There’s too much money in Nairobi.
That’s one way to explain why some venture capitalists are setting their sights elsewhere.
Largely off the back of Mpesa, the hugely successful mobile money-transfer system, the Kenyan capital has gained a reputation for technological innovation—and with it an influx of no-strings (or few-strings) development funding that has crowded out some of the private investment searching for tech startups to finance.
Now investors are looking to the other side of the African continent for results. Nigeria, with nearly 200 million people, a growing economy, and no shortage of local problems, stands out as an option. It’s slowly building up a tech sector of its own. The funding circuit is still small: probably no more than 10 companies investing money, says Kresten Buch, founder of the Nairobi tech accelerator 88mph (which has since expanded to South Africa).
Buch recently started working with Chika Nwobi of seed investment firm Level 5 Labs in Lagos, to become the latest investor to enter Nigeria. The pair have teamed up to start 440ng, a tech accelerator that puts between $20,000 and $100,000 into startups and provides a workspace and mentorship. It graduated its first cohort of nine startups this week. (Underscoring the newness of the local tech scene, only two of the nine have founders with prior startup experience.)
The biggest difference between Nigeria and other major African economies is its sheer size. With roughly four times as many people as Kenya or South Africa, Nigeria is big enough to reward products and services that are domestic in nature. “When I was investing in Kenya and in South Africa, it was very hard to find businesses in those markets where the opportunity is big enough for them to stay in that market. Nigeria has parallels to the US market, where you can say, ‘Let’s just take the US, even if we stay there, we will become a very big company,’” says Buch.
The first set of companies that are growing up in Nigeria, says Nwobi, are based on proven models from the West: things like travel, e-commerce, jobs, and deals. “But now I think, what I’m seeing with 440ng, is more people trying to solve more local problems.”
One example of that is Obiwezy, a venue for selling used smartphones. Nigeria is primarily a pre-paid market, where customers pay the full cost of a handset up front. That puts most high-end devices out of reach for all but the very rich. But the aspiration to own a high-end Apple or Samsung handset remains, as it does elsewhere in the world. Obiwezy’s founders figure that a secondhand market—with warranties—is one way to sate that demand. They have tied up with MTN, a large telco, to offer the service.
Nigeria still has a big hole where investors willing to put in between $100,000 and $1 million should be, says Buch. For now, those investors are ensconced in Nairobi. But Buch suggests that will change as Nigeria’s companies grow larger, signaling opportunity to deeper-pocketed investors looking for returns. “We want to create successful companies. I don’t want to think, ‘Is this helping some poor farmer in a rural area?’ I want to create a big, successful company that will create the next wave of entrepreneurs,” Buch says. “Making a profit is a signal that we’re creating value.”