There’s too much money in Nairobi.
That’s one way to explain why some venture capitalists are setting their sights elsewhere.
Largely off the back of Mpesa, the hugely successful mobile money-transfer system, the Kenyan capital has gained a reputation for technological innovation—and with it an influx
of no-strings (or few-strings) development funding that has crowded out
some of the private investment searching for tech startups to finance.
Now investors are looking to the other side of
the African continent for results. Nigeria, with nearly 200 million
people, a growing economy, and no shortage of local problems, stands out
as an option. It’s slowly building up a tech sector of its own. The
funding circuit is still small: probably no more than 10 companies
investing money, says Kresten Buch, founder of the Nairobi tech
accelerator 88mph (which has since expanded to South Africa).
Buch recently started working with Chika Nwobi of seed investment firm Level 5 Labs in Lagos, to become the latest investor to enter Nigeria. The pair have teamed up to start 440ng,
a tech accelerator that puts between $20,000 and $100,000 into startups
and provides a workspace and mentorship. It graduated its first cohort
of nine startups this week. (Underscoring the newness of the local tech
scene, only two of the nine have founders with prior startup
experience.)
The biggest difference between Nigeria and other
major African economies is its sheer size. With roughly four times as
many people as Kenya or South Africa, Nigeria is big enough to reward
products and services that are domestic in nature. “When I was investing
in Kenya and in South Africa, it was very hard to find businesses in
those markets where the opportunity is big enough for them to stay in
that market. Nigeria has parallels to the US market, where you can say,
‘Let’s just take the US, even if we stay there, we will become a very
big company,'” says Buch.
The first set of companies that are growing up in
Nigeria, says Nwobi, are based on proven models from the West: things
like travel, e-commerce, jobs, and deals. “But now I think, what I’m
seeing with 440ng, is more people trying to solve more local problems.”
One example of that is Obiwezy,
a venue for selling used smartphones. Nigeria is primarily a pre-paid
market, where customers pay the full cost of a handset up front. That
puts most high-end devices out of reach for all but the very rich. But
the aspiration to own a high-end Apple or Samsung handset remains, as it
does elsewhere in the world. Obiwezy’s founders figure that a
secondhand market—with warranties—is one way to sate that demand. They
have tied up with MTN, a large telco, to offer the service.
Attribution: www.qz.com
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