It’s basically official now, the most buzz in tech startups has moved West. Lagos, to be specific. At $ 2 Billion, Lagos is the startup ecosystem with the highest value in Africa, according to Startup Genome’s 2017 Global Startup Ecosystem Report and Ranking report. It however has fewer active startups, estimated to be between 400-700, than Cape Town, whose active startups are estimated to fall somewhere between 700 and 1200. Johannesburg completes the top three tier. The much fabled “Silicon Savannah” is missing from the report. It was not even included among the startups that were involved in the study.
Ecosystem size is based on the output, that is the number of startups operating in one, and, ecosystem startup valuation. Lagos has the highest valuation in Africa, while Cape Town is the largest ecosystem as it has the highest number of startups. Johannesburg has the third highest number of startups.
The study sought to assess how well policies and practices of 55 cities are in bolstering the establishment and growth of startups. Startup Genome produces such a report annually. For instance, in what ecosystem does an early stage has the best chance of recording building to success globally.
Nairobi has not stopped growing though, it is only that Lagos grew faster. According to a 2016 startups funding report by DisruptAfrica, Nigeria, South Africa and Kenya attracted the highest percentage, 80.3%, of all funding put into the continent. However, the same report notes that a majority of the 26 investment made in Kenya were on “very small tickets”. Which is completely not the case in the other two countries.
Lagos has, in the recent years, reported impressive funding rounds, in figures most Nairobi based startups are yet to record. In 2015, Nigerian startups received $49.4 Million in funding, making it the highest per country in Africa, according to Disrupt Africa’s 2015 investment report. AIG received funding that pushed it over to the unicorn status. Flutterwave, a payments startup started by Iyin “E” Aboyeji has been causing waves and attracting admiration for addressing online payments, a challenge that seems to plague Nigerians and most Africans. Lagos startup Andela, also started by E, attracted $24 Million from the Chan and zuckerberg Foundation. Hotels.ng, IrokoTV are just but a few of the homegrown startups that are valued in the millions.
Cape Town, as well, reportedly has a healthy angel investor practice. It is also home to the most mature funding scene in Africa. The Startup Genome report quotes the Western Cape Finance Minister saying 75% of private equity deals closed in South Africa happened in the province. The angel investors put their money into startups mostly through accelerators. The government is also working to establish incentives for venture capitalists.
In terms of talent. Lagos is well endowed with returnees and founders with technical background, whose percentage is higher than the global average. With 59% of founders having Undergraduate degrees, it ranks 9th in ecosystems whose founders have undergraduate education. 93% of these founders have a technical background, which is the third highest rate in the world. Cape Town is also well supplied with talent from established institutions in the region. Both Lagos and Cape Town registered low cost of hiring technical talent.
There also exists local investors networks, like ABAN. Founders who have registered success like Jason Njoku of IrokoTV have established investment funds for local startups.
Lagos’ position is not really much of a surprise. A number of people had seen the emergence of Lagos as a leading tech/startup hub in Africa, as reported in this Newsweek article. A more nuanced voice that was the basis of this thought is Ebele Okobi, one of the Nigerian-Americans working at Facebook, and who was said to have played a key role during Zuckerberg’s visit to Nigeria and a short stop in Kenya last year. A blogpost that articulated that I was under the impression was written by her has eluded me on the interwebs(!!!). Zuckerberg’s visit to the Nigeria is regarded as one of the key pointers to the importance of Lagos as a startup ecosystem.
Of course, Nigerian startups face numerous challenges. If you talk to a Nigerian startup founder, they will tell you running a startup is not for the fainthearted. However, the challenges story is one best told by the Nigerians themselves.
Featured image: Nairobi skyline at night/ Mutua Matheka