In this interview, Flutterwave co-founder Andela and Future Africa founder/CEO, Iyinoluwa Aboyeji, speak to Temitayo Jaiyeola On Nigeria startup law, funding issues, challenges of running a startup and other issues
The Startups Bill was recently signed into law by President Major-General Muhammad Bukhari (Ret.). Do you see the impact of the Startup Law positively on the startup ecosystem in the country?
I think it’s really “the end of the beginning”. The Nigerian startup ecosystem has been around for a very long time, but it is only in the last 10 years that we have begun to attract significant interest from Silicon Valley and global investors. It is a good step in the right direction that we have done a good job of engaging the government to create a business that ensures that the ecosystem and its interests are well taken care of and there is a launching pad for the industry to grow.
It’s a good development. It is not a perfect business, but a step in the right direction that will evolve over time, particularly due to its inherently very innovative structure with the National Council for Innovation and Entrepreneurship.
This may have paved the way for more inclusive policies going forward as well. Because by law, there is this council that is democratically elected by all the rated startups, which is expected to elect four representatives to the National Council for Innovation and Entrepreneurship. My sense is that if this kind of build eventually doesn’t work, then it must be a sharing issue. It would have nothing to do with whether or not the government provided the avenue for engagement.
Now, it is more mature to engage with the government on the ecosystem because there is an opportunity to do so now.
How has the nation’s payment landscape changed over the years?
It has become more complex, and this is a huge attraction for investments. We have one of the best payment infrastructures in the world which is evident in processing times, among other things. We lead the world in pay-as-you-go times. The space has also produced quite a few billion dollar companies.
How do you think that the payment service banks will further change the payment system in the country?
Payment service banks will provide public access to more people. This is the basis. Anything else is up to you to watch. But at the very least, more people will be able to access financial services products as they do business with brands they trust.
What stage of growth does the country’s startup scene represent today?
We are mature. It is difficult to determine the stage of growth. We are definitely growing up. The next step is to do more, which is the most important thing.
The space has changed a lot from what it was when I started. When I started, online payments were about 80 million in full size, but now Flutterwave alone is almost generating that much revenue. This means that the volume of payments has gone up by the billions because the revenue model is that you only take a slice of each payment transaction, which also gives an idea of how much the space has increased.
Funding has slowed in the Nigerian tech ecosystem, demonstrating consistency with what is happening on the global stage. How will startups get through this period?
Startups should focus more on products and building their businesses. It is very important and starting point. There was an industry before the funding came along, so I don’t think the lack of funding is going to stop this industry. Yes, we’ve had quite a bit of funding in the last couple of years.
It is important for startups to focus on products and their customers during this period, rather than seeking funding. I don’t think this is the right approach at the moment, given the funding environment.
During COVID, we had a capital dip and things are still going. I don’t think it’s as dead as people make it seem.
I expect the challenges with the global market to get worse, so we may still have a huge uptake of labor work as we’ve seen with some startups. This is one of the reasons for focusing on a real business that is sustainable, which has the potential to make a decent profit, and so on. Without it, there is no business.
Can you tell us how funding for startups on the continent works?
I’ll be honest, there is no single process, and it works differently for everyone depending on what they are raising and who they are raising from. It’s not the same as applying for funding, it’s completely different. But the hard part is usually about having a clear problem one is trying to solve and a good story telling why it is important for an investor to make the investment and how they will make a return by funding the solution to that problem.
Also, one should have a good mind and be able to build relationships with those who have money and impress them. Ultimately, proper governance and financial controls are needed to allocate capital appropriately. There are a plethora of things that won’t change, but the process varies from person to person. There is no single process.
Much on the continent is financed by foreign investors. How can local investors start to fill the gap further?
With what’s happening globally, local investors now have an opportunity to ramp up and fund more companies because we have a better understanding of what’s real and what’s not. We have a better understanding of what is happening on the ground. I think the equation will change.
Can you share some of the things the Africa Future Fund has been able to achieve and the challenges it has faced?
We have invested in more than a hundred companies and invested nearly $10 million. More than 40 percent of our team has women on the founding team. We’ve returned a significant amount of capital to our investors, and our internal rate of return is three digits, hovering above 100 percent. We have already returned real cash to our investors.
In general, we had to build a local capital base. A lot of our money comes from Africans who live in Africa and Nigerians who live in Nigeria. But the structures and investment system are not very easy to navigate. So, we need to build these. More products should be built in this regard. Some other challenges have been resolved under Nigeria Startup Act. Before that, there was no incentive for angel investors to invest, but now, there is a tax credit for investing in startups. There are a bunch of things that can be done now, that couldn’t have been done before.
There is an argument that women-led startups are not getting enough funding. How can we bridge the gap?
I think we need to find and train more female managers. I think this is the best way to bridge the gap. If we empower fund managers, we will be able to find more female entrepreneurs because they are able to build relationships. It is easy for people of the same sex to build a relationship. Here it begins. If you have more fund managers, more female entrepreneurs will be established.
There have been a lot of issues around corporate governance in relation to Nigerian startups. How can startups do better?
Before now, there was a dearth of professionals who actually had the ability to provide the right guidance to startups. People were in positions but did not understand the business, and these companies operate differently than they used to.
But with more success and maturity in the market, this is changing. Therefore, there are now people with a lot of experience that startups can bring to their boards of directors. They understand the business and have the experience to guide this business properly.
These experienced people will improve corporate governance in the country. It is difficult for people who do not understand the business to judge it. Before, you couldn’t get the right boards or people who would understand your business. But now that more and more successful entrepreneurs have left, with more experience with how technology works, we will start getting more qualified candidates for boards and eventually things will get better.
Andela and Flutterwave, two companies I was CEO of, are now unicorns. Can you show us how to build a rhinoceros? And how can we build more unicorns in an ecosystem?
There is no evidence for the construction of a rhino. The idea is to build a business and try as much as possible to keep it growing until it thrives. Also, you are not the one who will appreciate your work as a unicorn, it is strangers who will. Your best bet for unicorn status is to build a great business that solves a big problem.
What are some challenges of running a startup in Nigeria?
The biggest of them is the talent, the people who have done it before. One should really invest in talent. The other thing that is really important is the infrastructure. It is very difficult to find the right infrastructure, especially with one’s growth and speed of growth.
It can be a challenge. These are the biggest challenges. Once again, we are constantly looking for ways to get around it. And of course, the policy environment that is decided by the Nigerian Startup Act again.