Why Nigeria Needs Reforms in the Venture Capital Sector

Apple’s cash balance is about $261.5 billion. And the stock prices of Google (yes Alphabet), Microsoft and Facebook are trending higher and higher. Amazon and Apple are in their own leagues, hitting close to the highest numbers they have ever recorded. This is turning out to be a golden age of technology.  Technology is ruling nations and markets are totally being redesigned. Today, energy companies like Exxon Mobil are systematically making ways for technology firms as the most valued entities.

The fascinating thing is that this is a virtuoso circle: the more capital these companies have, the easier it will be for them to buy out new entrants and also fend off competition, in any form. Facebook owns a platform and the users generate the raw materials (the photos, comments, feeds, etc) which the company feeds upon. Google specializes in aggregating web contents and videos, making them available for users to peruse. The capacity to aggregate contents makes these companies to be asset-light with high scalable advantage running at marginal costs for new users approaching near-zero.

As you look into how these companies operate, you can see clear utilities in action. You can even be bolder: monopolies in their respective technology categories. There is nothing that will change the trajectory in the near future. Even if government breaks them apart, the fact remains that another company will take over their positions. Web businesses have this inherent feature that makes them organically regenerative: if you break Facebook because of its influence, another company will just take over its position. That regenerative capability is that ability to get better with more user data. That is what they call network effect:

The network effect is a phenomenon whereby a good or service becomes more valuable when more people use it. The internet is a good example. Initially, there were few users of the internet, and it was of relatively little value to anyone outside of the military and a few research scientists.

So breaking Google will not fix the issues. One day, another company will grow to replace what Google does today. Web businesses get better with growth, unlike meatspace companies where more customers like in a bank hall will frustrate the users. This is a special feature I have captured in inversibility construct: 

For the Inversibility Construct, you need to turn a typical frustration in the meatspace into strength in the digital space. That means, you need to INVERSE the experiences of people, so that what annoys them in the physical becomes strength in the digital space. I provide some examples:

The Nigerian Challenge

As you see what Google and other American companies are doing, it does seem that they are esoteric with practically no chance for any company in other parts of the world to challenge them. But when you go back to history, you will notice that there was nothing like Silicon Valley before Shockley invented the transistors and legends like Gordon Moore made the two words “Silicon Valley” something iconic. So, Silicon Valley became because men (and women) made it happen.

One of the key enablers of this new ‘city” was the on-boarding of investors who came to seek opportunities. Sandy Hill Road, Menlo Park (California) became a street into the future of the world where many investors made homes, investing in game changing companies. Those companies saw opportunities and came, and they also seeded new opportunities. It became a positive continuum which remains till today.

To create such enablers in Nigeria, I propose the following specifically for the VC sector:

• Government should offer new VC (venture capital) firms in Nigeria a ten year tax incentive on profits if they have asset base of at least $50 million and will deploy the capital in Nigerian startups within 10 years.
• Offer new VC firms in Nigeria the opportunity to repatriate 100% of profit within ten years. That will help the country to attract foreign investors to make Nigeria home.

If we have this type of incentive, we will see many VC funds making Nigeria home to explore opportunities in Nigeria and continental Africa. That influx of capital will have many multiples of benefits to our economy, our people and the Nigerian technology space. Today, we are having the capital problem, and government can make it easier for our startups to receive the funding they need. A new reform on VC will go a long way. Government does not need to spend any of its money. All it needs to do is to make it easier for investors to come to Nigeria and do business. We simply need to make the offers more attractive to these investors.

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