The Growth Fund Gap : The Big Need for Proven Nigerian Tech Startups
In 2014, we founded Leadpath. A seed fund to invest $25k to $100k in local tech startups. Our first approach was to copy the Y-combinator accelerator model i.e work with the startups for three months and then have a demo day where we could bring in other investors. Big mumus we were.
We quickly found out the aforementioned model doesn’t work. In three months, the startups were just getting started (Imagine a startup working with a telco for billing via a VAS model, the telco took two months to even finish integration!). So clearly this is no Silicon Valley, some things take longer here as we found out.
We also realised that having a demo-day in 3 months and expecting other investors to come in at a higher valuation(of course…:)) wasn’t going to happen. The investors weren’t just there and it made us realise that the follow on investors we were looking for will have to be us again!
Thus, a “second seed” had to go into some of the ventures. This became necessary as we had seen MVPs built, business models proven, early customers but then No follow on investor with the cash to propel growth. The second or even at times third seed helped the ventures carve out unit economics that ensured ramen profitability while waiting for the big cheque!
However, ramen profitability isn’t why we are here. So when you see certain startups in every pitch competition seeking grants or prizes, just know they are trying to stay alive while waiting for the growth round. These founders had big dreams and achieving huge scale within a short time is what technology helps you achieve.
This was 2014 and a couple of growth funds are now in place like the GCfund from CChub, but we need several more players. This funding size should be a sweet spot for investors as the companies have proven models already and investors can come in at a valuation cheaper than a Series A round. Our ecosystem needs a couple of serious angels who can write several cheques into a pool and present to a venture.
The traditional Nigerian Investors ( HNI with investments in Real Estate, Commodities etc) are slowly getting it. I get requests from some of these folks who say “Olumide, I know there is something happening in this technology, come and triple my money”. My response is usually, give me small amounts((to them anyway) like 10m Naira or 20m Naira but leave me alone and don’t call me for the next 5 years! So unlocking local capital is very important for our ecosystem as that ensures wealth is created and remains here, however these same investors currently risk being left out by not coming to the party. We are seeing interests from the likes of Y-combinator and 500 Startups and these folks will happily invest in our best companies. How unfortunate will it be for locals not to participate in the possible wealth created from our best companies?
Finally, I believe folks like myself need to continue the investor education and this will surely help in providing that growth fund that proven local tech startups urgently need.
P.S: I shared this write up with two of my HNI “Egbons” already, and it seems I have two cheques on the way..:)