Nigeria, officially known as the Federal Republic of Nigeria, is the 32nd largest country in the world by size and the 7th largest by population. It is Africa’s most populated country with a population of over 200m people. Nigeria is Africa’s largest GDP with an economy of $500bn ahead of South Africa and Egypt.
There are about 100m internet users in Nigeria (about 50% of the population) of which 30% use social media. 90% of Nigerians (about 180m) are mobile phone users. The number of smartphone users is estimated to be between 25m-40m by various reports but is expected to more than triple to about 140m users by 2025.
Nigeria ranked 131st on the World Bank’s Ease of Doing Business 2020 Report. It improved 15 places from 146th in 2019 with only Togo being the country that improved more. The improvement was mainly because of changes in the regulatory environment. The Corporate Affairs Commission (CAC) which is responsible for registering new businesses in the country cut the costs by over 50% and removed many bottlenecks involved in the registration process like the need of a lawyer.
But the informal sector, which accounts for 65% of the economy, received little attention in the report. Lagos and Kano were also the only areas that were surveyed for this report. The realities of doing business in Nigeria are tough.
The Nigerian government has an electricity generation and distribution problem. The national grid crashes regularly, and businesses have to generate their own electricity using solar and generators. This adds to the costs of doing business in the country.
Internet speeds are low in Nigeria and the cost of data is still high. According to Research ICT Africa, the cost of 1GB in Nigeria fell by 75% from 2014 to 2019 from $11.18 to $2.78. Despite this improvement, Nigeria still ranks behind countries like Liberia ($0.03), Sudan ($0.87), Egypt ($1.24), Tunisia ($1.6) and neighbours Ghana ($1.8). This is however below the average cost of 1GB globally, which is about $4.5 but Nigeria is a country with a GDP per capita of $2,200 so the $2.78 cost is still relatively high for the majority of the population.
Road networks in Nigeria are poor and valuable business time is usually wasted in traffic jams. There are no marked addresses on buildings which makes deliveries by logistic startups a nightmare.
Startups in Nigeria are also vulnerable to local and state government authorities that can stop their operations with impunity. In February 2020, Lagos state government banned two wheel motorcycles, locally known as Okada, from major highways, bridges and roads in Lagos sending venture backed ride hailing startups like MAX.NG, ORides, Safeboda and Gokada into survival mode.
In February this year, the Central Bank of Nigeria issued a communique that prohibited financial institutions from dealing with local cryptocurrency exchanges. The accounts of crypto traders had to be shut down. Cryptocurrency startups like Buycoins could no longer accept deposits or process withdrawals in the country. The Nigeria government also banned Twitter in June after the social media firm took down a tweet by President Muhammad Buhari. Such policies have made Nigeria a volatile country for startups and investors.
The Startup Ecosystem in Nigeria
Despite the challenges, Nigeria has one of the most advanced startup ecosystems on the continent. It’s big population and large economy make it a very attractive market for both entrepreneurs and investors. The major startup hub in Nigeria is the commercial capital of Lagos. According to the Global Startup Ecosystem Index Report 2021, Lagos is Africa’s top startup city overtaking Nairobi in June. Lagos is now ranked 122nd globally ahead of Nairobi which is 136th. Nigeria has 7 cities ranked in the top 1000 on this list with Ibadan (353rd) coming second followed by Abuja (466th) and Port Harcourt (906th). Enugu (978th), Benin City(979th) and Kano (981st) were the only other cities in the top 1000.
The Nigerian startup ecosystem is dominated by hubs and accelerators. These include Co-Creation Hub which is regarded as Nigeria’s first startup incubator and is based in Yaba, Lagos. It has a $5m social innovation fund, Growth Capital Fund, that is backed by Omidyar Network. It funds startups with $25,000 and follow-on funding between $100,000-250,000.
Another hub is LeadPath which is a $1.5m accelerator fund and startup workspace in Lagos. It focuses on startups doing business in software, mobile and electronic payment applications. It offers startups $25,000 to $100,000 investment for 20-40% equity stake. Spark is another accelerator founded by Jason Njoku of IROKOtv. Through its venture capital arm, Spark Capital; it invests in early stage startups. It has invested in over 13 startups including Hotels.Ng which is one of Nigeria’s most successful startups. There are a few university based hubs in Nigeria like Roar Nigeria that harbors startups within and around the University of Nigeria-Nsukka and Hebron Startup Labs that is wholly funded and run by the management of Covenant University in Nigeria.
