OoTheNigerian

sometimes, I make a lot of sense.

Why African Startups (Should) Seek Validation From Silicon Valley.

03 November 2012 by Oo Nwoye

Victor Asemota wrote an interesting post. In summary, he was responding to another post in which winners of an African Startup competition were being congratulated/celebrated because they were “heading to Silicon Valley”.

He asks several important questions which I thought I should  answer in a blogpost rather than as a comment (ironically, his post was as result of finding it difficult to comment in the original post)

So here are some questions Victor asked:

  1. Are there no mentors and investors in Africa that these startups should “head to Silicon Valley”?
  2. These are African startups solving African problems and meeting African needs so why do they have to travel to Silicon Valley?

So let me help answer from my own point of view.

First of all there are extremely few mentors and almost no investors for web based businesses in Nigeria. No, I do not categorize people that want to effectively buy startups for the price of a business class trip to UK as investors.

The answer to the second question is simple is hinted from the first. Money.

First let us go back to that article from the Economist.

“Indeed a plethora of online platforms have emerged in recent years: Jobberman helps you find a job; Dealdey gets you group deals; Pagatech deals in mobile payments; Wakanow brings you travel offers. Iroko, which offers online films and music, boasts half a million registered users and more than 5,000 paying subscribers.”

Then I would throw in Eskimi, Jumia, MIH – (DealFish/OLX), Mocality, Kuluya, Spinlet, VConnect, Naij.com etc.

Let us play a little quiz.  Do you know what ties all our ‘biggest’ Internet tech players together?

Foreign money.

Before you shout Spinlet, know that the company was founded in 2006. They are more or less Silicon Valley. As for Jobberman, it was foreign money that gave them the leverage they needed.

So here is the sad truth, there is no local money here for internet based startups. The only serious incubator CCHUB, is possible only because of foreign money.

The REALITY: if your business relies on raising money, get prepared to “shaki shaki bum bum” where you will be sprayed.

Now let us move to the most comprehensive database of Angel investors I know.  You know what is a common theme/thread? They all have done startups. Quite successful ones at that.

Yup I nearly forgot, there is a database for African investors. I have met the awesome chaps behind it and they helped organize that DEMO event in Nairobi. You know what is common between them?

Foreign.

I do not mean foreign in a bad way at all. All I am saying is that while “there is money on the continent”, we need foreigners to bring a foreign event to help our tech entrepreneurs. Thanks guys!

The way forward?

For me , I do not see any way forward as regards to getting local (African) financial support anytime soon, especially at the seed stage, which is the MOST IMPORTANT and fragile period. We do not have enough of the people that understand and are willing to take the financial risk on early stage internet startups.

Buying land in Ajah and erecting a building to ‘decking level’ will double your money. Confirmed. So why do you tell someone that has not done stuff to take that risk?

Here’s what I think will happen, for the next few years. Foreign money (not exclusively I hope) will be behind the first set of African based entrepreneurs that will make it big after their first exist. After then, those entrepreneurs would then invest in the next set of startups.

So until then my dear African entrepreneur, any time you get the chance to go dance konko below on Sand Hill road, celebrate it.

Note:

  1. Reblogging Linda Ikeji’ blogposts and plastering it with ads is not a startup.
  2. Grant and competition money is not really seed funding. Na dash.
  3. Not every startup needs to raise money

PS: forgive typos and let me know if you come across any. I just don’t see them.

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I am a founder of Fonebase Labs, a Nigerian technology company. Our products are Fonenode - a telephony API, Callbase , a virtual contact center and WriteRack the best way to tweetstorm. Feel free to holla at me (ositanwoye@gmail) if need be.

36 comments | Categories: Technology | Tags: , ,

  • So, I’m dodging the forest for the trees here, but you kinda forgot Bloovue, isn’t that bootstrapped AND profitable? 🙂

    • No disrespect to Bloovue they are not at scale yet. But Seyi will get what I mean.

