Investing in Nigerian Startups…

I sent the tweet below out two days ago and it caused a firestorm of discussion on Nigerian Twitter…some of the tweets supported my view while others took it out of context, and others yet went as far as mocking me but hey that is par for the course online. I decided to flesh out my thinking further through this post. It has been a while since I posted so good reason to be back here…

I first want to own a few things. I am privileged to have been able to leave Nigeria in 1994 (aged 16) and attend two of the best universities in the world. For now we will forget that those experiences did not come easy or that I worked multiple jobs to make ends meet, couldn’t pay rent of $50/month at times, or was once a janitor in my own school mopping floors asking my classmates to excuse me. All that matters is that based on attending these schools, especially Stanford Business School, I am part of the 1% in the U.S and Nigeria. Oh and I worked in Silicon Valley doing Venture Capital at Cisco. I have “access” to a network. I am grateful and recognise it. I own it. I won’t apologise. So now that is behind us, back to the topic…

I chose to move back to Nigeria in 2008 because I wanted to be part of the economic redevelopment of Nigeria. My personal mission is to help build the funding ecosystem in Nigeria and to change the face of our country one idea at a time. I believe my impact will not be just from companies I start but from partnering with other entrepreneurs. That partnership will be primarily as an investor but I also hope to mentor entrepreneurs who are solving relevant problems that can impact Nigeria, Africa, and indeed the world.

In 2009 I started working on my first big idea — Paga ( To achieve the vision I have for Paga we will invest north of US$100m. To do this we clearly have to raise money, and in Nigeria there is a dearth of capital for early stage companies. Most high net-worth individuals invest in their own businesses not in others; most PE firms are focused on profitable businesses that need to scale. As such, since 2009 I have been pounding the pavement and talking to anyone and their grandmother, if needed, raising money for Paga and promoting investing in Nigeria. At the same time while also working to execute a complex business in a very tough market. So if some people know something about the challenges of raising money in Nigeria, I am one. If some people also know something about running a business in Nigeria, I am one.

There are more seed stage investors today than in 2009. Other entrepreneurs or business savvy individuals willing to invest $25/50k in startups. We are seeing a rise in seed stage funds (EchoVC, CCHub Growth Fund, Microtraction), angel networks (Lagos Angel Network), or semi-formal angel clubs (Spark, Kairos Angels — led by a friend and me), local incubators, and yes — international accelerators/incubators. While it is easier than 2009, it is still VERY VERY HARD to raise money for most entrepreneurs. The money just isn’t easy flowing and the macro situation in Nigeria does not help.

In the past year we have seen interest in Nigeria from international accelerators or incubators and it has created a lot of buzz. I don’t know the first company to get accepted to Y Combinator but there have now been a few. There are also other accelerators that have accepted Nigerian companies. This is a welcome development. Getting $50k-$200k to get your business off the ground could literally be life changing. Early days of Paga, a friend of mine invested $5k and I literally cried — I knew his $5k was a huge sacrifice for him.

Have no doubt, I am 100% supportive of international accelerators and incubators finding Nigerian startups and investing in them. However, how the investment choices are made, and how the entrepreneurs approach the investment is as important to the ecosystem as the inflow of cash.

Making investment choices in Nigeria today

Nigeria is still at a place where we need base infrastructure in various sectors. There are so many problems to solve. Investors need to understand the market well enough before making choices on which businesses are solving a relevant problem and have opportunity to scale and provide a reasonable return given their alternative investment destinations. While no one is trying to be the “gatekeeper” and deciding which business to invest in is not a science, there are some clear BAD ideas for Nigeria today. As an example, Uber for petrol in Nigeria is a BAD idea at this stage of Nigeria’s development. Guess what — 20 years from now, it might not be. Yet, this BAD idea for Nigeria just raised $20m to execute in the US market.