Investors in Nigeria that are active in the startup ecosystem, especially at the early stage, include the Ventures Platform founded by Kola Aina that has invested in startups like PiggyVest and Wesabi. GreenHouse Capital Partners is an independent holding company that invests in fintechs and other startups. Its portfolio includes Flutterwave, Ruby and MAX.NG. Jason Njoku’s Spark Capital has invested in Ogavenue, Paystack and Hotels NG among others. There is also Loftyinc Capital Management that invests in entrepreneurs leveraging technology innovations to solve significant problems in Africa usually at early growth stage and late growth stage. Founded by Idris Ayodeji Bello, Marsha Wulff and Micheal Oluwagbemi, they have invested in startups like Flutterwave, Printivo.com and Youverify.
Microtraction is another investment firm that focuses on founders that are building high growth and technology driven businesses. It has invested in startups like Cowrywise, Buycoins, Wallets Africa and ThankUCash. The Lagos Angel Network is one of the most active in Africa. It was founded in 2014 and is a network of business angels. Other active investors are EchoVC Partners which is a seed and early-stage venture capital firm. It has invested in startups like Hotels NG, Cars45,LifeBank, MyPadi and Printivo.com among others.
Future Africa, founded by Iyinoluwa Aboyeji and Nadayar Enegesi in 2015, is another active investment fund in Nigeria. The fund was made official in 2020 with Aboyeji as general partner and Enegesi as a limited partner and has invested $1.5m across 19 African startups including Buycoins, Lori Systems,Stears, Eden Life and Big Cabal Media among others.
Venture Capital investment in Nigeria.
Nigeria has consistently ranked in the top 4 of the most funded countries by both amount raised and startups invested in across Africa together with Kenya, South Africa and Egypt. These four countries accounted for 77% of all funding raised last year on the continent. Nigeria is also home to two unicorns, fintech startup Flutterwave and the e-commerce giant, Jumia Group.
The 10 most funded startups in Nigeria have raised a combined $2bn across 32 deals according to data from Digest Africa. Financial Services has 4 startups in the top 10 while E commerce and retail has two. Energy and resources, social media, travel and leisure and commercial and professional services have one startup each in the top 10. The most funded sector is eCommerce and retail which raised $965m followed by financial services which raised $634m.
The most common investment round is Series A with 7 rounds, followed by Series B (6 rounds) and Seed and Series C with 4 rounds each. The most funded investment round is Series C with a total of $651m, followed by Series B ($389m) and Series A ($140m). Together, they account for $1.2bn or 59% of the amount raised.
1.Jumia Group ($885,400,000)
Jumia Group, now trading on the NASDAQ as JMIA, is a startup launched in 2012 by ex-McKinsey consultants Jeremy Hodara and Sacha Poignonnec alongside Tunde Kehinde and Raphael Kofi Afaedor. Jumia has an online marketplace for electronics and fashion among others. It employs an Amazon-like model where it stocks products from manufacturers and wholesalers in its warehouses and resells them. Jumia also has over 110,000 active sellers and individuals. Other startups from the Jumia Group include Jumia Travel, (a hotel booking platform), Jumia Food (food delivery platform), Jumia Deals (online classifieds platform) and Jumia Pay (a payments platform to pay for all Jumia services). Jumia has operations in 14 African countries including Kenya, Nigeria, Uganda, Rwanda, Ghana among others. It also operates in South Africa as Zando, an online fashion retailer.
Jumia became Africa’s first unicorn in 2016 and went public on the New York Stock Exchange three years later raising $196m in net proceeds at $14.50 a share. It hit rock bottom in March 2020 when its share price was $2.15 a share following fraud allegations. It bounced back for an all-time high of $69.89 in February this year.
Jumia raised its first round of financing in January 2012 with a $45m Series A from Blakeney Management, Rocket Internet and Millicom Systems. It raised a further $150m in January 2013 in a Series B from Millicom Systems, Rocket Internet and MTN Group. In November 2014, it raised another Series B of $150m again. Millicom Systems, MTN Group and Rocket Internet invested in this Series B as well. They were joined by Summit Partners, Goldman Sachs, CDC Group and AXA Group.
