: Key Findings From Briu Survey • Sources of Fund • Foreign or local funder: who is a better suitor?

• Causes of Tech Start-up failures • Problems of Tech Hubs • Factors deepening fintech penetration in Nigeria

49 49 50 50 51 51

Pertinent Views From The Nigerian Tech Space

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NIGERIA TECH INDUSTRY REPORT 2018

Objectives of the Report

The Nigerian tech space offers vast opportunities for both investors and tech start-ups. This report seeks to ascertain the value of, and opportunities in the Nigerian tech space; it also examines the challenges faced by tech start-ups, tech hubs, and other tech stakeholders, which may stall the growth prospects of the country’s tech ecosystem.

Additionally, the report offers insights to investors on the potential investment opportunities in the sector against the background that many of these start-ups are already creating disruptive solutions for various sectors of the economy including financial services, commerce, insurance, health care, and education.

Tech Hubs

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6

Executive Summary

Tech is the new industry that seems to promise a boom to many economies across the world today, and Nigeria is gradually cashing in on the industry’s prospects to accelerate growth and enhance development. Innovations in the tech space has, for instance, revolutionised commerce, financial services, and other industries through e-commerce and fintech applications. Accordingly, tech start-ups and the various tech hubs scattered across the country are the change agents catalysing the technological innovation in the industry in Nigeria.

Lagos is the headquarters of the tech industry in Nigeria, with its share of the sector valued at near US$2billion1, making it the largest in Africa. With the visit of Mark Zuckerberg (Facebook founder) to Lagos on August 30, 2016, and the promise he made to build a tech hub in the country, investors are gradually developing interest in the tech

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Global Startup, 2017

Nigerian space. Google and Meltwater are already in front in the race to exploit the opportunities of tech industry in Africa’s largest economy.

The global recognition of Nigeria’s tech ecosystem was accelerated with the founding of the Co-Creation hub in Yaba, Lagos Nigeria. Other regions of the country are equally making giant strides to develop a tech community as they seek to replicate the successes of the Lagos Co-Creation hub. This has led to the proliferation of different hubs in the northern, south-southern and south-eastern parts of the country.

For instance, the opening of nHub in Jos, the first tech hub in the northern region of the country, has served as a headwind to tech development in that part of the country. PortHarcourt, Uyo, Enugu, and other cities are also leading the trail in evolving an innovative way of mobilizing tech solutions for addressing different socio-economic problems.

NIGERIA TECH INDUSTRY REPORT 2018

A BRIU survey revealed that there are several investment opportunities in the sector including the need to deploy innovative measures to tame some of the problems in the country such as poor payment platforms, low internet connectivity, epileptic power supply, and agricultural development etc. Techpreneurs are already massively working to solve these national challenges. On the other hand, the sector faces a number of challenges some of which include lack of government support to boost development in the sector, inadequate access to funding, inaccessibility to network among others.

Tech hub operators, startup founders and managers of co-working spaces surveyed expressed a significant

positive outlook for the Nigeria tech sector, dubbing it the next “oil� that will drive Nigeria’s economic growth.

This optimism is underscored by the fact that people are becoming more comfortable with, and appreciative of, using alternative solutions with respect to business and personal successes.

Furthermore, initiatives and supports from tech giants like Google, Facebook, Andela etc. has led to the rise of an army of innovative thinkers and idealists. Younger Nigerians are being trained in coding and programming by virtue of supports gotten from both local and foreign investors. It is anticipated that Nigeria will soon start exporting these skills to different countries of the globe - that is already happening at a low scale.

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8

Overview of the Global Tech Ecosystem

Just like the steam engine that brought about the industrial revolution, technological advancement with its consequential massive proliferation of tech hubs and start-ups has gradually altered the pattern, and enhanced the level, of human interaction, and turned the world into a global village.

All over the world, innovations in the technological space has established

the tech sector as a driver of economic growth and development, with the USA, Germany, UK, Canada, France, Sweden, China, South Korea, Israel, and Netherlands, leading in the global tech space.

America is a famed habitat of tech start-ups that have driven progress in job creation, economic stimulation, and innovative solutions to the myriads of challenges in

Investment in the US Tech Sector 8,076 10,406 10,463 8,635 9,183

80 70

7,849

60 50 40 30

6,703 5,351 4,286 4,684 4,434 3,310

20 10 0

12,000 10,000 8,000 6,000 4,000 2,000

29.4 35.6 36.9 26.6 31.6 44.0 41.2 45.3 69.5 79.3 72.4 82.4 2006 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 2017 Value of Deal ($) Number of Deals Closed

Source: Pitchbook, Geekwire

number of deals ($’ thousand)

Value of deals ($ billion)

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NIGERIA TECH INDUSTRY REPORT 2018

key sectors like health, finance, commerce, education and even energy. The Silicon Valley is by far the leading tech hub globally. It is no surprise that when one makes mention of the America tech ecosystem, attention is generally shifted to the Silicon Valley. The USA tech ecosystem in actual fact is not restricted to Silicon Valley alone. Cities such as Boston, Austin, Chicago, New York City, Los Angeles and Seattle are leading the trail in this present digital revolution era.

Nevertheless, we cannot take away the fact that Silicon Valley is the world technology capital. It is home to the world tech giants like Google, Facebook, Uber, Microsoft, Airbnb,

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Netflix, Intel, Apple and many others too numerous to list. The combined market capitalization of Google, Facebook and Apple struck $2.2 trillion as at 8th January, 20182 with each of the tech giants racing to make history by hitting $1 trillion value.

Among other factors, the clustering of talents and skills and massive funding of innovative ideas capable of changing or improving the status quo has been adduced for the ballooning growth in US tech hub and propelling them to global admiration. In 2017 alone, a total of $84billion fresh investment flowed into 8,035 US tech companies by venture capitalists; an amount that has been described as “the highest

Axis Title

European Venture Capital Funding ($’ bn)

Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 2012

2013

2014

2015

2016

2017

Source: Atomico and Slush, BRIU

www.nasdaq.com https://www.geekwire.com/2018/venture-capitalists-poured-84-billion-startups-2017-massive-tally-not-seen-since-dot-com-boom-era/

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NIGERIA TECH INDUSTRY REPORT 2018

since the dot com era of the 90s�3.

In China, the tech revolution is evolving at such a rate that in no distance time will level up with that obtainable in the US. The countries popular tech hubs and start-ups are located in Beijing, Schenzhen, Shanghai, Hangzhou (the home base of e-commerce giant, Alibaba). Tencent Holdings, Baidu and Alibaba are two prominent tech giants in China and high-valued listed companies globally. For instance, Didi Chuxing, the Chinese version of Uber which offers a full range of commuting options to over 400 Chinese cities has raised over US$19 billion as investment and made 5 acquisitions (Uber China, 99, 19pay, bluegogo and Kuaidi

United Kingdom France

Dache) between 2015 and early 2018.

China’s large markets of advanced digital users, massive appetite for innovation, government increasing attention and intense promotion of an economy led by tech ideas and innovation (to replace manufacturing-reliant economy), and speedy consumer adoption rate, are among the key factors giving the country dominance in the global tech space.

On the other side, the European tech ecosystem is dotted with important tech cities: Stockholm, London, Paris, Amsterdam, Berlin etc. Since 2000, the number of advanced research graduates in

Germany

NIGERIA TECH INDUSTRY REPORT 2018

STEM fields has been growing consistently. It is estimated that there are about 5.5 million professional developers in the continent as against 4.4 million in United States; Germany and the United Kingdom alone boast of about 837,398 and 813,500 professional developers as at 2017.4 The tech hubs in Europe secured an investment of $13.6 billion in 2016 compared to US$2.8billion investments they attracted in 20115. Atomico, a venture capital firm puts the total fund received by startups in Europe by end of year 2017 at $19 billion.

The UK, Germany and France received $5.4 billion, $2.5 billion and $2.1 billion respectively, making them the biggest recipients of venture funding in 2017 with France securing the highest deal6.

stakes in European tech hubs in 2016 and 2017. Indeed these plans have started yielding fruit.

In February 2018, Microsoft unveiled its first tech space in Europe called Reactor, a $20 million venue in London, to cement the United Kingdom’s position as the undisputed tech leader in the European continent7.

Reactor provides free office space for tech start-ups and comes with extra package of assess to Microsoft partners, customers and products. Reactor will equally host tech events like hackatons, meetups etc.

Also, in May of 2018, Google formed a partnership with Orange, a French corporate venture fund to finance start-ups in Europe, Middle East and Africa later in the year8.

