#Africa Nigerian tech startups take the rough with the smooth


It’s been a funny old year in Nigeria’s tech startup ecosystem.

In one sense, it’s been very good. VC funding has been on the increase across the continent, and nowhere more so than in Nigeria, which has seen a handful of very impressive raises.

Let’s take a random sample. Last week, online travel booking startup Travelbeta confirmed it had raised US$2 million shortly after its launch as it bids to become the region’s top provider. Altheus Limited led the round, alongside a group of Nigerian investors.

Last month, digital printing startup Printivo closed a six-figure funding round from early-stage technology venture capital firm EchoVC Partners, which it plans to use to expand its product range, grow its staff, accelerate customer acquisition and scale the business. October also saw a raise by turn-key e-commerce solutions provider SlimTrader, which received a US$1 million investment from digital payments and commerce company Interswitch.

Interswitch was also active earlier in the year, using its new US$10 million ePayment Growth Fund to invest in Tunde Kehinde’s tech-driven courier company Africa Courier Express (ACE). Online hotel booking platform Hotels.ng was another that raised funding – US$1.2 million from Omidyar Network and EchoVC, as did discount online shoppng platform DealDey, which secured US$5 million in funding from Investment AB Kinnevik.

All bright on the startup scene then, it seems, with money flooding in from various sources and startups backed to build their businesses. Not quite.

DealDey is a perfect example of the dichotomy that seems to exist within Nigeria’s tech startup ecosystem. Backed heavily by Kinnevik in February, with heady talk of it challenging Jumia and Konga to become the country’s biggest e-commerce platform, last month it laid off staff in certain departments of its business – primarily warehousing and logistics.

Jumia has been at it too, reportedly laying off 300 workers – 30 per cent of its workforce in Nigeria – last month. There have also been cutbacks at iROKOtv. And though none of the companies involved have said anything to suggest they are in any trouble – DealDey is outsourcing its deliveries, iROKOtv is taking on more staff in London, and Jumia said nothing at all – the fact is that layoffs are never good.

So what is behind the strange fact that Nigerian startups are more than ever attractive to investors at the same time as slightly more established players in the ecosystem consider cutbacks to be necessary? For Harry Hare, executive producer at DEMO Africa, it could be related to the types of business.

“One thing I have seen is the growth of unitary-focus commerce sites being more attractive than the general e-commerce business,” Hare told Disrupt Africa.

“So, for instance, Hotels.ng is very focused on the hotels and hospitality space, and so is Printivo on the business stationery space. The opposite is true for Jumia and DealDey.”

Perhaps, then, part of the dichotomy is the type of business we are talking about. Increasingly, niche e-commerce companies are more attractive investment destinations than general ones. We know e-commerce is a long game, and the sector faces several key challenges, not least infrastructural ones.

Growing pains after funding are inevitable. Just because a startup has been backed doesn’t mean it is going to be profitable any time soon, and won’t have to make readjustments. Jumia may well be the best-backed Nigerian tech startup of all time, but it still isn’t profitable. That doesn’t mean it has failed, it just means it isn’t quite there yet.

Neal Hansch, managing director of the MEST incubator in Accra, Ghana, which incubates Nigerian startups, said there isn’t necessarily a correlation between the seemingly contradictory points of a wave of companies announcing new funding, while a number of more entrenched players find themselves actively reducing headcount.

“In effect, some of the existing players are “right sizing” their burn, while also continuing to evolve and refine their business models, which can always be expected,” Hansch said.

He concurred with Hare that there was perhaps some truth in the fact that different types of services were faring differently in the current climate, but said they did all have some things in common.

“Consistent across all of these players though are the macro factors and tail winds that have gotten investors excited in the first place to place bets in the region – growth in middle class consumers, online and mobile adoption, and penetration of financial services,” Hansch said.

“So seeing some companies downsizing, while at the same time others are landing new fundings, is less about contradictory data points and more should be evaluated on a case by case basis.”

No evidence yet, then, of something seriously amiss. Simply continued evidence that though the money is coming in, companies are as yet unable to turn that into the kind of profitability stakeholders want to see. It will happen, but for now the Nigerian tech startup scene must take the rough with the smooth as development continues.

The post Nigerian tech startups take the rough with the smooth appeared first on Disrupt Africa.

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