Celestine wrote about how grant money isn’t enough to get a startup to cruising speed, and the story of his bus startup is the unfortunate analogy he employs. The summary — the $5k grant Tiketmobile got from the Tony Elumelu Foundation, via the Co-Creation Hub last year was rope just long enough to hang themselves with.
In hindsight, his tack was definitely rash (100 points for uncommon bravery and honesty, but oh the rashness — minus 150 points from Gryffindor). What his badly articulated rant left out brings the question of his personal capacity as an entrepreneur into square focus. Personally, I can’t help feeling some empathy for his position, considering that this is someone whom we’ve ridden danfo together, borrowed money from each other even. But everywhere else, he’s mostly gotten thrown under the bus. He’s even gotten takedown treatment from YNaija’s running gag of a fictional writer. But Jason already delivered the coup de grace via a very classy I-told-you-so gloat post.
He should have taken the money, right? What Celestine did right or wrong or rude is not the focus of this article. However, pertinent Tiketmobile fiasco lessons aside, Cele has given us an opportunity to have a conversation about how funding, or the lack of it, affects startups in the ecosystem. If you don’t mind, please let me tell a story.
A few months ago — March to be precise — there was an edition of the monthly Developers Parapo at the Co-Creation Hub. The featured guest was Verod Capital, an entourage led by Eric Idiahi, and they were there to talk about funding for technology startups. As you might expect, the house was packed. Although I did notice that quite a few prominent faces were missing. Jaded from years of trading inconsequential spittle with potential backers and decided to pass, perhaps?
If you checked out the last link, you would have seen that the event’s major premise was a search for “investment ready ventures”.
Funding has been heralded as the single biggest challenge facing today’s entrepreneurs especially in Africa. While in many cases this may be the scenario, for technology businesses, the state of the ecosystem indicates otherwise. There seems to be more investment chasing few investment-ready ventures. Rudimentary economics however teaches that cash/investments will only go to where it will secure the highest returns.
Now there’s two sides to the Nigerian startup funding debate. There’s the “we’ve got great ideas, why won’t you give us the money to execute?” side on the one hand. On the other, there’s the “there’s loads of money to be had, fellas, but your ideas suck” camp. The former camp used to be very popular, but the your-ideas-suck/are-not-investment-ready camp seems to be the louder side of late.
Maybe there should be a third camp. The “it’s not that simple” camp. The one that acknowledges that there are ideas, and there is money, but that there are other factors that are keeping nervous VC fingers attached firmly to closed purse strings. For instance they are probably wondering —
1. Is the time right? Is the opportunity big enough yet? Have the addressable markets achieved the right stage, pre-critical mass? Being too early is the same thing as being wrong. Nobody wants to do an MIH and nurse a string of sickly Nigerian internet ventures, only to find out that they’d been clearing the forest for fortuitous new-comers. Not everyone will have enough left to acquire a consolatory Konga stake.
2. Will it work here? Nigeria, In Sim Shagaya’s words, is an amazing place to do business. Amazing. Want to do an online retail business? You have to build the delivery infrastructure yourself. Want to charge for your service? You have to beg people to go to the bank because online payments don’t work — or do pay on delivery. Don’t even talk about electricity and internet. Ordinary Nigerian businesses buckle daily under the stress of operating in this environment. Technology startups are no exception.
3. How do we make our money back (with outsize returns)? There aren’t any clear exit strategies. We haven’t seen any major liquidity events in this market. IPOs? Not likely. Acquisitions maybe, but none has happened yet, or is likely to happen anytime soon, so nobody’s counting on chickens out of that egg. We patiently wait our turn for the million dollar exits which will undoubtedly come at some point, but how soon, and what happens between now and then?
There’s definitely more concerns than these, but let’s get back to the devparapo event. While Eric Idiahi was sharing thoughts on what it takes for tech entrepreneurs to attract investors, he said in passing that for the Nigerian tech startup ecosystem to come into its own, online payments need to come to the masses. And that, he added, might take another two years. Two years, ladies and gentlemen. Saying that is implicit acknowledgement that under the current circumstances, it is hard for startups to monetise — which would in turn make them risky investments, regardless of the ingenuity of their ideas. Granted that the payments remark might have no bearing on his risk evaluation of the space — I’m not in his head afterall. But I know that he has first hand experience with the same infrastructure palaver that Nigerian startups encounter daily. The same payments trouble he was referring to is precisely the reason Deezer has been devouring Spinlet’s breakfast, lunch and dinner in the local music streaming space.
Local VC, wherever it exists, is clearly risk averse, and for very good reasons, among which are adduced above. One common and nigh unassailable argument I often hear is that those monies are better put in fixed deposit accounts or in tied up in real-estate where clear, even if wafer-thin upside exists.
In the end, it’s not necessarily that there aren’t investors or investment ready ventures. It’s hard for tech startups to get capital because it’s hard to make money, so it’s hard to get capital. But tell me, how are startups supposed to breath with no air? With no financial oxygen to pump the blood of ideas and execution around?
To be continued…