London, known by tech enthusiast as “Silicon Roundabout”, has become a hotbed for The continent has continued to technological innovation and attract foreign attention. Amazon, development, largely because of Microsoft, Facebook and Google the numerous investors willing to announced expansion of their fund start-ups with huge potential State of the European Tech Report by Atomico and Slush World Economic Forum: Step Aside Silicon Valley, there is a New Tech Hub in Town http://tech.eu/research/17983/atomico-state-of-european-tech-2017/ 7 https://news.microsoft.com/en-gb/2018/02/23/microsoft-unveils-20m-venue-in-london-to-help-uk-remain-a-tech-leader/ 8 https://techcrunch.com/2018/05/31/orange-google/ 4 5 6

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12

Sub-Saharan African mobile phone owners using the internet

63%

77%

Mobile phone owners using internet, projected for 2020

Mobile phone owners using internet in 2015

Tech hubs in Africa

117

Total number of tech hubs in 2015

314

tech hubs spread across 93 cities in 42 countries of the continent in 2016

revenue growth in the near future.

Government’s role in fostering development of the sector includes granting tax incentives to investors and its highly educated workforce and talent. The UK tech epicentre is home to some of the best tertiary institutions in the world such as the University College London and Imperial College London which provide the strong pipeline for worldclass talent. More so, London is the favourite destination for professional developers.

442

Active tech hubs spread across five countries, South Africa, Egypt, Kenya, Nigeria and Morocco, this account for 45% of tech hubs in Africa in 2016.

The Brexit issue notwithstanding, the capital city has continued to attract big players in the tech world such as Microsoft, Amazon and Apple and is churning out world-class start-ups such as the unicorn, Deliveroo, Crowdcube, Monzo, Nested, TransferWise and Future Fifty’s latest start-up batch like Carwow, Blis, Azimo etc.

With the recent unveiling of a new £1.6million Clean Tech Incubator christened “Better Futures” by the mayor of London, Sadiq Khan at

NIGERIA TECH INDUSTRY REPORT 2018

the recently concluded London Tech Week 2017, the stage is further stimulated for more tech activities in the Silicon Roundabout even as the mayor has reiterated his commitment to harness new technologies that are been forged in the city to transform London into the world leading smart city9.

Also, Paris is beginning to make a tech statement as it sets to displace London as the tech

leader in Europe. The French government under Emmanuel Macron is striving to reenergize the French ecosystem through institutionalization of strong policy framework and tax incentives. Other flourishing tech hubs in Europe are Stockholm, the capital city of Sweden and home to start ups like Monjana, Skype, Spotify. Other European tech cities include Amsterdam, Madrid, and Berlin.

https://www.rocketspace.com/tech-startups/londons-top-5-tech-startups

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14

Africa’s Tech Landscape

Africa has also been caught in the current wave of technological revolution sweeping across the globe. Prominent catalysts of this technological growth include the increased usage of smartphones, shrink in bandwidth cost, and the proliferation of tech hubs.

Of particular relevance is the fact that as at 2017 Sub-Saharan

Africa already had 63 per cent of its mobile phone owners accessing the internet. This figure is projected to hit 77 per cent by the end of 202010.

The continent is also home to different tech hubs dispersed across several countries with total number of hubs put at 117

Lagos alone has 31 hubs in Nigeria

Morocco

Senegal

Egypt

Ghana

Source: GSMA Ecosystem Accelerator, BRIU

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Global Mobile Trends, 2017 by GSMA Intelligence

Uganda

Nigeria

Tunisia

Tunisia 2016

S/Africa 2017

NIGERIA TECH INDUSTRY REPORT 2018

in 201511. This has almost tripled within a space of one year to 314 active hubs spread across 93 cities in 42 countries of the continent in 2016.

By 2017, active tech hubs have soared to 442. Of this total, five countries of South Africa, Egypt, Kenya, Nigeria and Morocco account for 45 per cent12 of the

hubs in the continent (down from 50 per cent in 2016).

Interestingly, the Democratic Republic of Congo (200 per cent), Zambia (200 per cent), Cote d’Ivoire (160 per cent), Togo (150 per cent) and Nigeria (139 per cent) emerged as the fastest growing tech ecosystems in 2018.

The World Bank Report: How Tech Hubs are Helping to Drive Economic Growth in Africa.

GSMA Ecosystem Accelerator

11 12

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African Tech Landscape: Funding, training and support

A latest report by the Silicon Valley-based venture capital firm, Partech Ventures, puts the total venture capital raised by African startups in 2017 at US$560 million, up by 53 per cent from US$367 million in 2016. Also, the number of funding rounds rose Venture capital raised by African startups $560m

$367m $277m

2015

2016

Venture capital raised

2017 No. of funding rounds (RHS)

Source: Partech Ventures, BRIU

astronomically from 77 in 2016 to 128 as at year end 2017.

As at the second half of 2018 (H1’18), African start-ups raised US$168.6 from 118 deals.

Cellulant, a Kenyan digital

payment provider and Branch International, a micro lending platform with presence in Nigeria, Kneya and the US both chopped off about 39.9 per cent of the funding. Of the top ten startups which collectively accounted for 48.3 per cent of the total funding in the period under review, four were fintech startups while others covers cleantech, SaaS, transportTech, agritech, analytics and recruitment.

Nigeria, Kenya, Egypt and South Africa secured the highest deal of 29, 23, 21 and 19 deals respectively. Interestingly, Kenya witnessed US$82.9 million investments while Nigeria with the highest deal garnered US$29.4 million13.

The attractiveness of the African continent brought about by its

http://weetracker.com/demo/wp-content/themes/weetracker/images/FInalReport.pdf

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NIGERIA TECH INDUSTRY REPORT 2018

huge population which serve as a ready market, and the innovative ideas of Africans despite the challenges, are the possible explanations for why Google announced in July 2017 that it would equip 10 million people across the continent with online skills, and train about 100,000 software developers in Nigeria, Kenya and South Africa.

In January 2018, Partech Ventures established a fund in Dakar, Senegal, raising US$70 million of its target US$100 million to fund early stage startups. The VC firms aims to fund startups in Africa especially in poorly underfunded ecosystems such as Francophone countries like Senegal, Cote’dIvoire among others.

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NIGERIA TECH INDUSTRY REPORT 2018

Nigeria’s Tech Ecosystem: blossoming in bliss

The Nigerian tech ecosystem attained global spotlight the moment the Co-Creation hub (CcHub) was birthed by Bosun Tijani and Femi Longe in 2010 at Yaba, Lagos town that has been adjudged the tech nerve centre of Nigeria.

CcHub was set up as an incubation centre for tech talents, backed by foreign investors that include Pierre Omidyar, founder of eBay. It grew further to accommodate the Information Technology Developers Entrepreneurship Accelerators ( iDEA) Hub, which focuses on mentoring and helping young entrepreneurs in software development, custom programming, and business intelligence software.

The idea of establishing the iDEA hub was conceived by the then Minister of Communication Technology, Mrs. Omobola Johnson, in partnership with the Nigeria Information Technology

Development Agency (NITDA).

The primary emphasis was on leveraging information technology to bring about disruptive change.

The tech climate in Nigeria is evolving, with tech Hubs springing up in various parts of country, and government’s attention being increasingly geared towards building a tech-based economy that will convey inclusive growth.

The sheer size of Nigeria’s population is making the country a bride of tech enterpreneurs and tech investors who see the country as a bridge to Silicon Valley, given the successes recorded by renowned start-ups such as Iroko, Jumia, Paysack, Flutterwave, Konga etc.

In first quarter (Q1) 2018, 14 Nigerian tech startups were estimated to have attracted up to US$9.24 million, with equity investment accounting for 54 per cent, bridge funding accounting

NIGERIA TECH INDUSTRY REPORT 2018

for 38 per cent, and seed funding accounting for the remaining 8 per cent14.

The development of the tech ecosystem in Nigeria has been buoyed by different factors, including the country’s huge population.

Investors

Digital outlets

Academic institutions Nigeria Tech Ecosystem

Tech Events

Accelerators and Hubs

Source: BRIU

The large population of the country is a big source of strength for the tech ecosystem because of the large market it presents and the huge pool of talent it offers.

Another positive factor for the sector is the recent surge in the number of smartphone users: it is estimated that about 27 per cent of Nigeria’s population Techpoints’ first quarter Nigerian tech startups funding report 2018.

Internet World Statistics, 2017

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own a smartphone. This rise in smartphone ownership is triggered by the proliferation of cheap smartphones in the market from international manufacturers such as Huawei, OnePlus, Xiaomi, Micromax and the country’s own AfriOne Limited. In addition, Jumia Mobile Report affirmed an astronomical growth in mobile subscribers with an increased penetration from 84 per cent in 2017 compared to 53 per cent in the preceding year.

Furthermore, there is relative ease of access to technology, internet and payment services in Nigeria.

Of the 184 million people in the country, 94 million are internet users representing 51 per cent internet penetration rate, and surpassing the average rate for Africa (which stands at 31.2 per cent).15 The governments (at the federal and state levels) have equally come to terms with the reality of the indispensability tech plays in actualizing economic growth, and have begun to lend support to the sector, through favourable policy environment, in order to

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NIGERIA TECH INDUSTRY REPORT 2018

reap the twin benefits of revenue diversification and employment generation.

