We Have Eyes, But Cannot See!

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Nigeria has one of the largest entrepreneurial workforces on the planet. Over 37million small businesses and counting. Why? Is it in our blood? Is it in the water? Perhaps. But it’s also due to necessity. Nigeria and Nigerians are entrepreneurial because they have to be; there’s no other realistic means of surviving. We work and we build and we adapt as if our lives depended on it. Our country’s overall lack of infrastructure and societal organisation means that the gaps are filled not by the State, but by the people; by entrepreneurs.

“Necessity is the mother of invention”

In terms of technology companies, we’ve seen some really striking and dynamic companies coming through and solving problems / filling the gaps. Need to make or receive online payments? Paystack and Flutterwave exist in this space. Want to watch Africa’s favorite films online? IROKOtv has literally built the entire online Nollywood market from scratch. Want to supplement your children’s education using online activities and up-to-date curricula? Guess what, we have a homegrown solution for that, in the form of uLesson.

Each of those companies has strong, battle-hardened Nigerian entrepreneurs powering them; Nigerians who understand the nuances and peculiarities of the Nigerian [and African] market, as well as who actually grasp the size and scale of Nigeria’s internet-enabled population — *spoiler alert* for international investors, yes Nigeria may have a population of around 180 million [no-one really knows — but that’s another blog post], but no, that is not the size of the market that any technology company is able to reach. That being said, the market is growing — and has certainly been accelerated by COVID, where we’ve seen a lot of companies embrace digital and technology to fill the gaps [notably in healthcare, education, e-commerce] in increasingly innovative ways, with many more opportunities to scale at a rate the country has never seen before. COVID, for all its terrible after effects, is also going to be the best educator and catalyst of the merits of digital in our country.

The raw materials, the energy, the industry knowledge is there. And some companies are actually scaling, which means they are well positioned to attract investment. From what I can see, there are some exciting deals and investments to be made in companies that will absolutely change the face of doing business in Nigeria. Deals and cheque sizes that I would describe as modest, in comparison to the petro-chemical / PE infrastructure deals we’re used to seeing Nigerians invest in. Yet sadly, on the whole, we see Nigerians continuing to emotionally and financially commit to the likes of Eurobonds; they don’t even invest in the stock market. It is actually dominated by foreigners, so even that market is shallow and concentrated.. and that again is attributed to lack of information and information asymmetry.. the house always wins.

No place like home. Except when it comes to Investment…
Nigeria start-up and tech PLC’s main residence isn’t Lagos, Nigeria; it’s Delaware, USA. And its financial residence? It’s global [US, Europe and increasingly China], not Nigeria. The vast majority of investment into Nigeria’s tech sector still comes from the abroad, including the beacons of our sector that I’ve highlighted above. It seems that international investors know something we don’t. It seems they trust the market more than we do and are willing to look beyond more traditional investments. Importantly, it seems we’re going to be missing out when they are cashing in and the exits happen. Our Nigerian consumers’ Naira will have helped build multi-million dollar businesses, and when the early investors’ shares vest, the money will be returned to Dollar accounts.

As a long-term investor in Nigerian technology start-ups, I’ve thought long and hard about why Nigerians won’t invest in Nigeria, and for me, I feel that it comes down to trust; is there enough trust between Nigerian investors and Nigerian companies? Anecdotally, and at the deal-making stage, I’ve heard on numerous occasions from both sides, “I just don’t trust them”. Let’s try and figure out why.

Quite simply, Nigerian investors are looking for certainty; they don’t do patient capital — especially when it comes to tech. Add to this the fact there have yet to be any sizeable or significant exits in the sector, and this fuels their skepticism over technology and how tech companies scale. And yes, I am writing this in the same week that Jeff Bezos’ wealth increased by $13bn in one day. And yes, I am writing this at a time when Interswitch’s second attempt at an IPO has been postponed. Blueprints are there for technology company success stories abroad. But there aren’t any blueprints [or should that be greenprints] for Nigeria. Yet.

Peculiarly, as with so much wealth in Nigeria, money or commodities have to leave the country, before we deem it useful or investment-worthy. In the case of oil, we export crude oil and import it when it has been refined elsewhere. In terms of investing, wealthy Nigerians and Nigerian funds will invest in international PE or VC funds, which then circuitously invest in Nigerian technology companies. Nigeria — the land of the middle man. Again, this falls to lack of trust; an investor will seek refuge for their millions in an international pot of money, managed by international advisories — but they won’t disburse any angel-sized cheques to local companies that are scaling.

The trouble is, in Nigeria, we know that there is [generally speaking] very little discipline or good governance from investors. They are not investing in the appropriate structures to work with and invest in start-ups. There are too many stories to tell. And on top of that, they will also want to put their money in something they can see; like Lekki apartments [which themselves, must really be patient capital as the prices for land and buildings certainly don’t yield the returns quickly]. But they feel that they can trust a physical building in Lekki, more so than an insurance or financial technology or ecommerce or healthcare company headed up by someone under 30 who doesn’t wear a suit to work. In the same way they feel they can trust Eurobonds — they know about them, they see the returns, they trust the process. Our job now is to educate investors on the sector, the opportunities, the returns and build their trust in the entire process.

But let us not attribute blame in such a one-sided manner. In terms of the technology companies seeking investment, what do they need to do in order to grow trust between them and investors? First and foremost, there’s definitely a need for a more professional and consistent approach to the clerical side of investor relations. By this, I mean as a sector, start-ups need to build trust in terms of adhering to NDAs, respecting the contract of the law [in Nigeria] as well as delivering investor reports on time, better transparency with funds and shares allocation and more. Being better at the governance and process, having a more robust understanding of what needs to be communicated to investors, and when, will definitely help in terms of building trust.

There is money in the market; lots of it. Nigerians invest — so we don’t need to educate them in the concept of investing, more a case of spreading their bets and casting their nets a little farther than usual, diversifying their portfolios and embracing risk a little more readily. I don’t want to envisage a future where our country’s most promising, scalable companies, are primarily owned by foreigners. It creates no value. It creates no trust. These are two of the core tenets we built Sparkle on, creating value and trust — and which have also informed my own investment ethos when selecting Nigerian companies to invest in through Black Knights. If we don’t get our act together and work together from all stakeholders’ perspectives, we may never get the opportunity again.

We need to rally our Nigerian investors now, before we lose all the value our new technology companies are building in the country; we need to move to invest now, in order to halt the second wave of colonisation whereby our assets are stripped and profited by outsiders. By no means do I want to deter international investors from investing in our companies — let us welcome them and their interest in our market — but I want this to happen alongside Nigerian investors, so that the wealth creation will be felt beyond them leaving. I want our national reserves to be full, and not depleted upon their exits. We want Nigerians to have a majority and not a minority stake in Nigerian tech companies, but we can only do this if we invest in our people, before we lose out.

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