So like I was asking yesterday, how do startups breathe without air? Answer: They don’t. They die. If you just got here, you should read that for context on how this whole conversation started. Right now, my question is how much oxygen does $5,000 buy a startup like Tiketmobile?

Ideas are a dime a dozen

The TechCrunch-fueled urban legend that startups can merrily raise money off the back of mere ideas is a real problem, so many of our entrepreneurs here are seduced by it and fail to see that their reality, Nigeria, Africa, is entirely different.

Of course the local money bags are having none of that nonsense.

The simple way to avoid the whole VC entitlement lap dance in the first place? — focus on making a product that sells. Focus on profit, or at least revenue, from day one. But that, dear people, is easier said than done — especially if you don’t know if the venture is premised on an untested idea.

The trouble, according to CcHub handlers Bosun Tijani and Tunji Eleso, is that’s precisely what most of our local startups are. Ideas. VCs, I am told, will typically not fund an “idea” that hasn’t moved into development AND has begun to show signs of financial traction and strategy. In other words, an actual business. Except if said idea is coming from an entrepreneur with a track record.

Yet, a business with traction doesn’t just materialise from nowhere, there’s got to be that initial something you put into it, isn’t there?

Elsewhere, fresh entrepreneurs will max out their credit cards, beg, or borrow from family, friends and fools to get from the idea to business phase. But this is Nigeria, and there’s no FFF money lying around. There are no credit cards to max out. That’s why when Chinaza Onuzu was talking about the five types of successful Nigerian startup, he made a point of noting that the personally funded/bootstrapped type typically die. The five startups he was talking about fall into two broad categories — the ones that show revenue from early on, or the ones that are adequately capitalised from the word go. No room for “idea startups” here.

VC is  a crap-shoot

It is inevitable that there will be a few smash hit startup successes from these “ideas” in the next few years. But there are so many variables, the ecosystem is still embryonic, the climate is volatile. The question is which ideas will make it? Who will be laughing to the bank with the winners, and who’ll be holding the can with the duds in it? At the moment, it’s all looking like a crap shoot.

Which is why the big money stays out of the game. The resulting oxygen deficiency is what has created a “market” for speculators, venture philanthropists and predators.

Speculators like Verod, who are hedging their bets, looking to buy into the most promising ideas green-lighted by the Co-Creation Hub with minimum amounts of exposure and highly diversified risk. I’m not aware of any actual commitments on their part as of now.

Venture philanthropists like TEF who also rely on the CcHub, albeit with a more socially conscious approach that comes with significant PR and image benefits, as well as a right of first refusal for startups that prove themselves worthy of follow-on funding. Previous beneficiaries include BudgIT, Traclist, Efiko, and yes, Celestine’s Tiketmobile. We’re yet to see any receive follow-on funding.

Predators like SPARK, which although not nearly as endowed as Verod or TEF, is much bolder and has massively outdone everybody else in actual monies committed. Yesterday, Tony Elumelu announced a new startup funding goal of 50, raising the total quantum of TEF’s promised intervention to a grand total of $250k. By comparison, SPARK typically puts no less than $50k into each of the startups in their portfolio. There’s just no point in doing below that, SPARK CEO, Jason told me via email. ToLet, Gidimint and Hotels have received $700k between them, this year. To date, they’ve committed a total of $1.4 million and expect to fund 6-7 more companies in the next twelve months.

“Want to see a startup revolution?”, Jason asks. “$10Mn, $50k per startup, 200 startups seeded. Then the Nigerian ecosystem will really really take off”.

The thing about SPARK though — one is still trying to determine whether or not this isn’t the latest class of vulture capital swooping in on the Nigerian seed crunch. There’s lots of speculation about how founder friendly their term sheets are, which is a story for another day (Jason says they simply downloaded YCombinator term sheets and Nigerianised them). And like Celestine found out, spurning SPARK overtures could earn you high powered competition. It’s a free capitalist market afterall.

Still gasping for breath

But do we still not have a severe oxygen problem? All these mini-funds, speculatory, philanthropic or predatory, are they enough to keep the flame of entrepreneurship alive? Perhaps, that was the question Celestine was asking when he called for “true capitalism” and capitalists. People who, to quote Tayo Oviosu, are “cowboys willing to take risk and get the commensurate return”. While self proclaimed “stage agnostic” VCs stay tweeting, there’s people who seem to be the first of what you might call the risk agnostic investor class. People like Tomi Davies, for instance, who live on the ground, swashbuckling their away around the Nigerian tech frontier, doing what they can to organise the local angel community, and most importantly — winning.

To be fair however, these mini-funds in circulation, especially no-stakes grants like TEF’s, allow entrepreneurs at the ideas level to breathe until either the money runs out in which case they die, or they figure out a path to profit, in which case they can just coast along, or raise more money to scale. According to Bosun, we are to think of them as the family, friends and fools money that the average Nigerian entrepreneur ordinarily wouldn’t get to validate their ideas. That being said, wouldn’t it be great if venture philanthropists did a little more to make the jump to sustainable businesses? Not that they are obligated to, but still…

It’s good that we can define what the Tony Elumelu Fund fund stands for — to determine if an idea can become a business, not to fund an actual business, because in that case, you’d likely need more than $5k, right? The mistake Celestine might have made was being unable to differentiate between a business and an idea — at least according to the CcHub/TEF specification —  recognising which his was, and then acting accordingly.

One last question goes to the CcHub —  having come this far with Celestine and his team, what was the prognosis, and what was the startup supposed to do next? The conversation continues.

To be continued…

My next post will try to examine the role of the Co-Creation Hub and enablers present in the ecosystem in the innovation pipeline and in the life cycle of individual startups, from idea to business.

Dollar designed by Dillon Arloff.

Bankole Oluwafemi Author

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