Top on the list of tech hubs that have received both local and international attention in terms of funding include Andela, iDEA, Wennovation, Leadpath, nHub, Co-Creation hub, Venture Platforms and so on. In the area of start-ups, Paga, Iroko, Jumia, Konga, Flutterwave, BudgIT, Wakanow, Farmcrowdy, Hotel.ng, Autobox, etc. stands tall.

target location of existing and prospective tech start-ups from all over the country; tech startups usually believe they have more opportunities to grow and develop their tech ideas in Yaba.

The strategic location of Yaba is a factor that augments the boom in its tech enclave. The position of Yaba in the mainland is a major plus considering the fact that there is easy accessibility to internet services, low rent fees for office spaces and less traffic congestion compared to Tech Developments in Lagos the Lagos Island. Its proximity Tech start-ups operate across to the Lagos Island where most different segments of the society, Nigerian big companies have their from finance and health to law, as head office equally provides a they disrupt the space of corporate pool of investors and corporate and personal lives through customers to hubs and start-ups. initiatives that solve every day societal problems. Nigeria’s major Again, Yaba boasts of four tertiary tech hubs are located in Lagos institutions – University of Lagos, State, the commercial nerve centre Yaba College of Technology, of the country and one of Africa’s Africa Ecosystem Value ($’billion) largest cities, with Yaba as the epicentre of tech activities.

4.1 Having come to acquire the nickname ‘YabaCon Valley’, a name modelled after the Silicon Valley of the United States of America, Yaba is the present and

1.36 0.172 Cape Town Johannesburh

2

Lagos

Global Median

Source: Global Start-up Ecosystem Report, 2017 and BRIU Analysis

NIGERIA TECH INDUSTRY REPORT 2018

College of Education (Technical), the Federal School of Science and Technical Education - which provide the pool of talents to be tapped by the hubs and starups.

For instance, Facebook recently announced plans to open a community social hub in Nigeria (Facebook’s biggest market in Africa with 22 million monthly Facebook users17) in 2018 to encourage technology entrepreneurs and software developers in Nigeria. It equally plans to train 50,000 Nigerians in digital skills. This development was as a result of the visit of its founder, Mark Zuckerberg, to Lagos, and his stopover at the CoCreation Hub and Andela in Yaba in August, 2016.

The Lagos tech ecosystem is one of the few leading ecosystems in Africa. Industry analysts say that it has the potential to become the tech epicentre of the continent in no distance time. In 2017, the estimated value of the tech ecosystem in Lagos state was put at $2 billion, with start-up output of 400 – 700 firms as against cities in Africa like Cape Town (known as Silicon Cape) and Apart from the plan to establish a tech hub in the country, Johannesburg with a combined 16 ecosystem value of $1.53 billion . Zuckerberg through its foundation, the Chan Zuckerberg This favourable valuation and Foundation has made a Series potentials of the Lagos tech B investment funding to the ecosystem recently attracted the sum of $24 million18 in Andela, a tech start-up that trains attention of three global tech young entrepreneurial and gladiators namely Facebook, technologically driven individuals Google, and the Meltwater in software development Entrepreneurial School of Technology (MEST) based in Accra in Africa and subsequently outsources them to full time roles Ghana as they have scrambled to in international companies in establish a tech hub in the everbusy and fast-evolving city of Lagos. Europe and the United States.

Startup Genome’s “Global Start-up Ecosystem Report 2017”.

CNN: Facebook Launches Community Tech Hub in Nigeria.

Cunchbase website.

16 17 18

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Similarly, Google also announced plans to set up a Google Launchpad Space in Lagos. The inaugural Google Launchpad Start took place in the city of Lagos in November 2017, making Lagos the first city where the tech giant will be establishing the Space outside the United States of America. Google also aims to train 10 million people across the African continent in online digital skills.

Meltwater Entrepreneurial School of Technology (MEST) is a Ghana-based entity that runs tech start-up programmes which focuses on software development, entrepreneurship and business rudiments. In 2016, MEST opened an incubation hub in Lagos citing the quality of Nigeria’s tech entrepreneurs and their overwhelming performance as part of the pull factors. This further reinforces the thinking by analysts Lagos has huge tech potentials, and fuels the rush by international and domestic investors to seek to cash-in on the opportunities it offers.

space, to incubatethe next fintech giants and potentially to provide funding to the startups.

While there are still pockets of challenges faced by techpreneurs in Lagos, their counterparts in other parts of the country are equally migrating to Lagos as result of the dearth of infrastructural facilities such as poor server services in their original operation base, the need to get ready market and importantly, securing adequate funding for tech ideas. This further adds to the existing challenges of funding and working spaces.

In a bid to bridge the funding gap and accelerate the numbers of hubs and start-ups therefore, Lagos State decided to blaze the trail of support through the provision of seed capital to prospective start-ups.

Recently, ‘Lagos Innovates’ was launched by the Lagos state government to catalyse the development of tech start-ups by supporting the technology-based entrepreneurship in the state.

Accion Venture Labs has also Other tech investors in the state ventured into the Nigerian startup are also rising up to bridge the

NIGERIA TECH INDUSTRY REPORT 2018

challenge of funding by creating the platform for availability and easy accessibility of funds by prospective start-ups. One of such is the Lagos Angels Network (LAN), an association of angel investors whose mission is to provide seed capital, access to their business associates, and mentorship to tech entrepreneurs with brilliant innovative ideas.

start-ups and incubators. The tech space in the Northern and South-South region of the country has witnessed an unprecedented rise in tech start-ups while in the South-East the ecosystem is still at its nascent stage.

Tech developments outside Lagos Lagos state is a preferred destination for tech start-ups and other stakeholders in the tech ecosystem in Nigeria. In recent times, there has been a twist to that trend as other regions in the country are witnessing an upsurge in the rise of tech hubs,

The South-South is home to emerging tech hubs like Start Innovation Hub, Roothub, Olotusquare, Focus Hub and the Delta State Innovation Hub (DS-iHub). South East has ROAR Nigeria, Genesys Hub, Innovation Growth Hub (IgHub) and Startup Hub all located in Enugu State.

Individuals and Non-Government Organizations are beginning to create hubs and harness the raw We note that the Lagos tech talents with innovative ideas. ecosystem, which houses such In northern Nigeria, various tech hubs as the Co-Creation Hub, tech hubs have sprung up Wennovation hub, Seedspace, iDEA including Enspire Hub, Blue Hub, hub, Passion Incubator, Impact Stonebricks Hub, Startpreneurs, hub, and Project Enabled Africa, Colab, nHub, Ventures Platform, has a huge potential to blossom Civic Innovation Lab, BD Hub, into revenue-yielding platform Founders Hub, Tangent Ecofor government and individuals if Innovative Hub and Technology adequately nurtured and supported Development for Poverty with the right policy and funding.

Alleviation Initiative (TD4PAI).

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Tech Hubs in Northern Nigeria

Kano • Blue Hub Kaduna • CoLab Kwara • Enspire • Technology Development for Poverty Alleviation Initiative (TD4PA) • Stonebricks Hub • Startpreneurs • Ventures Platform • Civic Innovation Lab • BD Hub • Tangent Eco-Innovation Hub • Harmony Innovation Hub

Abuja

Jos • nHub

• Founders Hub

Source: BRIU

The Tech Space of Northern Nigeria: galvanising a shift from the old When tech issue is discussed in Nigeria, little attention is paid to the tech scene in northern Nigeria apart from Abuja, the nation’s capital. Given recent incidences of violence in that part of the country, establishing a tech hub in that region would seem to be an absurd thing to do. Majority of the tech hubs and start-ups are located in Plateau state and Abuja. The first hub in the

Northern region of the country was nHub, located in Jos. Apart from the insurrection in the North, different factors account for the under- developed nature of the region’s tech ecosystem.

One of such is the dominant religion in the region, Islam, which does not permit women inclusion in most entrepreneurial activities including tech start-ups. This is further compounded by the high level of poverty in the region. But the likes of Maryam Gwadabe, the

NIGERIA TECH INDUSTRY REPORT 2018

founder of Blue Hub and Aysha Tofa, the co-founder of Start-up Kano are changing this negative trend and encouraging women to align themselves with on-going technological renaissance.

Though the tech ecosystem in the north may not exhibit such glamour and attraction as the tech space in the south, there are techpreneurs, hubs and start-ups that are creating disruptive solutions to many socio-economic problems, thereby changing the narratives of the region positively. There is a gradual shift from the view that the North is the hub of the pre- and post-colonial groundnut production to an ecosystem brewing the next generation of tech savvy dynasty.

Since its inception in 2016, Startup Arewa – a tech startup and innovation meet up tour coordinated by Emerge Tech Africa and Network of Incubators and Innovators in Nigeria (NINE) – has embarked on activities that have helped to boost awareness regarding the tech ecosystem in the North. Through its strategy of organizing bootcamps, hackatons, demo days, mentorship programs

and master dinners, Startup Arewa has also been able to unlock the hidden opportunities that the Northern tech space possesses.

Recently, there has been a phenomenal growth in tech hubs in the Northern part of Nigeria, with the likes of Startup Kano providing acceleration, incubation, mentoring and co-working space and digital marketing services to would be techies. Blue Hub is another tech hub leading the pack in coaching and mentoring technology savvy men and women in the region.