Jumia became a unicorn in March 2016 following a record $400m Series C. Rocket Internet, MTN Group, Orange, Goldman Sachs, CDC Group and AXA Group were involved in this deal. Jumia also raised two corporate rounds; $84.4m from Pernod Ricard in December 2018 and $56m in April 2019 from Mastercard.
Flutterwave was founded in 2016 by Iyinoluwa Aboyeji and Olugbenga Agboola. It helps businesses all over the world to expand operations in Africa through its platform that enables localized cross border transactions through one API. Flutterwave serves over 290,000 businesses that include global giants like Uber, Facebook and Booking.com. It has made over 140m transactions since it was launched and became Africa’s latest unicorn earlier this year.
Flutterwave has raised a total of $226m across 6 rounds. It raised a seed round in August 2016 of $230,000 from Zillionize,Y Combinator , Rayyan Islam, Palm Drive Capital, Lynett Capital and Golden Palm Investments. Investors like Arab Angel Fund Management, Data Collective and Courtney Broadus also participated in this round. Its next round of financing was a Series A of $250,000 from LoftyInc Capital Management in April 2017. This was followed by a $50,000 grant from the Google Launchpad Accelerator Africa in May 2017.
Flutterwave raised a second series A of $10m from Y Combinator, Plug and Play, Greycroft Glynn Capital Management and Green Visor Capital in August 2017. It had a third series A in October 2018, raising $10m again from Raba Capital, Mastercard, Fintech Collective, CRE Venture Capital and 4Dx Ventures. In January 2020, it got $35m in its Series B round from Greycroft, E. Ventures, VISA, Green Visor Capital and CRE Venture Capital.
In March 2021, Flutterwave raised a monstrous $170m Series C which made the startup a unicorn. Investors included Avenir Growth Capital, Tiger Global Management, DST Global, Early Capital Berrywood and Green Visor Capital. Greycroft Capital, Insight Partners, PayPal and Salesforce also invested in it.
Interswitch is Africa’s leading technology driven company focusing on digital payments. It uses switching technology to connect different banks and provides technology for ATM Cards. It has over 11,000 ATMs in Nigeria alone. Interswitch also owns Verve, Nigeria’s most used payment card and accounts for 18m of the 25m cards in circulation in the country. It also operates Quickteller, an online payments platform and RetailPay, a business management platform. It has operations in 23 African countries.
Interswitch raised an undisclosed Private Equity round from TA Associates in March 2017 and a $200m Corporate Round in November 2019 from VISA.
Andela is an outsourcing startup that trains developers across Africa for contract work with mainly American employers. Andela receives from $50,000 to $120,000 per developer for each contract of which a third is passed to the developer while the rest is used to maintain the company’s operations, cover the cost of training and maintain its facilities in Africa.
Andela has more than 100 developers in Uganda, Kenya, Rwanda and Nigeria and works with more than 200 companies of which 90% are in the USA. Andela had a rocky 2019 in which it laid off 400 developers across Africa after they had not been paired at all with any contract for a whole year which raised questions about the sustainability of its model.
Andela has raised 5 rounds of financing. Its first round was in September 2014. It raised a $3m seed round from Susa Ventures, Steve Case, Sparklabs Global Ventures, Rothenberg Ventures, Peak Ventures, Omidyar Network, Melo7 Tech Partners,Learn Capital , Highline Venture Capital, GSV Ventures, Founder Collective, Chris Hughes, CRE Venture Capital and Arena Ventures.
Its next round of financing was in June 2015 when it raised a $14m Series A. Susa Ventures, GSV Ventures, Arena Ventures and CRE Venture Capital returned for this Series A. They were joined by Spark Capital, Green Visor, International Finance Corporation, Golden Palm Investments and Future Perfect Ventures.
This was followed by a $24m Series B in June 2016. Investors in this round were; Chan Zuckerberg Initiative , Spark Capital, Social Impact Capital, Omidyar Network, Learn Capital, Green Visor, GSV Ventures, Flat World Partners and Battery Road Digital Holdings.
