Digital IDs in Nigeria as a silver bullet

AUGUST 23, 2020
This newsletter is a weekly in-depth analysis of tech and innovation in Africa that will serve as a post-pandemic guide. Subscribe here to get it directly in your inbox every Sunday at 3 pm WAT.

Hello,

The Director General of the WHO, Tedros Adhanom said the pandemic will most likely end in 2 years, at most.

Since this newsletter
transitioned from the
Coronavirus Weekly Update to it’s present form, we haven’t talked about the pandemic for a bit, but it’s still out there, don’t take the masks off just yet.

Let’s talk about M&As, exits, and the like. Moonshots are beautiful, and necessary, but Africa currently cannot afford a lot of them; money has to be made.

For the next few weeks, we’ll obsess on How to make money from building startups, analyse numbers, compare cases, talk
to operators, investors and everybody.

Today’s conversation highlights why we need more wins.

WHAT’S HAPPENING

A short history of acquisitions and exits
In February 2018, Zinox Group acquired Konga. This exciting news was something of an inspirational fire for the Nigerian tech ecosystem to start the year on a good note.

Details of the deal were hushed up to a large extent, nobody knew anything and analysis flew around the place; the media claimed it was a good deal for Konga, but industry insiders swore Zinox picked the ecommerce up for next to nothing.

Two years earlier, Interswitch had acquired Vanso in a ₦15 billion stock and cash deal.

Before and after these two, there has been some startup acquisitions across Africa’s tech ecosystem:

DPO Group acquired South African-based
PayFast, Mubawab acquired Jumia House, One Africa Media Group acquired Jobberman, Wakanow acquired Oya.com, Jiji acquired OLX, and a lot of others.

Then 2020 launched with a bang.

The year started out with Nigerian payments company Paga acquiring Ethiopian software company Apposit. In June, MFS Africa acquired Ugandan payments startup Beyonic in a deal that was, like Konga’s, very hush. But Beyonic CEO Carina Rumberger says got 4 to 5x exit.

July ushered in the whopper; a $288 million acquisition of Kenyan-based DPO Group by Network International in
Dubai.

Exits by acquisitions are not new in Africa. There are a handful, and the number is increasing.

According to Digest Africa, from 2 acquisitions in 2016, zero in 2017, the continent saw 49, and 56, in 2018 and 2019 respectively. And there has been 15 in 2020, regardless of a global economic crunch.

From a startup romanticisation point of view, acquisitions and
exits are not the sexiest things around, but they matter in the African context, and here are some of the most important reasons why.

The necessity of having money

Africa’s tech startup ecosystem is young and can use all the – external and internal – validation it can get. And there is no validation bigger than commercial success as it also encapsulates problem solving.

These commercial successes will improve investor confidence, amongst other things.

A recent debate on founder marginalisation by foreign investors highlighted two very important points: we need to prove the market as investment returns have no colour, and Africa definitely needs more homegrown capital for tech startups.

[READ: The Next Wave: The color of investment]

The biggest need for this is that VC funding; the most predominant form available on the continent, is not structured to take on the kinds of risk necessary to solve problems in Africa. And most importantly, adapt to the local market.
VCs are businesses looking to make profits and inasmuch as they take bets, there is a risk averse sentiment, especially in Africa’s volatile tech startup ecosystem.

Of the reported $2.02 billion raised in 2019,
most were calculated bets made by VCs. It is important to note that investing in Africa’s volatile markets is risk enough, but there is also an urgent need for more diverse, skin-in-the-game capital to take on the crazy bets that VCs cannot afford; the real seed fundings.

Opening the aforementioned newsletter, the question; Where is the “black capital”?, is the valid crux of the
conversation. And for African startups, there is only one source, at least initially.

Most African HNIs do not yet understand the intricacies of startups, or have the wherewithal to handle investments in them. This means that successful entrepreneurs are the only hope.

Iyin Aboyeji’s Future Africa Fund is the best example of what this projection of African entrepreneurs turned investors will look like.

[READ: Iyin Aboyeji’s Future Africa Fund might be the future of fundraising in Africa]

Having founded and successfully exited two of Africa’s most celebrated startups, Aboyeji is looking to disrupt VC structures.