There is also DD Hub, CoLab, BD Hub, Enspire Hub, Startpreneurs, among others.

Tech Hubs of South-South: more than just the oil The South-South region of Nigeria that comprises Delta, Edo, Bayelsa, Rivers, Akwa Ibom and Cross River States, is known for its rich deposit of oil resource, the mainstay of the Nigerian economy. Over the years, the region appear to have been so carried away by the frenzy that comes with oil production and exploration that the importance

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NIGERIA TECH INDUSTRY REPORT 2018

26

Tech Hubs in the South-South

Delta • DS-iHub

Cro ss

Riv

er

• Focus Hub • Ken Saro-Wiwa Innovation Hub • Olotu Space • SnapiLABS Akwa Rivers Ibom

• iDEA Hub • RootHub • Start Innovation Hub

Source: BRIU

of technology was of little concern Tech Hubs in the South-East: to the stakeholders. driving escape from the rudimentary Happenings in recent times The south east comprises Imo, have however shown that the Enugu, Anambra, Abia, and Ebonyi situation has changed. There is a States. The tech ecosystem is still gradual shift towards the use of at a rudimentary stage trying to technology for solving everyday find its balance. Majority of the problems. This is evidenced by hubs are sited in Enugu state. the establishment of DS-iHub, a The region has gradually been tech initiative of the Delta State waking up to the realities of its Government and Zenith Bank. nascent technological drive and

NIGERIA TECH INDUSTRY REPORT 2018

has therefore started to organize tech events and programmes to create awareness needed to upscale the gradual growth recorded so far.

Top on the list of tech events is the GenesysIGNITE organized by Genesys Hub. The event is organize annually, and brings together tech industry stakeholders from the South-East and the South-South region to discuss technology trends, identify problems in the society and proffer digital innovative solutions by encouraging tech start-ups. The 2017 edition of the GenesysIGNITE saw three startups selected by a panel (TutorFinder, PlayJoor and House of Uwe) cart away $10,000 each as seed fund from the organisers.

Roar Nigeria Hub is another tech hub in the region operated by the management of the University of Nigeria, Nsukka. It is a major step taken by a tertiary university in Nigeria to bridge the gap between the academia and tech innovators. Roar Nigeria Hub runs an incubation and acceleration program for start-ups and researchers within and around the university campus. The objective of the Hub is to bring together

27

students and researchers within and around the hub space, with a view to proffering digital innovative solutions to societal problems. It has been run as a private sector initiative by two graduates of the university.

Tech hubs in the South-West: buoyed by Ogun State The tech space in South West excluding Lagos state is still at the developmental stage with few hubs dominating the scene. Wennovation hub in Oyo state and Hebron Startup labs at the Convenant University, Ota, Ogun state, are the two major hubs in the region.

At the recently concluded TechSummitOgun 2018, the Ogun state government has promised to earmark the sum of US$1 million seed fund for technological development of the state. Having made Ogun State arguably the preferred destination for investors, the state government equally hopes to make the state a hub for technological innovation. It is anticipated that the government will match its words with action and deliver on this promise so as to further open that part of the country to intense technological activities.

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NIGERIA TECH INDUSTRY REPORT 2018

Funding Options For Tech Start-Ups In Nigeria, funding remains one of the greatest challenges for most start-ups and tech entrepreneurs often find it difficult to get funds and birth a potentially big tech idea. Many promising tech start-up ideas have perished because of this singular factor of inaccessibility of funds.

growth is usually very slow and gradual. However, it also reveals the sagacity of the techprenuer in terms of financial and resource management. Another significant advantage bootstrapping brings to a business is that it improves the valuation of the startup at the point where investors are seeking to own stakes.

However, there are varied options open to start-ups and techpreneurs to raise fund for their business ideas. These options are explored in the paragraphs below.

Angel Investment Start-ups could also raise funds via angel investment, a form of equity investment. Angel investors are typically affluent (high net worth) individuals willing to take the risk inherent in funding start-ups at the early stage of formation. Aside providing funds, angel investors render advice and business support services to startups.

Bootstrapping Startups could either choose to bootstrap their ideas, in which case they grow their businesses with little or no capital. Bootstrapping entails scaling a business without any venture financing or angel investment but through operating revenue from the business (fast inventory turnover and/or lowest operating cost), personal finance and/or funds gathered from friends and family. One feature of this mode of funding is that a bootstrapped business could become risk-averse and miss out on opportunities and as a result

Venture Capital Venture capital financing is another popular funding source to start-ups in recent times. It is an investment provided to startups with long term growth potential. Venture capital firms are made up of people whose job is to upscale a business operation. They are made up of limited partners (those who invest money in venture capital fund) and

NIGERIA TECH INDUSTRY REPORT 2018

29

to be efficient in scaling start-up operations. Big tech companies like Amazon, Facebook, Palpay and Google were once start-ups that propped up their operation base using angel investment and Venture capital becomes attractive venture-backed financing. and a recommendable option of Even though there are different financing start-ups given the fact investors that undertake to fund that most of these tech start-ups tech start-ups with scalable have no strong physical assets revenue models and growth and predictable cash flow that prospects, most local angel could serve as collateral for investors who provide the early loans from financial and nonseed investment act in some financial institutions. Raising ways that are antithetical to the funds via venture capital offloads interests of the venture capitalists. the stress of having to pay One of such is a local investor interest and principal on loans at having veto rights over the predetermined dates. decisions of the early start-ups or possessing shares that are not Adopting venture capital convertible. A would-be venture approach to funding is believed general partners (those who manage these funds and work with startups).

The firm is represented on the board by a director via which they have a say in the running of the startup.

Startup Funds Raised per Country ($’million) 2016

167.9

2017

147 109.37114.6

96.75

92.7

36.9

36.7 16 Nigeria

S/Africa

Kenya

Source: Partech Ventures, BRIU Analysis

Rwanda

9.15 Egypt

8.67

20.4

Ghana

6.5 10.7 0.98 3.9 Senegal

Morocco

0.27

16

Uganda

NIGERIA TECH INDUSTRY REPORT 2018

30

capitalists would of course show apathy towards such start-ups19.

Crowdfunding One aspect of funding that has remained embryonic in Nigeria is In 2017 alone, Africa startups crowd funding. Crowd funding is a raised a whooping sum of digitalized way of raising capital to US$560million from venture fund startups and projects through capital investing. Africa’s tech online donations and investments powerhouses of South Africa from a large group of people.

(US$167.9 million), Kenya (US$147 Crowdfunding is predominantly million) and Nigeria (US$114.6 facilitated by availability of million) accounted for 77 per cent internet, social media, convenient of total venture capital inflow into e-payment and transfer platforms the continent within the year. and crowdingfunding sites that serve as a nexus for investors and Africa startup capital investment entrepreneurs.

$167.9Million South Africa

$147Million Keyan

$114.6Million Nigeria

With almost 300 per cent growth recorded in US and Europe as at 201620, crowdfunding is set to be the modern solution to the funding challenges of tech start-ups that would ordinarily not attract VCs and angels to scale it off the ground.

In Nigeria, crowdfunding penetration is low but evolving with only four platforms that are largely donation-based. Even though crowdfunding is starting to gain popularity among Nigeria techpreneurs, the Nigeria Securities and Exchange Commission (SEC)

Article by Bertrams Lukstins: Nigeria’s Recession is Holding Back African’s Startup Ecosystem Crowdfunding Potential for Nigeria 2017 – CrowdfundingHub

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NIGERIA TECH INDUSTRY REPORT 2018

recently placed a ban on it citing its incongruence with the Company and Allied Matters Act (CAMA) and the Investment and Securities Act (ISA). This is a setback to start-up development in the country at a time the traditional channels of sourcing for fund are reluctant to grant loans and financial assistance due to liquidity crunch and the perceived high risk factor.

crowdfunding in the sense that in ICOs, supporters of the latter does so with the intention of securing reasonable returns on their investment. Nevertheless, ICO works just the same as equity crowdfunding.

In an economy where raising fund for scaling up a business off the ground through the traditional securities exchange is becoming However, it is hoped that a new onerous, ICOs provides an regulation is in the pipeline as the escape route to this ugly and ex-Director General of SEC has frustrating trend by allowing promised that the Commission is tech startups to issue a crytocoin looking at the laws that regulate or token in exchange for fiat crowdfunding in Canada and the currency or other crytocurrency.

US with the intention of drafting a Following the launch of an ICO legal and regulatory framework that in December 2017, SureRemit, conforms to global practices. a Nigerian fintech startup involved in non-cash remittances Initial Coin Offering (ICO) successfully raised an ICO to the Initial Coin Offering (ICO) works tune of US$7 million in January exactly the same way as Initial 2018 with Hashed, a South Public Offering (IPO) and to Korean cryptocurrency investor an extent, crowdfunding. The participating in the offer21. difference between ICOs and ICO is a relatively new invention IPOs is that the former is backed in Nigeria and it is hoped that by blockchain technology with startups will explore its inherent supporters who are zealous advantage in the foreseeable in investing in new projects. future to their benefit.