      • seyitaylor

        None taken. I don’t think everyone needs to take money and I’m pretty sure that we can achieve scale without going to SV. Like I’ve tried to knock into your head a million times, there’s no point playing a zero-sum game and we’re not going to play it – Asemota will understand what I’m saying.

        Nevertheless, we definitely need to cultivate local investors (we’re not doing that now, AT ALL) and we need to show the value that they’ll get (not just hype) from investing in internet businesses. In the end, there’s no reason why Gbedu.fm doesn’t count local media groups as shareholders right now. I can’t think of any one. Can you?

  • We have a chicken and egg situation here. You are describing symptoms of a problem which I am saying we should get out of. The startups you mention now are mostly “sub-saharan Africa” startups who have bought into the SV gravy train. If you read my post again you will see that I mention that we should learn more from South Africa and North Africa. I say this not because I am making assumptions but because I have seen what those guys do. Econet came to Nigeria and raised $285m from local investors for a license because they were serious and had a track record. While you cannot exclude foreign money from flowing into an ecosystem totally we have not made enough effort like the guys in SA or MENA to look inwards and we must learn and grow not dance konko below. It looks as if it is the easiest path but is really is not.

    • I completely agree we need to get out of the situation. I just do not see it happening anytime soon. Just like we need stead power.

      As for Econet, I assume it is easier to raise money for infrastructure businesses than these “internet things”. Besides the money was for expansion, they were not new.

      I do not categorize South Africa is as similar to here is as Amsterdam is :).

      • But SA and NA are still Africa and closer to us than SV which is half way across the world. We should not get sucked into SV noise and hype because there are other models in the same continent that work.

        As for Econet being an infrastructure business it is even riskier. I remember an investor in Econet then asking my why he should put money there when similar ventures in India had not scaled. I did not have an answer for him then as there was no track record but he invested anyway and made a killing.

        The point I was trying to make in my post is that we must cultivate our local investors as part of the ecosystem the same way we are trying to do for startups. You cant do one without the other and SV shortcuts dont spur local investment. Local investment spurs more local investment. Econet led to $400m in Etisalat and others from outside and not Etisalat leading to Econet.

        We are putting the cart before the horse in tech because we have been reading too many foreign blogs

        • If you are talking about the need to cultivate local investors, I completely agree with you.

          However, it will be the people that succeed in this very business/lottery? that will put their money in this risky venture called internet startups.
          So how do we bridge funding until 3-5 years when the first set become liquid enough? —-> *konko below*.

          Abi na Leo Stan Eke wan drop the moni?

          • The same guys who provided $285m 10 years ago are still very much around. I think there is a disconnect between two generations and it is the role of the younger generation to bridge this gap and educate the older ones. They dont read Techcrunch or Techmeme and they are richer than Leo Stan. Those who buy plots in Aja dont even come close.

            As I mentioned before, it is a chicken and egg situation. Yes seed funding is important but we must learn how to pitch and who to pitch to. When I came back from Sheffield in 2006 I was offered $500k by a local investor in any telecom startup of my choice for a 10% stake but was too foolish not to take it because I wanted more. I wanted to build my own Econet instead of a smaller airtime vending business.

            These people are there and we must find a way to direct the noise at them. Adlevo is looking for local companies to fund and have not found many serious ones yet our local startups are looking for money in SV.

          • “I think there is a disconnect between two generations and it is the role of the younger generation to bridge this gap and educate the older ones.”

            That’s a major and oft-overlooked point. Breakfast with a retiree in Ikoyi made me understand this.

            There is enough money locally. But there seems to be a problem with the connection. Local investors with money can’t find good ideas to invest in, the entrepreneurs with great ideas seemingly can’t find/see the investors.

            I believe most entrepreneurs look to SV, because it has advertised its promise of money and network (similar to the american dream). If there was an ecosystem that communicated similar promises, they will look there too. We need that ecosystem badly in Nigeria. I want to be able to list 10 approachable local investors just the same way I want to be able to list 10 great start ups.