“I see the practical challenges with the current funding model [of VCs].People (investment analysts) who are supposed to take risks do not take risks early enough.”

More commercially viable exits and acquisitions for entrepreneurs will invariably birth more diverse homegrown funding structures.
It is a lot of weight to bear, but your startup is most likely an important piece of the puzzle in sustaining Africa’s tech ecosystem. In this vein it is important to, like Victor Basta said in this TC Live episode on exits, start prepping early.

FROM THE CABAL

The curious case of 4-year-old ID waits .
Over 100 million Nigerians do not have access to any form of identification, and for those that get them, it is a gruelling process that sometimes spans more than 4 years. In August 2020, the government decided to go digital, but here is an explanation why even though it looks good on paper, digitisation
will not be the silver bullet it seems.

Powering Zambia’s foremost innovation hub. BongoHive is Zambia’s first technology and innovation hub, and speaking to its founder Lukonga Lindunda, this article goes exploratory.

From BongoHive’s 2011 humble origin in a one room space inside the ministry of education in Lusaka, to Zambia’s ecosystem; growth, investment landscapes, and the need for better government strategies for the future of technology.

THE CRYSTAL BALL

“From an investor’s perspective, the new normal presents an even stronger case for investing in African tech. Digital startups may not be completely recession-proof but it’s likely they’ll be nimble enough to navigate the new operating environment; but they need the appropriate support and, of course, infrastructure. In fact, they may benefit from a boost in user adoption and lower customer education costs as people find new ways to live, work, communicate and various sectors take their services online.

Equally, COVID-19 has exposed the gaps created by decades of poor public institutions and corruption and now more than ever, we need innovative entrepreneurs to fill them. It’s about taking a long-term view on startups that are capital-efficient, have a clear path to monetization and are led by founders with a unique insight into the market. After all, the way you get out of a rut is by building.”

Kola Aina, Founder, Ventures Platform.

Every week, we will ask our readers, stakeholders, and
operators in Africa’s tech ecosystem what they think the new normal will look like, and will share their thoughts here. You can share yours with victor@bigcabal.com with ‘The Crystal Ball’ in the subject line.

TC Insights

Lagos Misses.
Eko akete, ilu ogbon. The hustle and bustle of Nigeria’s commercial capital, a city that is only 3,345 km, the smallest in the country is both its appeal and its turn off. With a population of 20 million people, the highest for any Nigerian state, it’s a prize many entrepreneurs
typically don’t want to miss and rightfully so.

The city of knowledge and opportunity,
as it’s popularly called, has become the nation’s startup capital. From the Yaba tech strip to the Lekki bay area, many of the nation’s tech companies have made the city their home. Infrastructure, access to talent and capital are some of the key reasons why. For context,
all 11 Nigerian startups, who
raised $1m by the end of H1 2019 were headquartered in Lagos.

The busyness and congestion of Lagos became a hot issue that made startups begin to look elsewhere. Serial entrepreneur, Sim Shagaya is said to have identified this as the reason for setting up his edtech startup, uLesson in Plateau. Plateau is a Northern Nigerian state that is almost 10 times the size of Lagos less than a quarter of its population.

But Lagos has a bigger issue now. Its regulatory and policy stances are making it lose its appeal.
Bike-hailing startup SafeBoda is famous for
choosing not to launch in the city after regulatory negotiations with the government failed. More startups especially in the logistics sector are beginning to look outside the state.

The city’s image as a friendly startup hub is largely now tainted. How longer more before more startups begin to vote with their feet?

If you are a founder in Africa, please fill our investor list here to let us know who gave you your first check. Get TechCabal’s reports and send
us your custom research requests here.

Best wishes for a great week

Stay safe and please observe all guidelines provided by health experts.

You can subscribe to our TC Daily Newsletter; the most comprehensive roundup of technology news on the continent, and have it delivered to your inbox every weekday at 7 am WAT.

Follow TechCabal on Twitter, Instagram, Facebook, and LinkedIn to stay updated on tech and innovation in Africa.

– Victor Ekwealor, Managing Editor, TechCabal

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