Insights on the Nigerian & Kenyan VC Ecosystem
PS: My thoughts are mine alone and does not represent the views of anyone at Lateral Frontiers, or of the company itself.
“Phew, I don’t need to travel with my plethora of suits. Finally!” I said to myself, excited about breaking into VC at my new firm, Lateral Frontiers, which doesn’t require corporate formalwear. With a day to go until my flight to Nairobi, I needed to pick the right set of clothes to travel with. Surely I would not need a jacket, sweatshirt, or any cold-abating piece of clothing?
After all, I was headed to Nairobi — which from my documentary viewings, is home to the sweltering Safaris, many dark-skinned award-winning athletes, and the Masai people — who all dress very lightly. Surely Nairobi must be more humid than Lagos, or so I thought! I couldn’t have been more wrong, and many were my days of shivering.
This was the first of my many incorrect assumptions about Nairobi that have since been shattered. Aside from the weather, the next major surprise was that infrastructure and basic amenities — such as the state of roads and access to electricity — are hands down superior in Kenya, and more readily accessible to the common person than in Nigeria. I will put this down to the Kenyan government seeming to have much better structures and processes in place than Nigeria on infrastructure.
Of course, Kenyans wouldn’t agree with me. They all believe, and rightly so, that their government can do much better, and that their resources could be better managed. How can you disagree with the eternal high standards of the Kenyan people? Yet, if you compare the use of public resources in Kenya to Nigeria, you can’t help but shed a tear for my country.
How does this all play out in the venture ecosystem? Why, despite a clear resource allocation disadvantage and harder everyday life, does Nigeria remain the biggest VC ecosystem in Africa? The answer lies in the nature of venture capital itself, and founders especially, need to be aware of this. Venture capital, as I have learned at Lateral Frontiers, is the business of solving the biggest problems, with the best team possible, in the shortest amount of time, by making the most effective use of technology and the most efficient use of capital. This is the Lateral way!
Nigeria, powered by its population size, has some of the biggest problem sets and in turn, has the biggest VC funding market. The biggest problems and most rewarding opportunities will, all things considered, be more frequently found in Nigeria than in Kenya. Though the availability of basic infrastructure and amenities has been an enabler for startups in Kenya, their absence is what makes the market opportunity even bigger in Nigeria.
Take, for example, FinTech; the go-to and most successful sector in Africa — which has multiple unicorns in Nigeria (4) but none in Kenya. Today Nigeria has a cohort of unicorns and soonicorns that are tackling this problem head-on, and the market opportunity is huge. Given the size of the Nigerian economy and the failure of the banks to penetrate the population, democratizing and increasing access to financial services has been a problem that MUST be solved.
For example, Flutterwave and Paystack are facilitating payments, companies like Team Apt, Paga and Opay have tackled the agency banking problem and Neo Banks such as Kuda are attempting to grow the number of Nigerians with bank accounts. In Kenya, many of these problems have been comprehensively solved by Safaricom’s mobile money solution, M-Pesa, and there’s barely any pressing pain point or market need to build a unicorn-sized company for.
If we ever had M-Pesa / Safaricom in Nigeria, the problem set that birthed these successful ventures would never have existed. To give you some context on M-Pesa, it’s a payment rail, a wallet/bank account, an agency network, a savings app, a micro-lending platform, and a host of other financial services rolled together into one product and accessible via any mobile phone. It’s no surprise that nearly 90% of Kenya’s population has access to financial services whilst financial inclusion in Nigeria hovers between 45% and 64% — depending on who you ask.
After experiencing the beauty and magic of mobile money myself (specifically M-Pesa, owned by Safaricom), I can’t help but challenge the oracle himself, Warren Buffett and say Mobile Money, not Compounding, is the eighth wonder of the world. But With M-Pesa, only a few (if any) unicorn-sized market problem remains. This is more so the case as M-Pesa operates a walled garden strategy and dominates the low-value money chain.
That being said, there are other verticals beyond FinTech that has equally big market potential across markets — whether that’s Nigeria or Kenya, North or Southern Africa, or the anglophone and francophone African countries. These verticals have pain points, market needs and opportunities that transcend borders. At Lateral Frontiers, we invest in two such verticals, Climate Tech and Blockchain Tech.
I’ll wrap up with one of the things I’ve loved about living in Nairobi, Kenya the past 9 months — the joyous absence of traffic. Oddly, Kenyans think they have a traffic problem in Nairobi but I hope they never get to experience traffic in Lagos Mainland. I’ve loved my time here, and Nairobi has been such a fun city to live, visit, and work in; and the people have been great with me.
Overall, the Kenyan VC ecosystem is growing, as it deservedly should, and it has all the recipes (and infrastructures) for continued long-term success. I actually can’t wait to experience and be a part of the next phase of venture growth in this ecosystem. As for venture growth in Nigeria, it’s still only Day 1 and we’re just getting started. I also look forward to contributing to the emergence of the Climate Tech and Blockchain Tech verticals in Africa.
Finally, I would like to thank every member of my team for their endearing support and commitment to my growth since my arrival, y’all have blessed me in more ways than I ever thought possible. I hope by the time I return to Nigeria, it will be to continue solving the biggest problems in Africa — the Lateral way.
Until then, Asante Nairobi for the continued growth and learning opportunities.