With over 17.5 million people living in it, the Nigerian commercial city of Lagos has the highest number of small and medium enterprises (11,663) as well as the highest number of micro enterprises (3,224,324) in Nigeria. When Startup Genome, in partnership with the Global Entrepreneurship Network (2017) released its 2017 ranking of top startup ecosystems, it based its findings on two reasons:
- What startup ecosystem is the most valuable in each geographical regions of the world? and;
- Which ecosystem has the highest number of startups?
Why Lagos may not have the highest startups in town, it however has one of the most valuable startups in Africa, and here are some of the reasons.
The Size of the Lagos Startup Ecosystem Has Seen Some Appreciable Growth.
Although the ranking pointed out that Lagos does not have the highest number of startups, as at 2017, it did however state that the city has an estimated 400–700 active and viable start-ups that have sprung up.
According to Michael Porter, the more people you have in a particular industry, the higher the productivity of the industry’s participants, and the higher the level of innovation, and the higher the rate of new business entry. Notable startups such as Flutterwave, Farmcrowdy, Iroko Tv, etc are all part of a teeming ecosystem.
Related: South Africa Has The Best Startup Ecosystem In Africa, Says New Ranking
Startups In Lagos Have Formed Local Communities and Clusters Through Which They Help Themselves.
When the Lagos State Government collaborated with CcHUB, MainOne, TechnoVision, and others to launch a 27km fibre optic cable project around the Yaba neighbourhood in 2013, little did it know that startups would one day form clusters around the neighbourhood that would give birth to a vibrant startup community. Today, there are so many startup hubs and co-working spaces among startups in Lagos which reinforce a sense of community among startup owners. Notable among them are the:
- The Facebook’s Lagos-based NG_Hub, which is run in partnership with CcHub. It is Facebook’s first community hub in Africa. The hub offers work spaces, meeting rooms, games and chill out room, an event space and a well catered café. The hub includes Facebook’s Fb Start Accelerator programme — a research and mentorship-driven programme focused on those building high tech solutions, with a focus on artificial intelligence (AI), machine learning, augmented reality (AR) and virtual reality (VR). This has helped to create a succession of successful startups.
- StartupGrind is a global community powered by Google for Entrepreneurs, with goals to educate, inspire, and connect entrepreneurs . The Lagos arm, with over 7000 members, meet at least once in a month. There are other large startup hubs and communities spread around the city.
The importance of community for every startup ecosystem is captured by Michael Porter, when he wrote that the degree of interconnectivity is the second key dimension of industry clusters because “economic activities are embedded in social activities; that ‘social glue binds clusters together.
Production Scale Up and Startup Output Volume
Although the level of funding a startup gets does not determine its value in terms of production and startup output volumes, how well a startup ecosystem performs also depends on its production capacity. While information about the production scale of startups in Lagos are still sketchy, appreciable startups in Lagos have justified their existence. With $15.7 million in funding, Flutterwave (the payment processing & electronic remittance startup) for instance, has been able to process over $1.2 billion transactions for African businessmen. In fact, the total processed value for transactions conducted in 2018 signified a 401% increase when compared to $205 million in 2017.
More Startups In Lagos Are Plugging Into The Global Value Chain
A higher level of global connectedness helps startups integrate into the global fabric, raising their level of performance. Most startups in Lagos, which have gotten the strong funding capacity are beginning to get globalised. The recent listing of Jumia, a startup started in Nigeria, on the floor of the New York Stock Exchange, is a great case in point. Flutterwave has also got licenced to operate in the United Kingdom and Zambia bringing the total of countries it operates in to 7 (Nigeria, Uganda, Tanzania, Kenya, Ghana, and now United Kingdom and Zambia). However, an indicting fact is that startups in Lagos still have one of the lowest rates of foreign customers at 6% with overall average at 23%, suggesting challenges to go global. Only 11% of start-ups have plans to expand globally, according to the Genome Startup Report.
Few things can signify the arrival of a city as a contender on the global startup scene a visit from Mark Zuckerberg, who came to Aso Villa Demo Day to share his journey to developers and the 30 startups in attendance. As a more general trend, the ecosystem benefits from globally connected expats bringing back knowledge and financial capital after working in the U.S or U.K, writes Startup Genome.
Lagos’ Startup Ecosystem Has High Valuation
Valuations of startups, which are tied to funding rounds, occur regularly and in higher numbers, providing better and faster feedback on the quality and improvement of a startup ecosystem.
