How to plant seeds of greatness in fintech startups, By Rarzack Olaegbe

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How #EndSARS ended fintech’s finest year, By Rarzack Olaegbe
Rarzack Olaegbe

Silicon Valley is a region in the southern part of the San Francisco Bay area in Northern California in the USA. It serves as the global centre for high technology, innovation and social media and has dominated the world’s venture capital scene for decades. It is the tech epicentre. According to PitchBook Data, it has funded over 102 startups that have grown into oaks or unicorns. These are tech companies that are valued at over $1 billion. Facebook, Stripe and Box are some of these unicorns.

The venture capitalists in the Valley planted the seeds of greatness in these startups before they could become unicorns. They offered to fund. They helped with research and development. They supported their human resources effort. These efforts nourished these caterpillars and encouraged them to become colourful butterflies. This also boosts the startups’ valuations by as high as 20 per cent before they go public. It is not magic. It is a strategy.

Already the acceptance by Google and Microsoft to turn Lagos into the Silicon Valley of Africa with major investments is quite inspiring. These two former startups have investments in the Computer Village and some of the emerging tech hubs in Lagos.

This was evident in 2007 when the venture capitalists accounted for 75 per cent of the startup investments, according to Bloomberg. In addition, tech companies experienced a surge in funding from 2012 to 2015. That was when the venture capital firms poured $92 billion into space. Now the funding is waning. China has stepped in. In 2017, the Asian venture capitalists invested a record $154 billion in tech companies. At this rate, the Asian venture capital is a blessing. It can enable a select few startups to get much more capital at higher valuations. This was done in order to plant the seeds of greatness in the startups.

In Nigeria, the Lagos State government has launched N250 million seed funding (before the coronavirus crisis) for startups to dream up innovations. Governor, Babajide Sanwo-Olu launched the fund at the Art of Technology (AOT) Lagos 1.0 conference. To complement this, he equally announced the setting up of a research and innovation council.

The research and innovation council is chaired by a university don from the University of Lagos, Professor Oluwatoyin Ogundipe. The N250 million seed funding will help the council to invest in research and development of tech-focused solutions. This new development will create an enabling environment for technology startups to grow and fester as we have witnessed in the Silicon Valley.

I doff my hat for the state government. However, the fund is a drop in the sea. Interswitch received N200 million in the form of a grant from the Central Bank of Nigeria [CBN] in 2001. Today, Interswitch is a unicorn. TeamApt has raised $5.5 million from a private venture firm, Quantum Capital Partners in 2019. Paga also got $20 million last year. Nevertheless, N250 million as a seed fund for tech startups in today’s estimation is a fart in the wind. The current Yaba-based startups are snowed under by the high rent of real estate, exorbitant internet fees, incessant power and high cost of diesel and other sundry charges.

If 50 startups emerged as beneficiaries of the seed fund and each gets a $5 million as funding, it comes to a budget of N250 million. The process of disbursement needs to be defined so that the fund is judiciously put to good use. If properly managed, the fund can become a fountain of nourishment for the nascent tech companies. It can drive synergy between policymakers and innovators. It can inspire other venture capitalists to begin to plant seeds of greatness in local tech startups and this will, in turn, attract the Silicon Valley and Asian venture capitalists.

Obviously, to play on the global stage, Lagos State has to be grounded in the application of technology in order to surmount the myriads of challenges that beset the city.

Already the acceptance by Google and Microsoft to turn Lagos into the Silicon Valley of Africa with major investments is quite inspiring. These two former startups have investments in the Computer Village and some of the emerging tech hubs in Lagos. The culmination of these actions will be the realisation of the Lagos smart city project among other possible tech-led initiatives.

Obviously, to play on the global stage, Lagos State has to be grounded in the application of technology in order to surmount the myriads of challenges that beset the city. Embracing innovation in technology can lead to growth and development. Committing N250 million to science and research is a starting point. Increasing that fund to N1 billion will start the fireworks.

The convener and special adviser to Governor Sanwo-Olu on Innovation and Technology, Olatunbosun Alake, has the understanding that the seed funding will help to bridge the gap between governance and innovation. And, on the other hand, if funding is waning as it happened in Silicon Valley, the Asian venture capitalists are here to help plant a seed of greatness so that more unicorns can emerge from Lagos State. That is the way to go.

*Olaegbe (psalmsonolaegbe@gmail.com)  

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