Why Nigeria is Likely To Produce More Unicorns


Rarzack Olaegbe

Fintech start-up needs more capital to spread and deepen its operations. It then discovers that the company’s valuation is lower. That is, it was lower prior to the previous round of financing. This discovery forces the company’s management to sell its capital stock at a lower price per share.

The Unicorn is a legendary creature. It is described as a beast with a single large, pointed, spiraling horn projecting from its forehead.

The unicorn was depicted in ancient seals of the Indus Valley Civilization and was mentioned by the ancient Greeks in accounts of natural history by various writers including Strabo, Pliny the Younger, and others.

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In European folklore, the unicorn is often represented as a white horse-like or goat-like animal with longhorn and cloven hooves (sometimes a goat’s beard). In the Middle Ages and Renaissance, it was commonly described as an extremely wild woodland creature: a symbol of purity, grace, which could be captured only by a virgin.

In the encyclopedias, its horn was said to have the power to render poisoned water potable and to heal sickness. In medieval and Renaissance times, the tusk of the narwhal was sometimes sold as a unicorn horn. Today, the unicorn continues to hold a place in popular culture.

Among venture capitalists, the unicorn is often used as a symbol of fantasy, a symbol of rarity. To them, a unicorn is any company that is valued at $1 billion. Or more. This is a rarity. Because of this, every Fintech start-up is in a race against time to become a unicorn. In Nigeria, we have witnessed the arrival of the first unicorn: Interswitch.

While discussing with a venture capitalist recently, he told me that having $1 billion does not represent the actual health of a company. And that valuation is what the company says it is. He then talked about unicorns. He mentioned down rounds. And other companies that are utter failures. He said down rounds or funding round occurs when a company attracts a lower valuation less than it did in the previous round.  Let us paint the scenario.

A Fintech start-up needs more capital to spread and deepen its operations. It then discovers that the company’s valuation is lower. That is, it was lower prior to the previous round of financing. This discovery forces the company’s management to sell its capital stock at a lower price per share.

The main challenge for most start-ups is still how to secure a larger round of funds.  That is one of the hurdles start-ups are struggling to overcome. The recent acquisition of Konga is considered by some venture capitalists as down rounds.

Other companies are seen as utter failures. These latter nascent companies have been unable to attract the fund they require to fly. This is also part of the world of venture capital.

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According to the Nigeria Communications Commission, NCC, there are over 700 active start-ups in Lagos. But not all of them have the funds to scale. To spread. To become unicorns. Some of them would die. Others would wither.  Yet, some would thrive. For instance, the following companies got some funds recently. Andela got $40 million. Terragon Group received $5million. Cars45 got $5million.

Resources received $3.5 million. Flutterwave had $10 million. Paystack collected $1.3 million.

The rounds of funding have demonstrated that there is huge potential in the Nigerian ecosystem. But we have a few success stories. One of these successes is SystemSpecs, the wholly-Nigerian software powerhouse behind Remita. It recently moved into its own purpose-built headquarters. According to an Ecosystem report in collaboration with the Global Entrepreneurship Network (GEN), the Lagos start-up ecosystem is worth $2 billion.

Lagos has one of the highest rates of founders who have undergraduates’ degrees (59%) and those that have a technical background (93%). But all of these have not been able to disrupt the industry. Sean Burrowes, the Chief Operating Officer of Ingressive, Africa’s premier ecosystem architect, said the fintech companies “are doing the same thing”. Burrowes expects disruption in different areas, not necessarily payment or remittances.

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In an interview with Forbes Africa recently, Emilia Asim-Ita, CEO, AML Practice, a content, talent, and resource advisory firm, said the startup ecosystem in Nigeria is stagnating. She could not give empirical evidence. She, however, pointed out that an industry or sector that is not growing and has not disrupted any new industries in a while and has not recorded any significance in the growth and sustainability, or even some of its biggest ideas cannot be growing. “That is why I would say that it is stagnant.”

The industry is stagnant because the “right infrastructure to support the start-ups is not available,” Seyi Tinubu, founder and CEO of Loatsad Promo media explained. The infrastructure bottleneck is another story for another day. But the figure from the National Bureau of Statistics [NBS] has indicated that Nigeria has 200 million people.

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This shows that Nigeria is still the biggest market. As such, Nigeria is the only market in Africa that is likely to produce more unicorns. For this to happen, Nigeria’s fintech ecosystem requires huge capital investment to help the start-ups to become unicorns and not down rounds.

PS: After this report, Nigeria has produced more unicorns through Flutterwave, Opay, Andela and Chipper Cash, and was captured in another write-up “Does unicorns stimulate competition or what?”   

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