Sometimes, government policies can decide the trajectory of an entire industry. Decagon, a Nigerian edtech startup that trains tech talent, understands this and has used it to its advantage. The startup has announced it has raised $1.5 million in a seed round and obtained a $25 million student loan financing program from Nigerian financial institution Sterling Bank, through the Nigerian central bank’s Creative Industry Financing Initiative launched in 2019 to, among other things, allow students of Software Engineering anywhere in Nigeria to access up to ₦3 million($7.2k) to boost their education.
Decagon will use the funding to help it scale its activities on all three fronts. Aided by the funding, female involvement in the company’s cohorts will also be increased from 25% to 50% in the next three years — according to the company’s existing statistics.
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“We see this capital as fuel to accelerate our mission to transform exceptional people, often from under-represented backgrounds, into world-class engineers by connecting them with financing, in-demand skills and their dream jobs,” co-founder and CEO, Chika Nwobi said in a statement.
Decagon received funding from Kepple Africa and Timon Capital for its equity investment. Some angel investors participated, including Paul Kokoricha, managing partner of ACA’s private equity division, and Tokyo-based UNITED Inc.
Why The Investors Invested
First, investors in this round were apparently lured by the backgrounds of the founder Nwobi who has run a couple of tech businesses, most notably mobile internet company MTech in the early 2000s. Nwobi has also been a seed-stage investor via L5Lab, a path that might have also allowed him to interact with a strong network of investors on the continent.
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Again, unlike regular tech talent training platforms, Decagon has a major differentiator, a loan scheme in place for its trainees. The loan scheme is merit-based, and the company claims to be the first in Nigeria in this regard. The loan sum is being raised in collaboration with Sterling Bank, a financial institution in Nigeria, and from the Central Bank of Nigeria (CBN). The sum enables Decagon to offer a Pay-After-Learning program that includes laptops, housing, internet, a meal allowance, and a stipend for trainees. According to the company, no upfront money is required.
“We got involved to support alternative education by providing loans for Nigerian students complemented with financial literacy training. Based on the excellent performance of the current portfolio, it made sense to scale our support to Decagon,” Obinna Ukachukwu, the divisional head of Sterling Bank, said on the student loan financing.
But perhaps the singular most attractive bait for the investors is the startup’s relative profitability, over time. According to the CEO, the startup is profitable and growing at 500% per annum. The CEO also said the organization boasts a 100% placement rate for its trainees, a 100% loan repayment rate, and a 410 percent wage increase for its software engineers after they are placed.
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“We’re thrilled to work with Decagon to build up the top 0.5% of vetted engineering talent in Africa and help connect them to global tech opportunities. The frequency of engineering leaders from US and European companies in our network ask about sourcing African and Nigerian technical talent has increased at a rapid clip, and we’re excited to lean into that and help Decagon on their mission,” partner at Timon Capital, Chris Muscarella, said in a statement.
A Look At What The Startup Does
Founded in 2018, Decagon offers a six-month software engineering program and hires only the best candidates. It is a paid program, with software engineers expecting to spend around N2 million (about $4,000) in tuition. When the engineers find work and begin earning after graduation, the company uses an income-sharing approach.
But what if the trainees can’t afford the program to begin with? That is covered by student loan finance, and students who choose that option are expected to return N3 million ($6,000) over the course of three years.
Decagon claims to have received over 80,000 applications for its program, but only 440 have been accepted. This equates to a 0.55 percent approval rate.
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Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based lawyer who has advised startups across Africa on issues such as startup funding (Venture Capital, Debt financing, private equity, angel investing etc), taxation, strategies, etc. He also has special focus on the protection of business or brands’ intellectual property rights ( such as trademark, patent or design) across Africa and other foreign jurisdictions.
He is well versed on issues of ESG (sustainability), media and entertainment law, corporate finance and governance.
He is also an award-winning writer