          • I agree wholeheartedly

          • Mayor,

            I agree that there is old money available. I do not have time to seek the post but I read somewhere that the motivation of angels (NOT VC) is not only monetary. They want to giveback. it is primarily why they do what they do.

            This “internet business” is not clear to people that know only brick and mortar or traditional businesses like oil, banking, etc. To have their money, we have to pitch something more that returns because most of them will loose money.

            It is easier to do that with people that made their money that way. Unfortunately, so far, majority of the local tech made money is “vulture capital”. Peanuts for 70% of your business.

            It will change i know. But it will take time.

          • “It is easier to do that with people that made their money that way. Unfortunately, so far, majority of the local tech made money is “vulture capital”. Peanuts for 70% of your business.”

            If you are looking for that local angel that “gets it”, then you are basically looking for yourself.

            Let me explain. The “old money” generation is not familiar with this risky business we call “internet business” and this is unlikely to change. It is up to our generation to try and convince this people to invest in us. It may end up being “vulture capital”, but that may be the sacrifice we have to make, so that we can become angels to the next set/generation.

          • Makes.. brain. 🙂

            We do not interact enough.. to see how we can sort out our issues. Maybe we can have a drink-up that will focus on this. I will see if I can put something together.

          • Franklin Nnebe

            The problem Nigeria has is no different than in the USA. It takes time for old money that knows how to make money in a certain way to adjust to the idea that there is another way of making money. For example, a lot of the finance guys in America’s major capital of finance – New York had no clue about the internet even well into the late 90s partly why a lot of the deals shifted west to Silicon Valley.

            For Nigeria where ignorance abounds more than most places and where crab-like negativity and sabotage is the order of the day, those that get it will be a whole lot fewer and the job of the startup techie is to find them whethenfr they are family or friend or whatever and make them a partner in order to make your dreams come true.Above all, dont let yourself be discouraged or deceived.

  • ‘Gbenga Sesan

    Every money is welcome, and StartUps will decide if they want even Vulture Capital, but we must have home-grown money that understands early-stage, and that will find such. I want to believe we’ll see this happen with the Lagos Angel Network. And there’ll be many more of such.

    • We no want Vulture Capital o! they’ll spoil it for everyone. They’ll make money yes, but at the detriment of everything in sight. See our oil and Real Estate sectors.

      We need the money of those willing to play long.

  • ” that will make it big after their first exist” <– you asked for help, you've been served

    • nice post – basically if you are doing an internet/mobile/web startup at this time in Nigeria/’Africa’ you are laying the foundations for our future – don’t take it lightly

      • Exactly.

        I only hope the ‘right people’ are the ones that set the standard for the future.

  • seyitaylor

    Very interesting topic though: My take on this is many-fold:

    1. I agree that we should cultivate local investors and we’re not doing much of that right now. I think you should ask a bit about some of the startups we assume were started with pure foreign money and you’ll find some very surprising stories there.

    2. There are more issues to getting funding than location – sometimes it’s really a matter of “this vision isn’t big enough/defensible enough” or “not sure this team can pull it off”. Apps are not companies – they’re just apps. I suspect with the inherent risk in Africa, SV will need a lot more validation on the people side. What Oo failed to mention is that a lot of the startups he mentioned had another thing – foreign-educated grads which, I suspect, may help in the pattern-matching that SV is known for.

    3. There’s some scale that can only be achieved with an external cash infusion – and yet I like the models of companies not on the SV radar – companies like Rancard who’ve basically scaled up bootstrapped and now have received an investment from Intel Capital to go gangbusters on the market. The fact is that there are many other models apart from the one in Techcrunch. If we don’t read outside those lines, we won’t discover it.

    • On your point 3, I completely agree there are other models.

      Remember, I said if you must raise money . Most “tech companies” in Nigeria are successful and did not need to raise money.

      However, it would be good to hear of the stories of Internet startups that have made it. By made it, I mean having a substantial cash flow $1m/year or have made a good exit $10m. We can then study their models and add it to the data point.

      Remember, I am only talking from my point of view.