In November 2017, Andela raised $40m in its Series C from CRE Venture Capital, TLcom Capital Partners, Salesforce Ventures, Golden Palm Investments, Green Visor, DBL Partners and the Chan Zuckerberg Initiative. Its latest round of financing was a then record $100m Series D in January 2019 from Generation Investment Management, Chan Zuckerberg Initiative, Green Visor, Spark Capital and CRE Venture Capital.
OPay is a payments startup launched in Nigeria by the global search engine and browser Opera. Opay reported that its monthly transactions grew 4.5x in 2020 to over $2bn in December as the COVID19 Lockdowns forced more people to adopt cashless transactions. The startup claims to operate about 80% of bank transfers among mobile operators in Nigeria and 20/% of the country’s non-merchant POS transactions. It recently acquired an international money transfer license.
Opay raised a $50m Series A in July 2019 from GSR Ventures, IDG Capital, Meituan Dianping,Opera, Source Code Capital and Sequoia Capital China. It followed this with a $120m Series B in November 2019. Meituan Dianping, Source Code Capital, IDG Capital and Sequoia Capital China were the only investors in OPay’s Series A that returned for its series B. They were joined by Gaorong Capital,Softbank Ventures Asia,Bertelsmann Asia Investments, Redpoint Ventures China and GSR Ventures.
6.Lumos Global ($122,000,000)
Lumos Global is a market leading provider of high-quality solar home systems. It sells reliable and clean power solutions that are accessible to everyone. Lumos Global solar energy powers bulbs, computers, fans, TVs and other appliances.
Lumos Global received an $87m grant in December 2019 from the Rural Electrification Agency and followed this up with an undisclosed round from FMO in July 2020. It also raised $35m in September 2020 from United States International Development Finance Corporation in an undisclosed round.
Konga is a Nigerian e-commerce company founded in 2012 by Sim Shagaya. It offers third party online marketplace as well as first party direct retail spanning various categories. Konga owns its own logistics service called KXpress that makes timely shipment and delivery of packages to customers. It also has its own payment (KongaPay), an online travel agency (KongaTravel) and an online pharmacy (KongaHealth).
Konga was acquired by Zinox in 2018 and merged with another ecommerce platform, Yudala, but maintained the Konga brand name and adopted the pink colour of Yudala to form arguably Africa’s largest e-commerce and retail company.
Throughout its entire existence, Konga has been funded by South African conglomerate Naspers and Swedish Investment firm Kinnevik AB. Kinnevik AB funded its Seed round in January 2012. It invested $3.5m. In the company’s Series A, Kinnevik AB was joined by Naspers to invest $10m in its Series A. Both investors put in a further $25m in its Series B in January 2014. Konga’s last round of investment was $41m in April 2015. Naspers funded this Series C.
8.Ison Xperiences ($51,000,000)
iSON Xperiences is a specialist in proactive customer engagement and customer experience management. It partners with leading brands to optimize their customer experiences and revenue generation among others. It also offers data driven solutions to make the customer experience better.
iSON Xperiences is the largest customer service provider in Africa. It has 35 global call centers in 17 countries. In 2019. It was awarded the Pan African Contact Centre Management provider of the Year at the Titans of Tech Awards. It raised a $51m Debt financing round from AfricInvest in November 2018.
Wakanow is one of Nigeria’s oldest startups having been established in 2008 by former Nigerian NBA player Obinna Okezie. It was the first online travel agency in the country and is still widely regarded as the best in the business to this day by Nigerian reviews website, Legit NG. It helps its customers to book air tickets and hotels in Nigeria and select cities across the world.
The company faced financial troubles in 2017-2018 and failed to meet its obligations to the International Air Transport Association (IATA) due to revenue contraction and faced a real threat of collapse. It has since then bounced back by introducing new services like “Pay Small Small” which allows travelers to pay in installments. Wakanow raised a $40m Private Equity round from the Carlyle Group in December 2018.
PalmPay is a payments startup that enables its users to make payments without fees, pay bills, get airtime discounts and make transfers at a rate of $0.03. PalmPay signed a deal with Transission Holdings to have the app pre-installed on over 20m Tecno, Infinix and Itel devices. It also signed a strategic partnership with VISA to enable payments from all over the world. Palm Pay received a $40m seed investment from Transsion, NetEase and MediaTek in November 2019.
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