It differs also from traditional http://disrupt-africa.com/2018/01/nigerias-sureremit-raises-7m-via-ico/

21

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Investors In The Nigerian Tech Ecosystem

A number of investors are actively involved in the funding of tech startups in Nigeria. Some of these investors are examined in the following paragraphs.

accessories), and Hutbay (an online real estate marketplace).

Leadpath Nigeria Leadpath Nigeria is a technology start up accelerator that Lagos Angel Network specialises in providing short-, The Lagos Angel Network (LAN) medium-, and long-term seed was founded in 2014, and is a capital to small and medium combination of angel investors technology start-ups, to bridge that provide early stage, seed the gap between start-ups in the funding and mentoring for start-up tech space and their drive for entrepreneurs. They also provide market dominance. Leadpath also start-ups with access to venture provides mentorship and creates capital firms and other outside the tech-friendly environment capital. Since its inception, LAN that contributes to success of tech has invested in about four startstart-ups.

22 ups entrepreneurship in Nigeria .

Among the start-ups are; Big Cabal Leadpath leverages connection Media which is a brand marketing with Silicon Valley to provide follow outfit dedicated to creating on funding series, with average opportunities for brands to reach investment ranging from $20,000 the audiences they want in ways to $100,000. that are engaging, CafĂŠ Neo (a coffee roaster and coffeehouse The venture capital has made chain), Autobox.ng (an online seven portfolio investments, shop for automobile parts and including in such start-ups as 22

Crunchbase website.

NIGERIA TECH INDUSTRY REPORT 2018

PushCV (a job sourcing platform that helps individuals connect to valid employers), Afriqbuy (an online platform for buying tech products), and Simer (an online social learning platform that allows diverse people and organizations across the world to connect).

Other investments include Uregista (a platform that provides enterprise solutions for organizations to create, distribute and receive forms seamlessly), Meditell (a platform that serves as a reminder for patients on medication to ensure they adhere to medication guidelines), RealE (a real estate application), RSVP (a collaborative payment service platform where people send invite and receive payment).

Omidyar Network Omidyar network is a philanthropic investment firm formed by Pierre Omidyar, founder of eBay. The organization invests in entrepreneurs who are developing innovative solutions that enable meaningful peer-topeer interaction, provide efficient access to life-enhancing products and services, and facilitate the exchange of reliable information.

Since inception, the network has made investments of over US$1.22 billion, comprising US$586 million in for-profit organizations and US$637 million in not-for-profit organizations globally23.

Omidyar Network has invested in Nigerian tech hubs such as CcHub, the first hubs in Nigeria from which other major start-ups Venture Capital for Africa (VC4A) have emerged. It also co-invested in Andela with Mark Zuckerberg.

VC4A is a regular investor Major start-ups that have also in Nigeria’s tech ecosystem. received investment support from VC4A seeks to assist partners the Network include Flutterwave, in promoting start-up activities Paga, BudgIT, and Hotel.ng. on the African continent by connecting tech start-ups with Y Combinator (YC) the necessary capital funding, Y Combinator, famously known mentorship and external/internal as YC, is a California-based tech networking.

Omidyar Network Website.

23

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NIGERIA TECH INDUSTRY REPORT 2018

seed accelerator and an incubation company. It is recognized as one of the world’s most powerful tech incubators. Since the advent of the Nigerian tech ecosystem, YC has been a consistent investor.

Top on its investment list are big Nigerian start-ups such as Flutterwave, Paystack, and Aella Credit. In November 2015, YCombinator invested 120 thousand dollars as seed fund in Paystack. It equally made a seed investment in Flutterwave alongside Washington-based Arab Angel Fund to the tune of US$120,000 in August 2016. A year later, Flutterwave received a Series A funding from YC amounting to $10million.

500 Startups 500 Startups is a Silicon Valley investor and incubator. It funds tech start-ups from bitcoin, e-commerce, travel tech, fintech, edutech and agritech, to online video, drones, and hardware. So far, 500 Start-ups have funded over 1800 companies spread across over 600 countries of the world.

500 Startups usually provide US$150,000 seed fund for a 6 per

cent stake in the start-ups it funds while a charge fee of US$37,500 is incurred for any prospective startups who which to participate in the 500 Seed Program. In their Serie A program, 500 Startups invests between US$100,000 to US$250,000 Serie A fund with a charge fee of US$25,000 to US$50, 000 for whoever which to participate in the 500 Series A Program.

Serie A Programme 500 startups invests between US$100,000 to US$250,000 Seria A fund with a charge fee of US$25,000 to US$50,000 for whoever which to participate in the 500 Series A Programme.

As at 2017, Nigeria was the only Africa country of the 14 countries that were represented in the 2017 batch 22 (B22) 500 Seed Program held at San Francisco. Three Nigerian startups – MailHaven, Mobile Forms and Fyodor Biotechnologies – collectively secured a seed fund of US$450, 000 (US$150,000 each) from 500 Startups to scale up their operations for optimum

NIGERIA TECH INDUSTRY REPORT 2018

service delivery. Printivo, a start-up disrupting the Nigerian printing industry secured a seed fund of US$112,500 in February, 201724. Aella Credit, Podozi, and TalentBase are some of Nigerian tech start-ups that have benefitted from 500 Startups investment program25.

EchoVC Partners EchoVC Partners is an indigenous venture capital firm providing early stage and growth technology venture capital fund to start-ups domiciled in Sub-Saharan Africa and North America. Average deal size for an investee company ranges from $25,000 to several millions of dollars.

Its major investment in an indigenous tech company was the US$1.2 million seed round investment in hotel.ng, an online travel agency, which it made in conjunction with Omidyar Network and New Zealand’s venture capital firm, Spark. Others are the $1million investment in Tolu Roberts’ S&T Media, a digital platform for product and services advertisement, and an Crunchbase Website 500 Startups Website

24 25

undisclosed amount of fund in Printivo.

Other investors in Nigeria are Seedstars World, Bill and Melinda Gates Foundation, Helios Investment Partners, eVentures Africa Fund, Spark Capital, Google Venture (GV), CRE Venture Capital, Learn Capital, Investment AB Kinnevik, Tony Elumelu Entrepreneurship Program, Accion Venture Lab, TA Associates, Adlevo Capital, Comcast Ventures, Savannah Fund, Cox Enterprises, Techstars Ventures, Pitch@Palace, African Innovation Foundation (AIF), African Business Angel Network (ABAN) etc.

One noticeable feature of the Nigeria tech investment space is that it is still grossly dominated by foreign investors as local investors’ share of investment in the Nigeria tech ecosystem is only minimal.

Also, there is the debate of whether non-Nigerian startups and core Nigerian startups have the same level playground to

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NIGERIA TECH INDUSTRY REPORT 2018

garner funds from both foreign and local investors. Most of the startups that have secured huge funding from outside sources, especially from Silicon Valley’s known venture capitalists, have done so majorly because they have their registered offices outside the shores of Nigeria as foreigner investors are concerned with monitoring their investment.

Inasmuch as investors are interested in the loftiness of tech ideas, they are even more interested in the returns such ideas will yield both in the short

term and long run.

Andela, Flutterwave and Paystack raised up to US$51.8 million among themselves in their last funding round. But Interestingly the trio has their headquarters in US, but with focus on Africa.

It can therefore be concluded that for a tech start-up to secure a large amount of funding to expand and scale up its operation, it has to have a considerable influence with the world leading investors in innovative technologies.

NIGERIA TECH INDUSTRY REPORT 2018

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Tech Hubs In Nigeria

There are different tech hubs in Nigeria that dot the length and breadth of the country. The tech ecosystem in Nigeria is assuming a dimension that will revolutionize the entire landscape of the country’s finance, commerce, health and even justice delivery. They are rising rapidly and to create disrupting

solutions societal problems.

Abuja (with 26 per cent of the tech hubs) and Lagos (with 24 per cent of the tech hubs) are leading in terms of the numbers of tech hubs in Nigeria. They are followed by Rivers (13 per cent), Enugu (8 per cent), Abia (5 per cent) and Akwa Ibom (5 per cent)26.

State-wide Distribution of Tech Hubs in Nigeria (%) 26 24

11 8

Tech hubs here excludes co-working spaces.

26

3

3

3

Kwara

Ogun

Oyo

Kaduna

3 Kano

3 Rivers

3 Jos

Delta

Source: BRIU Analysis

Lagos

3 Enugu

3 Cross River

5

Akwa Ibom

Abia

Abuja

5

38

NIGERIA TECH INDUSTRY REPORT 2018

In Nigeria, there is no difference between a hub and a co-working space as most tech hubs provide co-working spaces to start-ups.

A fee is required to be paid by techpreneur to access a co-working space. To further cater for the less privileged start-ups, fees are categorized based on some parameters and considerations.

For example, fees range from 1,500 naira to 6,000 naira per day in some co-working spaces. Yet other coworking spaces accept fee payment on monthly and annual basis.