      • seyitaylor

        I think we will wait a bit for those stories. Internet startups are relatively new – how old is DealDey? I suspect DealDey or Konga will be among the first to cross this threshold that you’ve described. Interswitch’s presentation at CCHub was instructive – 10 merchants make up 90% of their online income – Dealdey, Konga, Jumia and the airlines.

  • sven

    The mentors are all aroun you.. u just need to speak out!

    • If they are around and are willing to offer help, they should chime in. We have been speaking out since forever. This post is just one of the countless debates we have been having about ecosystem challenges.

  • Interesting discuss, an important point not to forget is VCs are businesses, not charity(ies); they want solid return on their investment and IF, a business cannot demonstrate that potential, it will not be invested in — be it in Lagos, Boston or London. The real question is, are this start-ups really businesses worth funding, what’s the real biz model in the context of the African community or are they just hoping?

    And as is the case with a VC, once you get that money, you get a boss, and the rest follows accordingly. Call them Vultures or Crows, business is business. If you don’t care for a boss, scratch an itch, start small and don’t scale pre-maturely — that is how great businesses are built. I’m often baffled our someone with a computer thinks they can violate this basic principle and succeed.

    I personally think every software enterprenuer should read Furr and Ahlstrom’s seminal work, ‘Nail It then Scale It” before they move any close to *sketching* that 1st prototype, it might put things in perspective.

    • Awesome comment.

      I think we need to differentiate between Angel investment and Venture Capital.
      BTW, the reference to vulture capital is as regards to those who want to take advantage of young entrepreneurs.
      Another thing I want to point out is the absence of support in general. Angels can start as advisers. Help make intros.. give office space.. Give feedback.
      Everything is not money.

      I will be checking out the book you recommended.
      Oo Nwoye

      • Oo Nwoye If I get your point correctly, you asking for advisers, mentors, if you may, which according to your title and “Economist” reference, should be off the West. (which of course doesn’t put into consideration the unique challenges doing business in Africa that puts us at an instant disadvantage, will get back to this).

        Angels (unless they’re your rich uncle) are like VCs in many respects, where there differ is how much they will give you (Angels in smaller scale company, and VCs in bigger), they usually are not necessarily mentors, but business people (some like is ins SV might just happen to have gotten rich via the software-game) — as I quipped previously, it’s tempting to fall into the trap of “make I just get that money….” as one reads about exits and rounds.

        IMO, where African software startups should really seek validation is from local non-software start-ups (SV is too far out, they have significant advantages: taxes, waivers, steady power, that most African countries struggle with). How are these guys breaking even? How did they start? What are their comparative advantages? You probably get my drift…you’re building a business not a website or an application (well, unless you’re not of course)

        And another, we folks should validate ourselves, talk to ourselves, see what everyone is thinking and working on — kill that snazzy but non-productive idea fast, encourage ourselves, hold ourselves accountable, throw away all that junk of “they’ll steal my idea.” It’s probably a crappy idea to start with.

        • Should and is are two different things. The reality is that what should happen and what is on ground are not the same.
          We need more Angels that will provide money, support, contacts etc right here on ground.
          Like I said, I am yet to see a software company that has made it here (not including people that use crappy software to score huge contracts after giving bribes).
          When we see that success, we can say “this is the way”

          Until then, I would look towards where I have seen people succeed.

          Remember my position is very subjective.
          Oo Nwoye

          • I respect your subject perspective. It however seems to take a scant look at some crucial factors in Africa and it’s startups.

            I’m sure you know about the SV mess of the 90s that shaped what it now is today — comparing the start-up scene of SV to Africans is not just apples to oranges (at least they’re both fruits), its Apples to Uzis.

            Yes, there are lessons that can be learned from that side of the world, no doubt, but are you under-estimating the influences the Stanfords, the MITs, the UCLAs have on the scene, not the mention the generous grants? The tax benefits, those Y-Combinators? And UltraLights? Should those be swept under the rug as we talk of “our state” and “theirs”?

            Actually, instead of hypothesize, why not name this companies and maybe their path to greatness (through their Angels/VCs) you think will be models for an African Entrepreneur to emulate.