From the Genome Report, the Lagos startup ecosystem was worth $2 billion as of 2017 making it the most valuable ecosystem in Africa and only second in number of start-ups after Cape Town. Cape Town has the largest ecosystem on the continent, with between 700–1,200 tech start-ups.
However, the exit value of most startups in Lagos remains a question for most investors. Konga recently was acquired by Zinox Group at a lesser value than it was worth .
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The Growth Index of Lagos Startup Ecosystem Is High
The growth momentum of each ecosystem varies, but it is not easy to compare them and account for different local perspectives.Startups in Lagos have grown so fast since the creation of the first startup community in Lagos in 2011.
- From the original Yaba neighbourhood startups — such as Konga, eCommerce company which arrived in 2013, valued at approximately $200 million after raising $20 million in Series C rounds; Africa Internet Group, which transferred six of its companies to Yaba in 2014 with $469 million in 4 Rounds from six investors —
- to subsequent startups such as BudgIT, Andela–a Nigerian-founded talent accelerator for programmers that has campuses in Lagos, Nairobi and New York; Hotels.ng, which claims to be the largest hotel booking site in Nigeria and which secured $1.2 million in funding from Omidyar Network to expand its listings across Africa,
- the Lagos startup ecosystem has witnessed steady growth and development.
- Other notable startups include Iroko TV— the biggest digital retailer of Nollywood worldwide with total funding of $40 million — and Paystack, an alternative e-payments company which raised $1.3 million investment in December 2016 from international investors.
The Talents of Most Lagos Startups Founders Are Above Average
Although it is difficult to quantify the extent of a founder’s talent, certain metrics such demographics, economic and educational data, may go along way. The Global Startup Ecosystem Report, 2017 hints that the Lagos ecosystem has the 9th highest rate of Founders with an Undergraduate Degree at 59% while 93% of them have a technical background, the 3rd highest rate in the world.
The number of women founders at 14% on average is only 2% shy of global average at 16%. Cape Town, South Africa however has 25%.
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Lagos Startup Ecosystem Is One of The Most Funded Startup Ecosystems in Africa
The rate at which startups obtain funding in Lagos has also improved. iROKOtv, often referred to as ‘Netflix of Africa’, for instance, has secured several funding rounds in excess of US$40m, since the company started in 2010. With a Series A Venture Capital investment of $3M from the US-based hedge fund Tiger Global, it is now the world’s largest online platform for African entertainment.
Andela which was founded in 2014 has so far also obtained more than $180 million in fundraising. Its investors include Steve Case, Omidyar Network, Founder Collective, Rothenberg Ventures, Learn Capital, Melo7 Tech Partners, Chris Hughes, Generation Investment Management—an investment firm co-founded by former US vice president Al Gore, Chan Zuckerberg Initiative, GV (Google Ventures), Spark Capital, CRE Venture Capital, among others
Hotels.ng,started in 2012, has now been transformed into one of the biggest online hotel booking agencies in Nigeria, after the startup was able to secure investment of $225k from SPARK in 2013. It also got Series A round of $1.2m funding from EchoVC Pan-Africa Fund, a seed-stage technology fund, and from Omidyar Network, and it currently has a total funding capacity of $1.5m.
Again, Vanso International Corporation, a mobile payment Company was able to attract an USD75 million investment from Interswitch Limited in March 2016.
Interswitch Limited, a payment switching and mobile payment company also attracted USD110 million in December 2010 from Helios Investment Partners and Adlevo Capital Managers, LLC and USD20 million from International Finance Corporation in September 2011.
The US investment giant The Carlyle Group has also invested $40m in Nigeria’s Wakanow, an online travel agency launched in 2008, while the Nigeria-based trucking logistics startup Kobo360, raised $7.2m in 2018 from the International Finance Corporation and private funds in the US and Nigeria. The Lagos-based start-up is now targeting another $15m-$20m by the end of April to finance its expansion in East Africa.
A recent report by the US-based venture capital firm Partech Partners has ranked Nigeria as the number two country with the highest funding for tech startups in Africa, with $306m raised in 2018 alone. The city of Lagos was the greatest beneficiary of the funding.
Charles Rapulu Udoh
Charles Rapulu Udoh a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organisations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution and data analytics both in Nigeria and across the world.