E-Commerce In Nigeria: Growth Drivers And Challenges It is a truism that the revolution in today’s tech space today arose from the need to address the challenges in Nigeria’s commerce, with this need subsequently spreading to other areas of the socio-economic life of the country.

In recent times, the e-commerce segment of the tech ecosystem has witnessed such a significant growth that it has attracted global attention.

Electronic commerce or (e-commerce as it is widely known) is used to describe an

agglomeration activities that span marketing, distribution, and buying and selling of goods and services via electronic means such as the internet and other digital technologies. It is essentially a technology-based retail business.

In Nigeria, Jumia, Konga, Jiji.ng, Kara, OLX, DealDey, PayPorte dominate the e-commerce space, with the industry proving to be a multi-billion naira venture; Jumia and Konga are unarguably the two biggest e-commerce stores in Nigeria.

The tech space birthed one of the biggest mergers and acquisition deals in the beginning of 2018 as Konga, a stark rival of Jumia was bought by Zinox Group, a Nigerian tech outfit that manufactures and distributes computers. The size of the deal was undisclosed as at the time of preparing this report.

Many believe there is a great deal of synergy benefits that will accrue to Konga from the deal.

Konga has been grappling with the tough business environment in Africa’s largest economy; it reduced its employees by

NIGERIA TECH INDUSTRY REPORT 2018

roughly 60 per cent27, cancelled the pay-on-delivery services and monetized merchants listing on its site, as it sought to cope with the harsh economic realities and the intense competition in the e-commerce space.

The growing smartphone adoption rate, the proliferation of e-commerce websites, the ease of shopping and the growing penetration of mobile internet are major dynamics powering e-commerce evolution in Nigeria.

a major stumbling block to the growth of online retail subsector in Nigeria. Such fear and distrust stems from the fact that the country is a haven for cybercrime and online fraud.

To that effect, it will not only affect the payment method but also the extent to which such e-commerce are adopted by the Nigerian populace. According to Jumia’s Mobile Report 2018, 67% of buyers on their e-commerce website prefer to pay on delivery.

Of particular importance is the The industry however is not wave of cybercrime which has without challenges. The poor made many Nigerians opt for cash infrastructure such as the bad roads payment rather than embrace and the poor house numbering e-payment infrastructural system inhibits effective delivering initiatives. Consequently, many of goods by these e-commerce e-commerce firms have subscribed companies. There is even the to the policy of “cash on delivery� security risk involved in delivering where goods are paid for as these ordered items and the they are delivered. In late 2017, case of cancelled transactions Konga discontinued the practice, by customers when the goods is fully aware of the inherent cost delivered to them. associated with it, and maintained that payment must be made Again, the distrust among before an item can be delivered.

Nigerians in using e-payment platforms to facilitate To facilitate that, the e-commerce e-commerce transactions is giant developed its own payment https://qz.com/1142802/konga-nigeria-jumia-rival-fires-over-300-workers/

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NIGERIA TECH INDUSTRY REPORT 2018

platform called the KongaPay, created in partnership with leading Nigerian banks to guarantee trust and security of buyers and sellers on the Konga. com platform. This stance is expected to be adopted by other major e-commerce platforms in future. Other e-commerce firms such as Jumia have also launched their own payment platforms called JumiaPay where customers can pay online without encumbrances.

We note that going by the developments in the ecommerce space, it is imperative for major e-commerce companies to partner fintech firms or develop their own payment platforms to facilitate online payment, reduce associated cost, and consequently deepen online shopping in Nigeria.

The Nigerian government introduced the Nigerian Cybercrime (Prohibition and Prevention) Act 2015 enacted with a view to arresting the rise of cybercrime and sustain the growth of e-commerce in the country. But analysts and other stakeholders have charged the

government to be resolute in its implementation of the act without fear or prejudice.

Financial Technology (Fintech) In Nigeria: The Opportunities And The Challenges We cannot talk about the tech ecosystem without examining its impact on the financial sector, considering that technology is disrupting the balance in the financial ecosystem and putting pressure on traditional players to re-strategize and re-think their approach to service delivery.

Fintech, a word which connotes any technological innovation in the financial sector, has become the buzzword for financial players and tech start-ups. Fintech is a vehicle that seems to be driving financial inclusion in the country.

It is a segment of technology startups that is concerned with creating disrupting solutions to perceived gaps in the delivery of financial services. It is presently competing fiercely with the traditional financial market globally.

These days, fintech companies compete directly with banks

NIGERIA TECH INDUSTRY REPORT 2018

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Banking and Corporate Finance

Crowdfunding, Trading and Investing

Crytocurrency and Blockchain

Financial Technology (FINTECH) Wealth and Personal Finance management

Money Transfer, Payment solution and Insurance Scoring, Fraud and Identity

and other financial services companies for most functions that have hitherto been the exclusive preserve of the latter.

Nigeria currently has over fiftythree (53)28 fintech start-ups (compared to South Africa with fifty-six)29 30 that are changing the face of competition and service https://irrationalinnovations.com/Nigeria_Fintech_Landscape Open Global Fintech Database:FintechStartupsCo Crunchbase.com

28 29 30

delivery in the financial sector.

The fintech start-up landscape spans banking, corporate finance, cryptocurrency, blockchain, insurance, money transfer, payment solution, scoring, fraud, identity, trading and investing, wealth management, personal finance management, and crowd funding.

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Fintech popularity in Nigeria is largely attributable to the growth in e-commerce space, high internet subscriptions and growth in smartphone usage. With the increased number of people using smartphones and the surge in the internet penetration rate, more Nigerians are beginning to make use of digital platforms to pay utility bills, fund other transactions, transfer funds, manage their income and assets, remit money from overseas, and make airtime top-up.

More so, the improvement with identity verification infrastructure such as the Bank Verification Number (BVN) introduced by the Central Bank of Nigeria (CBN) has helped in curbing fraud and eliminating duplication of bank account. This development has contributed to the fintech appeal in Nigeria, according to Aboyeji, Numbers of fintech companies in Nigeria

20

Fintech companies currently operates in Nigeria easing the challenges that comes with making payment for personal and business transfactions.

the co-founder of Flutterwave.

Payment solution is the most popular among the fintech companies that are powering innovative changes. There are about 20 fintech companies in the country easing the challenges that come with making payment for business and personal transactions. They include Remita, Interswitch, Paga, Flutterwave, Fetswallet, E-tranzact, Paystack, Nairabox, Amplify, and Simplepay.

Closely following payment solutions in terms of attraction are fintechs involved in lending and financing activities. Cowriepay, Kiakia, Paylater, and Lidya Aella Credit lead in this fintech space.

Compared with the trend in South Africa, adopting digital innovations to drive growth through efficient delivery of insurance products and services seems to be a less trending aspect of the fintech space in Nigeria. There is a low penetration of start-ups in creating the needed disruption in the insurance, pension and asset management sectors, with only a handful of asset management start-ups dotting the landscape.

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Source: FintechStartupsCo, BRIU

Nigeria’s insurance penetration rate stood at less than 0.5 per cent as at 2017, which is insignificant when compared with that of Kenya (2 per cent) and South Africa (10 per cent)31.

The low penetration is largely attributed to the low awareness of insurance policies among Nigerians. This offers great opportunities for start-ups to explore. By developing innovative solutions to curb the factors hindering the development of the EMPEA Legal and Regulatory Framework.

31

Nigeria

South Africa

Insurance

Trading and Investing

Scoring, Identify, Fraud

Personal Finance Management

Payment

Money Transfer

Financing

Crytocurrency and Blockhain

Crowdfunding

Corporate Finance

Banking

Number of Fintech Startups in Nigeria, South Africa and Kenya

Kenya

sector, start-ups will be unlocking a new frontier of business opportunities with enormous growth potentials.

A great deal needs to be done in developing ideas along the line of shifting focus away from the manual, paper work of policy underwriting and claims settlement, to engaging clients through user-friendly platforms that blends convenience with elegance.

NIGERIA TECH INDUSTRY REPORT 2018

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Another opportunity in the fintech space poses itself in the number of Nigerians that are unbanked or under-banked.

With the total number of active bank accounts put at 63.5 million by the Nigeria Inter Bank Settlement System (NIBSS) as at year ending 2017, and with over

Based on population projections from the NBS.

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45 million32 Nigerians presently without a bank account, there is need to accommodate the unbanked and the under-banked in the financial system. It is expected that tech startups will rise to be the messiah that will make this happen in this age of digital revolution.

NIGERIA TECH INDUSTRY REPORT 2018

Exploring The Level Of Government Participation In The Tech Ecosystem

The role of government in driving technological advancement in Nigeria cannot be overemphasised. The emphasis on technological prowess and growth on the world stage is a sufficient indication to the Nigerian government that for the country’s economy to attain the desired level of growth and maintain global competitiveness, it must prioritize technological development.

Government’s role in advancing the Nigerian tech ecosystem to an enviable height is explicitly underpinned by the need to support start-up formation as well as recognize and critically evaluate the broad base challenges and institutional bottlenecks that may inhibit the attainment of a worldclass ecosystem.

