State of Nigerian Startups: Why our Entrepreneurs Need a Unicorn

For all the enthusiasm about the African technology scene, one thing has not happened. Africa does not have a unicorn – private company, largely technology firm, with a valuation of at least a billion dollars. Sure, the prospect of having a unicorn could be correlated with the size of the economy and the absence of it does not mean Africa is not trying hard enough. It is easier for U.S. to have many unicorns because the “economic forest” is so big to accommodate such special animal breeds.

Nevertheless, in this New Year, it is important to discuss the state of the entrepreneurial ecosystem and Africa’s path to owing the special animal. With the connectivity and transborder capabilities that information technology has provided in the world, the creation of innovative companies should not necessarily be discussed within the constructs of geography. As cloud computing redesigns the world of technology, anyone, anywhere, ideally could compete from any location on earth. This means that one does not have to be living in U.S., India, Western Europe, Japan or China to create a unicorn.  So, African entrepreneurs do not have a really valid reason for having not bred the animal in their garages or labs.

Good ideas like success have relations while bad ones are orphans. This means any African entrepreneur with a really transformative idea can see it scale globally and create enormous wealth for its stakeholders. The domicile to generate such ideas is now irrelevant because knowledge is freely shared as Internet has collapsed boundaries and provided means for people to collaborate seamlessly. Also, markets are now more accessible that an entrepreneur can design in one country with its main market in another.

Israel with its history of creating innovative technology companies has always seen U.S. as its primary market. African entrepreneurs can have the same philosophy. The problem though is not the understanding of the markets, rather, on the technical capabilities to engineer products and services with cross-border appeals.

An entrepreneur in Niger Republic with its $7.5 billion economy cannot ideally breed a unicorn if it focuses solely on Niger Republic.  But when it looks outside for its market, it improves its chances. But entrepreneurs in South Africa and Nigeria have the right markets for them to create unicorns as the economies are relatively large. The question then is why we are not close? Let us look at Nigeria; another day, we will consider South Africa and Kenya.

Interswitch, which processes payments for banks and owns a brand of debit cards in Nigeria, is one of the top technology brands in Nigeria. The company is rumored to be planning for IPO in London this year. When Helios invested $96 million in 2010 for 52% stake, the company was many multiples away from being a unicorn.  When you consider that E-Transact, a major competitor, has a market capitalization of N12.8 billion (about $60 million) in the Nigerian Stock Exchange, one will expect Interswitch valuation to have been fully priced when Helios invested.

Besides Interswitch, Konga is another important local technology company. During its last funding round, it was valued at $200 million, way below the unicorn cut-off. Furthermore, the valuation of Konga can be estimated by looking at public numbers from Jumia since both compete head-to-head (Jumia loses more money than it makes via revenue).  The public numbers on Jumia as reported by German Rocket Internet, the owners, shows that Konga is even over valued at $200 million. It is expected that the present currency crises, forex scarcity, etc will impact these companies negatively in the Nigerian market which is their largest.

For Pagatech, despite the parade of high quality investors, the firm cannot have a market valuation of more than $100 million when public-traded E-Transact is at $60 million. Pagatech has pivoted from its initial mobile money business to all kinds of electronic payment gateways. Though it has processed more than $1billion in transactions value from 17 million transactions, as at October 2015, the market has become more competitive with Konga moving into the sector and foreign entrants like WeChat, SimplePay etc all moving into the domain of facilitating and enabling electronic payments in Nigeria. The success of SystemSpecs on Remita which processes payments for federal government and its parastatals in Nigeria indicates that the bulk of the profits are outside the reach of Interswitch, Pagatech and others since the public spending at federal level is a big part of the economy. Losing Nigerian Customs, Securities and Exchange Commission, Corporate Affairs Commission, Industrial Training Fund, etc will mean Pagatech and others will have to focus on the private sector.

Incidentally, there is one technology company in Nigeria the blogosphere does not write a lot, that owner of Remita.  That is the SystemSpecs. SystemSpecs is an old company founded by one of the leading technology pioneers in Nigeria. He has more success than anyone in the technology sector in Nigeria at least within the constructs of creating value in the market. John Obaro, the Managing Director, has penetrated every corner of Nigeria’s economy with his products. He is known in governments and he has internal capital to finance PPPs (public private partnerships) which gives his company an advantage over start-ups. That advantage will be strategic as crude oil price continues to fall cushioning governments to seek partners that can fund projects and share revenue. The Remita business model came from that ideology – one that will drive the future in public sector at federal and state levels. How much does SystemSpecs worth? We put it at around $150 million because of the Remita contract with the Nigerian government.

Why? Because the public-traded technology integrator, Computer Warehouse Group is valued at $34 million. Though CWG does not compete directly with SystemSpecs, there is an indirect component since CWG specializes in representing foreign companies which offer similar services to what SystemSpecs offers. So, the $150 million we have for SystemSpecs is even generous.

For Omatek, Zinox and similar companies like Task Systems, the individual market valuation is below $20 million despite their obvious local popularities. Public-traded Omatek is valued at $7 million. The Nigerian Stock Exchange (NSE) has a reputation of diminishing the value of technology companies. It is either the analysts do not understand their values or that the companies have not produced results good enough to change that trajectory; both are of course interrelated.

Moving to the travel and transportation start-ups, Wakanow and Hotels.ng, the best optimistic valuations for these companies will be maximum of $10 million. Hotels.ng is rumored to have raised its last fund from Omidyar Network and EchoVC at about $4 million valuation. Wakanow, an online travel agent, sees competitions from all angles from Jovago to Trivago.

Kuluya, a game company, is valued at $2 million. Jobberman, the recruitment firm, which was acquired by One Africa Media got out early. Knowing that One Africa Media which owns Jobberman, Cheki, Private Property and other companies has a valuation of $557 million, we deduce the local firms are not even close to being a unicorn. ToLet, Dealdey, NGCareers, Drinks.ng, Oya, and Gloong are promising but none is estimated to be worth up to $3 million yet. Visit Tekedia directory for Nigerian start-ups and ICT firms. In the directory includes Printivo.com, the Nigerian online printing start-up that closed a seed round with EchoVC for the $200 million Nigerian sector. We estimate this company to have a valuation of at most $500,000.

Possibly, you are waiting for us to get to the big one – IrokoTV, the big money-raiser from Tiger Global and others until Konga crashed the records with $25 million.  IrokoTV is currently valued at around $50 million. And AppZone which is very profitable  in which South-Africa’s Business Connexion invested $6 million in 2014 is worth about $15 million.

Nigeria; Now what next? We are on track but still far from seeing a unicorn. We need the entrepreneurial hunters desperately to kill a unicorn because the earlier we can parade one in the Eagle Square Abuja, the easier it will become to have foreign and local investors come to the funding party. Let’s do it!