Efayomi: Nigeria’s Budding Startup Ecosystem Among Biggest in Africa

Seeing firsthand how startups catalyse innovation and unleash opportunity for communities, the Principal of Flourish Ventures, Efayomi Carr, talks about funding as a venture capitalist, the startup industry, and the Nigerian tech space as a whole. Nosa Alekhuogie brings the excerpts.

As a venture capitalist, what’s your firm’s primary focus in terms of funding?
Our end goal is a more inclusive global economy, and we believe that the way to achieve this is to create a robust ecosystem. That is why we seek out partners who are innovating to meet this purpose or have a role to play in developing beneficial policies and regulations. Beyond that, we assess the viability of the firms we invest in to ensure that their business models are in line with what we look for, as well as scalable.

Can you give us a background on yourself and your company?
I joined Flourish Ventures in 2020 as a principal, prior to which I was head of strategic finance for Lori, a tech startup building cost-saving market infrastructure for the trucking industry in Africa. Eventually, I was appointed chief financial officer (CFO) Lori and helped guide the company financially through the COVID-19 crisis, helping to raise capital, renegotiate existing debt, and finalise key partnerships. Prior to Lori, I worked at Quona Capital, another fintech-focused venture capital fund, Jumia Nigeria, the Boston Consulting Group, and the Sierra Leonean government.
Flourish is a venture firm investing in entrepreneurs whose innovations help people achieve financial health and prosperity. Our global team is growing the portfolio we built within Omidyar Network over the last decade backing bold ideas and new business models that responsibly harness the power of technology to build a fair and customer-centric financial sector. We seek out entrepreneurs, thought leaders, and innovators in policy and regulation to shape a more inclusive global economy.

Since inception, how much has your firm invested in startups and can you name some standout firms?
We have invested in dozens of startups globally. In Africa, our portfolio spans Nigeria, Kenya, Egypt, and beyond. We have invested across several verticals such as payments Flutterwave, credit (Lendable), neobanking Fairmoney, and agriculture (Apollo). Many of these companies have gone on to raise subsequent funding rounds after our investment and scale their businesses to reach millions of consumers and enterprises.

How much funding is your firm looking to invest in the short and long term?
Our fund invests from $500,000 to $5 million in a single investment. Generally, we look at companies in the Series Seed and Series A stage. We support our companies through the duration of their journey to exit. Globally, we make a dozen investments each year with a portion of that focused on Africa.

With rising inflation, how do you ensure the value of investments are not eroded?
Inflation has continued to rise globally, with inflation in Sub-Saharan Africa (5.33 per cent) much higher than the global average of 3.4 per cent, as indicated by the World Bank’s statistics for 2021. If you give that more context and look at the data for Nigeria, inflation for 2021 stood at 16.1 per cent. Therefore, when making investments, we need to be cognisant of the impact inflation would have and to an extent, legislate for profit and asset erosion. Profit erosion is the more pressing consideration as it directly affects cash flow for many businesses, creating a hinderance in the sustainability of their operations. Asset erosion is more long-term and critical as it affects the bottom-line of the company over an extended period.
To make sure that these effects do not have a lasting impact on investments requires an end-to-end approach where we are able to identify how to future-proof businesses to an extent. If we can limit the impact of inflation by identifying patterns based on data, we can put into perspective where we need to protect against the different types of erosion.

In the Nigerian tech space, do you see a bubble?
In 2020 and 2021, we saw an influx of capital coming to the Nigerian tech ecosystem. This pushed up valuations which reached an unprecedented level, peaking in March 2021. After the most recent economic downturn, we have seen global price correction. This has been even more exacerbated in Nigeria where a lot of the funding came from international partners who scaled back their African investment tickets as the global economy slowed. Today, we see market prices return to fundamentals which we believe is a healthy sign. There is lots of value being created in the Nigerian tech space and we are optimistic that the funding will continue to flow.

Do you see more room for expansion and new entries in the tech space?
The technology space in Nigeria still has room to grow. Startups in Africa have attracted investments of roughly $2 billion in the last two years, which is a large amount when looked at in a silo. However, if you look at it from the global lens, that number is still quite small. In comparison, US startups raised $156.2 billion in venture capital last year. Therefore, the tech space in Nigeria, and by extension the continent, still has significant room for growth.

How would you rate Nigerian start-ups compared to counterparts in other climes?
Nigeria has a budding startup ecosystem, being among the biggest startup scenes on the continent. Ninety-two per cent of Africa’s investment in tech was won by four countries: Nigeria, Egypt, Kenya, and South Africa buoyed by their sizeable populations and large Gross Domestic Product (GDP), which make them attractive investment destinations. According to the African Development Bank’s (AfDB) 2021 report, these four countries account for about a third of the continent’s startup incubators and accelerators and receive 80 per cent of foreign direct investment (FDI) into Africa. Nigeria leads these countries in terms of the value of investments received.

However, Nigeria lags slightly behind South Africa and Kenya when other factors like economic potential, business climate, cost effectiveness, connectivity, and worker’s experience are brought into consideration. A report by Briter Bridges ranks South Africa and Kenya first and second respectively, with Nigeria further down in sixth. South Africa’s startup scene and VC networks are slightly more advanced and developed, which is what makes them the leader on the continent. Kenya has made major strides in recent years to become one of the forerunners in the fintech space and boasts the highest number of coding schools. Nigeria can climb even higher up if there are more favourable government policies are put in place, and infrastructural issues such as poor internet speed, access and connection are resolved.

What effects does Nigeria’s current foreign exchange policy have in investing in Nigeria?
I think many investors are concerned about access to capital and inflation. The Central Bank of Nigeria recently raised interest rates to unprecedented levels to tamper inflation. Similarly, we are seeing many foreign companies that have difficulty repatriating funds due to strict currency controls. I think these risks can be mitigated by consistent transparent strategies from the federal government and CBN. As investors, we carefully monitor progress here to see how the macro landscape may affect our individual companies.

What should we expect from your firm going forward?
Flourish is committed to maintaining a strong investment mandate. As one of the longest-running venture capital teams on the continent, we have waded through multiple boom and bust cycles. However, we believe the potential for the African ecosystem is brighter than it’s ever been. We will continue to deploy capital and work with entrepreneurs, partners, and governments to advance the ecosystem. We are also more aggressively targeting underserved entrepreneurs and markets that many other investors have shied away from.