Identifying the nature of the challenges is a prerequisite to establishing a comprehensive

framework for a pro-innovative policy (both fiscal, monetary, institutional and sociotechnological).

Power is a major challenge in Nigeria. With the epileptic electricity outage, start-up businesses are unable to power a significant part of their operations. To stem this tide, they resort to sourcing for alternative sources that increase their operating cost.

For government to drive the needed growth in Nigeria’s tech sector, the power infrastructure deficit in the country ought to be tackled as a matter of priority considering that the major tech hubs scattered across Nigeria will be efficient only on a stable supply of power.

Internet cost and connectivity is another area that needs government’s attention. The

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Federal government, in a bid to increase the usage of internet and broadband particularly for start-up development, has put in place proper mechanism to ensure that Nigerians enjoy the best of internet services.

The ICT Policy 2012 and the Five-year National Broadband Plan (2013 – 2018) are two major policy plans designed by the Nigerian Government to articulate ways through which Nigeria can advance in technology adoption for national benefit. Specifically, the ICT Policy 2012 spelt out the modalities for leveraging ICT and transiting to a knowledge-based economy. The National Broadband Plan aims to further build on the ICT Policy 2012 and seeks, among other things, to increase broadband penetration from 6 per cent in 2013 to 30 per cent by end of 2018.

One of the ways the Nigerian telecommunication regulator, the Nigerian Communication Commission (NCC) aims to actualize the goal of the Broadband plan is by licencing infrastructural companies

(InfraCos) in the six geopolitical zones of the country and Lagos state. The success of achieving the target of the plan is however predicated on the growth of mobile phones in the country.

On its part, the Lagos State Government took the bold step of repositioning the tech startups and hubs in the state for the desired impact, by providing broadband infrastructure through fibre optic cables in the Yaba area.

This was done in conjunction with technology stakeholders such as MainOne Cable, CoCreation Hub, Google Nigeria, Nokia, Paradigm Initiative, Enough is Enough Nigeria and Technovision to provide cheaper internet services in the area and create ultimately a cluster of tech firms, hubs and enthusiasts.

The Federal government and some state governments are also doing all they can to support tech start-ups to access funds.

For instance, the Lagos State Government through the Lagos State Employment Trust Fund (LSETF) recently launched an initiative called “The Lagos

NIGERIA TECH INDUSTRY REPORT 2018

Innovates�. The program aims to strengthen and deepen the tech ecosystem in the state via funding for hubs, incubators, accelerators, co-working spaces and start-ups with growth potential. The initiative provides zero per cent hub loans repayable after four years to tech hubs, incubators and coworking spaces operating in the state. This initiative provides the avenue of obtaining cheap funds for promising tech startups without the unnecessary encumbrances associated with modern financial system.

Similarly, the Bank of Industry (BOI) and the Central Bank of Nigeria (CBN) have on their part made funds available to scale up start-up operations.

In 2016, the Bank of Industries (BOI) launched the 1 billion naira Social Intervention Funds in collaboration with other major stakeholders in the tech sector including Co-Creation Hub (CcHub), Omidyar Network, and Venture Garden Group. The Fund was to enable local start-ups leverage technology in creating solutions.

Government should encourage the study of STEM (Science, Technology, Engineering and Mathematics) by incorporating it into the curricula of schools (both secondary and tertiary) and re-engineering the pedagogic structural framework for optimum success. It is on record that majority of the countries of the world that emphasizes on STEM education perform better on key economic indicators.

For Nigeria to achieve global competitiveness across all sectors including the tech ecosystem, STEM education must be given the desired attention.

In addition, Government could partner seed venture capitalists (VCs), angel investors and accelerators by encouraging them to invest in riskier start-up ventures. Such encouragement could come in the form of granting tax incentives and also providing a setting to connect investors and tech start-ups. In addition to that, the government of Nigeria can also learn from China’s Shanghai government, where venture capitalists and angel investors are compensated

47

NIGERIA TECH INDUSTRY REPORT 2018

48

up to 30 per cent and 60 per cent of actual losses incurred while investing in early stage and seed funded start-ups respectively.

The mitigation of the financial risks associated with tech startups will serve to accelerate innovative ideas and/or solutions to many national problems inherent in key sectors like education, energy, health, commerce, finance, law, and manufacturing.

Experts opine that to build a vibrant and sustainable tech ecosystem, governments should encourage start-ups to create products that will capture target

33

markets and attract investors.

Given Nigeria’s weak infrastructure, discouraging policies, dilapidating educational system, it is obvious that a lot needs to be done in critical sectors that drive tech development.

According to the World Bank, This is what the World Bank meant when they opined that countries that complement technology investments with broader economic reforms that create conducive business climate and invest in people’s education and health reap digital dividends in the form of faster growth, more jobs, and better services.33

http://www.worldbank.org/en/news/feature/2016/04/16/digital-technologies-offer-opportunities-for-economic-growth

NIGERIA TECH INDUSTRY REPORT 2018

49

Nigerian Tech Sector: Key Findings From Briu Survey

The survey showed that respondents were unanimous in their views regarding the attitude of government, which they described as lackadaisical, towards encouraging innovative solutions.

Sources of Fund Respondents were divergent in their views concerning their major sources of fund. 30 per cent of respondents indicated local sources of fund as the major avenue from which tech hubs derive their capital for up-scaling and other operational necessities from.

Major Source of Fund (%) 30 10 Foreign and Local

None

10 Local Govt/Foreign

20 10 Foreign

BoostrappingLocal

20

Local

In an attempt to gauge the pulse of Nigeria’s tech ecosystem, the BRIU conducted a survey of major tech hubs in Nigeria. The survey was carried out using a 25-question questionnaire to elicit the views of hub owners, start-up founders and co-founders, investors and other major stakeholders in the tech space of Nigeria.

Closely following local sources is the combination of bootstrapping and local sources (20 per cent), on one hand, and the combination of both local and foreign sources (20 per cent). 10 per cent of respondents said that their major funding source was foreign sources (and this hub has a foreign root).

On geographical basis, the BRIU survey found that about 40 per cent of hubs in the Northern part of Nigeria basically get their funds strictly from local sources. This compares with 20 per cent of hubs in Lagos which

NIGERIA TECH INDUSTRY REPORT 2018

50

stated that their major source of funding was foreign-based.

Foreign or local funder: who is a better suitor?

Majority of respondents (60 per cent) affirmed that foreigners are more interested in the Nigerian tech space. They said this interest is driven by the huge prospects of the country’s tech ecosystem anchored on the ability to development of unique local solutions, large population, and other factors that point to the possibility of generating large and sustainable return on investment.

Foreign and Locals: Who are more interested? (%) 60 40

0 Local

Foreign

Both

Yet, 40 per cent said that foreigners and locals are both interested in the tech ecosystem of Nigeria, adding that the

interest of local investors is still minimal as majority of local players do not understand the business model of tech start-ups.

Causes of Tech Start-up failures Respondents listed various problems and/or challenges facing tech start-ups in Nigeria.

Among the factors enumerated as impediments to start-up success in the country, 50 per cent of respondents singled out the lack of government support to young start-ups and acute shortages of mentorship schemes.

Others included wrong product and business model (30 per cent), inadequate infrastructures and business tools (30 per cent), lack of funding (20 per cent), low adoption due to preference to foreign products (20 per cent), lack of support from financial institutions (20 per cent), failure to execute sales and marketing (20 per cent), not having the right co-founder and team members

NIGERIA TECH INDUSTRY REPORT 2018

51

Factors that cause startups to fail Lack of government support

50%

Low adoption due to preference for foreign

20%

Absence of technical support

10%

Poor capacity of tech hubs

10%

Lack of support from fiancial institutions

20% 50%

Lack of mentorship ignoring social media

10%

Failure to execute sales and marketing High cost of doing business

20% 10%

not having the right co-founders/team

20%

Cahsing investors/profit and not customers

20%

Wrong product and business model

30%

Inadequate infrastructure ans business tools

30%

Lack of focus and persistence

20%

Lack of funding

20%

Source: BRIU

(20 per cent), chasing investors and not customers/solutions (20 per cent).

Problems of Tech Hubs Poor funding is one major factor hampering the growth of tech hubs in Nigeria. This was confirmed by 70 per cent of the respondents as 50 per cent said that poor government policies

and infrastructural facilities are the major impediments to the development of tech hubs in Nigeria.

Factors deepening fintech penetration in Nigeria The responses to the question asked above included: • Improvement in digital penetration in the country;

NIGERIA TECH INDUSTRY REPORT 2018

52

• Availability of market for fintech management; products; • Crime and robbery experience; • The market need; and • Adoption of the cashless policy; • Deepened customer • Data collection, use and engagement and product usage.