            I definitely agree with you, all those bribery, and virtual clowning around will get us no where — the African economy needs more bootstrappers (so perhaps @twitter-163770736:disqus and his folks at TL can encourage this guys a bit more) or experienced business folks that can bring their savvy, use software and run fast (in VC-speak — as a side note, that’s one reason why when companies get VC, the guys likely replace the founder or mgt and put someone who can doubt their money or at least increase its probability).

  • Franklin Nnebe

    I think Nigerian tech startups should look to Nollywood as a model for how a creative startup should work in the Nigerian environment. The Nigerian movie industry did not start out by trying to replicate a Hollywood blockbuster with huge sets and expensive cameras they took cheap digital cameras, editing software and borrowed people’s nice homes and fast food outlets and focused on making powerful stories. They did not seek to recruit high-cost established actors but started with unknown, generally poor but hugely talented and hungry artists. They did not go to New York and London on money raising campaigns they started with “venture” capital from family, friends and mostly from those Alaba/Onitsha traders who had pools of capital and also knew how to distribute the product. At the end they built a cash cow of an industry that proved itself by captivating millions of homes locally in Nigeria before marching out worldwide.

    For local tech startups, I would advise them to stop looking overseas or on angel.co for money and focus on building that great product for the Nigerian market either self-financed or with money from family, friends and associates. If the product is successful the big money will find you. I mean just look at Seun Osewa’s nairaland for example. basic design, free BB software but massive audience and engagement. Today Osewa could sell nairaland easily than if it was just a concept on a piece of paper.

    Granted that Dealdey, Iroko, Wakanow are all great well financed
    startups with founders from the diaspora but its early days and the market is far bigger than these niche offerings that really only serve the VI, Ikoyi, Lekki, Maitama and Asokoro crowd.

    • Looking at other industries in Nigeria that have worked is an interesting approach. And Nollywood might be a good one to study.

      • Franklin Nnebe

        The main idea is to focus on what you know and find the market which is really what drives success. Technology is just a tool – the means and not the end. The experience factor cannot be underestimated. For example, you look at Nollywood and everybody complains about the poor sound and lighting but all that is lost because the stories are astounding. Why shouldnt it be? Nigeria has produced great writers and playwrights since the 1960s and has a rich oral and cultural history.

        Its like Linda Ikeji. Her blog focuses on celebrity gossip and fashion. Why is she a successful blogger and I am not? She happens to have experience of the fashion world as a a model and intimacies of the celebrity world. She started a magazine in 2007/8 on just that – FMB or something and understood fundamentally the tastes of her target audience (young, aspirational, fashionable with western tastes). Despite the fact that her blog is not exactly visually stunning, is on blogspot and not on her domain name, she has a massive audience.

    • Franklin Nnebe I want to be your friend as you have a lot more insight than the average Nigerian entrepreneur or techie.

      Nollywood entrepreneurship did not start with IrokoTV it started with Kanayo O Kanayo and his ilk being funded not only by friends and family but the Iweka and Idumota millionaires who smelled the money.

      One glaring fact a lot od people forget is what made those Iweka and Idumota millionaires who they became and it is the concept of “Imu Ahia”. I have always said that the Igbo man invented the concept of the startup Accelerator with Imu Ahia and we should refine it and scale it.

      SV and other locations have more to learn from Africa than vice versa

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  • AjanleKoko

    Article is spot on. Local entrepreneurs first of all need to develop viable products for the market. Just like the foreign telcos have shown us, we need help even doing that. I don’t know why anybody will want to say no to foreign money. We need the likes of Jumia to open up the ecommerce market, and things can expand from there.

  • AjanleKoko

    Tech startups in Africa don’t really need big money to start with. Every techpreneur should be ready to sell their VW Minibus, like Steve Jobs, or their prized HP calculator, like Steve Wozniak. Start by developing the product that works, and discovering the ideal route to market. Once you make it a success, people with money will show up. I’ve tested this, and it works.