Let’s call a spade a spade. Some Nigerians go and sell their ideas to the accelerators and incubators no matter the level of work they have done to evaluate the viability of the idea first. Especially if they can speak the same “oyinbo” and maybe went to a US university. The hope is that the international investors will first have the bias of thinking about it in their own market context and if they don’t come to Nigeria to see/feel the country they won’t know the challenges so you’ll get your $50k and keep moving. However, when it goes bunkers those investors will be burnt and it hurts all of us. Sometimes we need to walk away from ideas because they are not market ready. I spent 3 months going through a list of ideas diligently — understanding the market and talking to people to learn the challenges — before I decided on Paga. One of the ideas I walked away from at the time is actually now one that we are about to launch within Paga’s holding structure (so same investors) and leveraging Paga services the way we hope 3rd party developers would use Paga for other opportunities. It is an idea I am confident I could have sold to US investors in 2009. They’d get it. However, Nigeria was NOT ready for it. We would have lost money and made little to no traction.

As an angel investor in this market I know that local knowledge and the ability to measure and gauge the doggedness of the entrepreneur(s) are the most important factors.

Nigeria is not a place to make angel investments after one meeting as is done in the Valley. Here you need to spend time with the team over months. See how they think through issues, how they tackle obstacles, understand their passion for what they do. How they deal with the numerous non-market forces one faces here. My advice to international accelerators and incubators is partner with local investors to source ideas, visit Nigeria regularly, walk these streets, learn the market broadly. The way Valley VCs and angels made money in Israel was this model — they partnered with local investors first. Then later put their own people on the ground.

Given the dearth of capital, ALL of us should be pushing for this approach — not so that money is “gated” but so that the BEST ideas are funded. That gives the best chances for returns and for more money to flow.

Actions of Entrepreneurs Matter

The actions of entrepreneurs can also hurt us all. This week, an African investor (not Nigerian) complained to me of an investment made into a startup in Nigeria only to have the founders leave months later to start another business which they went to pitch at Y combinator. They eventually raised money for the new startup but the investors in the first one are pissed off. Do you think those investors would want to invest in Nigeria again? They might, but they will think three times. It is now harder for any other entrepreneur who approaches them. Imagine if I had done this to Omidyar Network? might not have gotten their money. On a related note, before Omidyar invested in who did they call? Me. Do I know Mark? What do I think of him? What do I think of the idea? I don’t for a second think my voice was the most important in Omidyar’s investment decision but you best believe that if I were negative it would have had an impact.

Entrepreneurs need to remember we are all in what game theory calls “a repeated game.” In repeated games you need to remember your actions today have consequences down the line. Worse in Nigeria — it can affect others!

Last week, another investor complained about how two co-founders who had raised money from Y Combinator were cocky and asking him why he can’t close a deal in 3 weeks. I was shocked to hear this. Investing takes time — 6 months at minimum. The quick closing of the accelerators and incubators or silicon valley investors is NOT the norm. We must all stay humble on this journey as nothing, absolutely nothing, is guaranteed.

More Investors will come as current investors make money

Investors follow the herd. We need to realise this. If investors make money they will spread the word. Others will come. This is why it is important for us to not just promote Nigeria but also make sure international investors are not “sold” on what we on the ground know are “bad” ideas for Nigeria today. Thus, our ultimate goal? Ensure we have a few big wins that we can publicise to get more investors. The win is NOT getting the investment. It is the exit. Let’s not mistake that AT ALL. As an example, I am looking forward and rooting for a successful IPO one day soon for InterSwitch. That would be a huge positive for everyone. We equally need for some of the younger startups to have a huge hit and I certainly hope that Paga is one those!

The day Paga realises for Tim Draper 10x+ multiple on his investment you will see him on CNN talking about the brilliance of investing in Nigeria in 2010 when no one would.

I was not born with a silver spoon, but yes I have been fortunate and as any smart person would, taken best advantage of that good fortune. I have been giving back to the ecosystem and will continue to do so. We are all in this together. I continue to raise money for my business (and the stakes only get bigger each round) and also encourage my friends, local and international, to invest in Nigeria. We, the crop of entrepreneurs in Nigeria today, are lucky to be in a generation of Nigerians with a real opportunity to lay a strong foundation for Nigeria to become the Giant of Africa again. Let’s make it happen!!