70% 50%

50%

Poor infrastructure

Poor government policies

40% 20% 10% Poor funding

Source: BRIU

Lack of ideas/ innovation

High cost of business

Inadequate funders/ investors

NIGERIA TECH INDUSTRY REPORT 2018

S/N

Name

Categories

No. of Deals

53

Last Funding Type

Year of Last Deal October 19, 2017

Total Investment ($)

1

Aella Credit

Financial technology

2

Seed

2

Amplify

Financial services

1

Venture Series June 6, 2016 Unknown

undisclosed

3

Appzone

Apps, banking and financial technology

1

Undisclosed

June 11, 2014

undisclosed

4

Autobox

e-commerce

2

Non-equity assistance

May 1, 2015

undisclosed

5

Big Cabal Media

Brand marketing, consumer and retail

1

Venture Series March 31, 2016 Unknown

undisclosed

6

BudgIT

Government, Information Services, Information Technology, SaaS, Software

3

Grant

January 25, 2017

2,933,993

7

BuyPower

Mobile apps, Mobile payments, Payments

1

Seed

March 21, 2017

undisclosed

8

CafĂŠ Neo

Coffee, Consumer goods, Food and Beverages

1

Venture Series March 31, 2016 Unknown

undisclosed

9

Cars45

Automotive, e-commerce

1

Series A

5,000,000

10

Curacel Health Systems

Health Care

1

Venture Series August 12, 2016 Unknown

undisclosed

11

DealDey

Internet, Local business, Retail

1

Series B

5,000,000

12

DevtonLearn

Edtech, training, education and Video

1

Venture Series September 8, 2015 Unknown

13

Edurecords

Education and Information Technology

1

Angel

November 16, 2016 156,750

14

FarmCrowdy

Agriculture

1

Seed

December 18, 2017 1,000,000

15

Farmers.NG

Agriculture, farmers market, local

1

Non-equity assistance

June 7, 2016

undisclosed

16

Flutterwave

Developer APIs, payments, and software

5

Series A

July 31, 2017

10,170,000

17

Foodstock Farmers Market

Agriculture, e-commerce, food processing, internet, organic food and retail

1

Series A

December 21, 2016 N3,000,000,000

18

Gloo.ng

E-commerce, Retail, Shopping

3

Seed

January 17, 2017

740,000

19

GoMyWay

Car sharing, public transportation, ride sharing

1

Non-equity assistance

May 1, 2015

undisclosed

20

Hotel.ng

E-commerce, Hospitality, Internet, Tourism, travel

3

Series A

February 28, 2017

1,650,000

21

Hutbay

Advertising, real estate and search engine

2

Undisclosed

November 20, 2017 undisclosed

22

Interswitch

Payments and software

2

Private Equity

March 6, 2017

10,500,000

23

Iroko Partner

Internet, Media nd entertainment, Video Streaming

3

Series E

January 25, 2016

35,000,000

24

Jumia

E-commerce, Shopping, Internet, Marketplace, Online portal, Real Estate, Travel Accomodations, Delivery.

4

Venture Series March 3, 2016 Unknown

720,004,749

25

Kangpe

Health Care, Mobile Apps, Personal Health

1

Seed

undisclosed

May 1, 2017

February 19, 2015

March 21, 2017

150,000

Undisclosed

NIGERIA TECH INDUSTRY REPORT 2018

54

S/N

Name

Categories

No. of Deals

Last Funding Type

Year of Last Deal

Total Investment ($)

26

Kiakia

Financial services, artificial intelligence, predictive analytics, machine learning, consumer lending, financial technology

2

Seed

November 30, 2016 50,000

27

Konga

E-commerce, Grocery, Internet, Mobile, Shopping

4

Series C

October 8, 2014

78,500,000

28

Kudi

Artificial Intelliegence, Banking, Financial services

1

Seed

March 21, 2017

undisclosed

29

Lawpadi

Legal, Advice, Internet

1

Grant

March 23, 2015

5,000

30

Lidya

Finance, financial technology, financial services

1

Seed

March 29, 2017

1,250,000

31

Lifebank

Health Care, Hospital

1

Non-equity assistance

May 1, 2015

undisclosed

32

MediSmarts

Health care, Medical Device, Software

1

Seed

December 2, 2015

undisclosed

33

Meditell

Health Care, Information Technology, Software Engineering

1

Venture Series September 2, 2014 Unknown

undisclosed

34

MOBICure

Health Care

2

Grant

117,631

35

Mobidoc

Health

1

Venture Series March 7, 2017 Unknown

undisclosed

36

Mobile Forms

Database, Mobile, SaaS

2

Seed

July 24, 2017

170,000

37

Oga Venue

Events, marketplace, online portals

1

Seed

August 18, 2016

45,000

38

Paga

Financial services, financial technology, internet and mobile payments

3

Series B

October 6, 2015

13,000,000

39

Pass.ng

Apps, E-learning and Edtech

1

Seed

January 1, 2015

undisclosed

40

Paystack

Financial services, payments and internet

3

Seed

December 19, 2016 1,420,000

41

PayWithCapture

Internet, payment and software

1

Non-equity assistance

December 1, 2015

undisclosed

42

Piggybank

Financial technology and financial services

1

Seed

April 28, 2017

50,000

43

Podozi

Beauty, e-commerce, Lifestyle, shopping

2

Seed

January 17, 2016

120,000

44

Prepclass

E-learning, Edtech, Education

2

Grant

May 3, 2017

ÂŁ250,000

45

Printivo

Printing, Internet, E-commerce

3

Venture Series May 1, 2017 Unknown

112,500

46

Proteach

Education

1

Seed

September 19, 2016

20,000

47

Real E

Consumer applications, property management, real estate

1

Series A

September 2, 2014

undisclosed

48

Releaf

E-commerce, B2B, marketplace

1

Seed

August 1, 2017

120,000

49

RSVP

Mobile payments, payments, trading platforms

1

Series A

September 2, 2014

undisclosed

50

StudySearch

Apps, Education, Training, Universities

1

Seed

January 1, 2015

undisclosed

51

Suregifts

E-commerce, employee benefits, financial services, gift card, loyalty programs, payments

3

Seed

September 9, 2016

450,000

October 16, 2017

NIGERIA TECH INDUSTRY REPORT 2018 S/N

Name

Categories

No. of Deals

55

Last Funding Type

Year of Last Deal

Total Investment ($)

52

Thrive Agric

Agriculture

1

Seed

May 15, 2017

20,000

53

Tizeti

Internet

1

Seed

May 22, 2017

2,100,000

54

Topcheck

Financial services, internet and price comparison

2

Seed

August 25, 2015

1,100,000

55

TravelBeta

E-commerce, travel, tourism

1

Seed

November 16, 2015 2,000,000

56

ToLet

E-commerce, internet, real estate

2

Series A

September 20, 2016

1,400,000

57

Go

Apps, transportation, travel

2

Non-equity assistance

June 7, 2016

35,000

58

Tuteria

E-learning, Education, Tutoring

6

Non-equity assistance

November 21, 2017 110,000

59

Uregista

E-commerce, Enterprise Software, Events

1

Venture Series September 2, 2014 Unknown

undisclosed

60

Stutern

Education, internet, recruiting

1

Seed

5,000

Source: Crunchbase, BRIU

January 15, 2015

56

NIGERIA TECH INDUSTRY REPORT 2018

Pertinent Views From The Nigerian Tech Space “Nigeria tech space is increasingly becoming attractive to foreign and local investors because almost about 80% of most entrepreneurs and businesses are tech dependent for the success of their products or services.”

Franklyn, Operations Manager, Seedspace

“The increasing interest of foreigners in the tech space in Nigeria is hinge on the potential of an immediate return for value given the population of the country. The trend is gradually changing as more technology enabled businesses are been started which is a direct result of people becoming more aware of the value of technology in their everyday lives.”

Eriko Henry Oko, Co-founder/CEO, Eriko Freelance Market

“The advancement of Nigeria in a cashless society is encouraging more people to be comfortable using alternative solutions. These solutions are the fintech solutions.”

Folagbemi Olujuigbe Executive Assistant/Program Manager, Startprenuers Limited

NIGERIA TECH INDUSTRY REPORT 2018

“Government’s level of involvement in the tech ecosystem is very low and much needs to be done. Government needs to have a dedicated focus on engaging hubs to develop the start-up ecosystem” Adeyinka Adekeye CEO, Founders Hub

“Tech is the new oil in Nigeria. With the initiative from Google, Facebook, Microsoft, Andela, Hotel.ng, Stackflow etc. to train younger Nigerians in coding and programming, Nigeria is on its way to produce the youngest set of programmers in the world because even a child in primary school can tell you a thing or two about coding and can write codes confidently.”

Nnamdi Okereke Chief Program Coordinator, East and West Region, Co-Creation Hub

“In curbing the challenges of the sector, the government can utilize the hubs in implementing its several intervention programs and focus more on providing the enabling environment. Also the ease of doing business should be addressed as well as constant reviews of government policies. Largely our approach has been to create as much advocacy on these issues with the hope that it would create a change. Also we’ve consolidated efforts of hubs to a centralized network such that the unity of all hubs in Nigeria is a formidable backing enough to access/attract foreign investments.”

Osasenega Enogieru, Program Manager, Enspire Business Incubation

57

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NIGERIA TECH INDUSTRY REPORT 2018