We had an interview session a few months ago where we talked about the astronomical growth of Nigeria’s tech sector. It was very enlightening and eye-opening. We delved into the minds of venture capitalists currently investing millions of dollars in Nigerian technology start-ups.
The episode was one of our most popular articles. The topic of start-ups, investments, and technology in general is so vast that I have always thought it would be useful to get another, more in-depth look at what VCs are and what is currently going on in the Nigerian Tech Ecosystem and investment landscape.
It is often said that one of the problems with Africa and perhaps Nigeria in particular, is that we always leave; we would rather flee to greener pastures than stay and fight Africa’s many demons. Traveling or migrating out is not, in my opinion, bad for Nigeria or Africa; what is bad is when Nigerians immigrate with no intention of returning home to reinvest in Africa.
On that note, I am always impressed by Nigerians who excel abroad but return to invest in Nigeria, creating jobs and contributing to the country’s social and economic advancement
Olu Oyinsan, one of these Nigerians who left but has come back to invest in Nigeria, gives us a glimpse into his persona and reveals what drives the appetite of VC’s for Nigerian startups.
Olu Oyinsan is a managing partner at Oui Capital and an emerging markets seed-stage investor. OUI is an early-stage impact fund that invests in promising technology companies in frontier markets, particularly in Sub-Saharan Africa.
Before launching Oui Capital, Olu started his career in commercial banking with Nigeria’s Guaranty Trust Bank, later working as a TEI Consultant at Forrester, a global market research firm advising some of the biggest technology companies. He also worked at Silicon Valley Bank’s early-stage practice supporting early-stage startups across the east coast of the US.
His most recent role was as VP – Head of Investments at Ingressive Capital, where he led investments in Sub-saharan Africa. He holds an MBA from Hult International Business School, Boston with a concentration in Finance and Strategy”.
Below are the excerpts of the interview;
Q: In simple terms, could you tell us what a VC is?
A: In simple terms, the long form is “Venture Capitalist”. Venture Capitalists are people or firms who invest in companies at early stages of their operations. Something that is unique about VCs is they usually have a preference for businesses in tech or tech-enabled businesses.
Q: What was the drive behind your chosen field, how did it all start?
A: I started my career in banking where we would also fund businesses through loans, but we only used to get interest as reward for taking this risk and all my life I felt that there could be a better way where you could partner a lot more with these businesses that you fund and enjoy a lot more of the benefits of success.
Many career progressions led me here, but it was really that drive of being able to partner and share in the upside with businesses that made me pursue a career in venture capital.
Q: Do you mind sharing how OUI capital came about?
A: I had spent about a year and a half since I moved back to Nigeria working in another venture capital firm, but me and my cofounder, Francesco Andreoli, had some new ideas about how we wanted to run a venture capital fund. So, we decided based on our experience in the US, having started a business and a lot of people had said no to us in terms of funding, we decided to create a fund on the African continent that could say yes to entrepreneurs and that’s how Oui Capital was formed.
Q: What does a typical day at work look like for you?
A: My day usually starts with some exercise and then morning coffee. After that, I dive into my day. Meetings for me usually start at 10am. I have a lot of meetings with either entrepreneurs or investors or just people we can work with in the ecosystem, we call them co-investors. I also get into the boring things that have to do with fund administration and paperwork behind the operations of the fund. Usually, my day will end much later at night because I would jump on calls or do activities that align with US time zones which make me work into the night some days. Typically, it’s an engaging day, interacting with a lot of people and also doing a lot of desk-work.
Q: What factors would OIU Capital consider before investing in a business?
A: There are many factors venture capitalists consider before they invest in a business, but to keep it very simple, we want to invest in a great idea that is being executed by a very capable team and we also like to invest in businesses that can grow to become big businesses.
Q: The last five years have been more extraordinary than usual for start-ups in Nigeria, what in your opinion is fuelling the interest of VC’s and PE’s in Nigerian start-ups?
A: There are a lot of things fueling the interest of VCs and PE in Nigerian startups. One of the major ones is the fact that there is now a higher penetration of mobile and smartphones, so there are now a lot more customers on the digital grid and in response to that, a lot more startups are springing up to serve those customers.
Also, there is a demographic shift that creates a huge market. About 70% of the whole population is between the ages of 0 and 35 and that creates a large market for the startups to operate in. These are a few things, but also, the macroeconomy is helping to fuel the growth and interest for Nigerian startups.
Q: These interests seem to be focused on FINTECH STARTUPS, Digital banking payments and lending. What other focus areas do you think funds could go into?
A: First of all, one of the characteristics of growing economies is that banks and banking companies usually dominate the financial services space and that’s why you would see the growing interest but it looks like fintech is taking most of the attention. But, a lot of other startups and verticals around trade and commerce are also going to become focus areas as the years progress. One of them majorly is logistics, another is mobility and as we go further you would see things like healthcare and now education.
Q: Financial Capital is easy to come by and easier to deploy but reputational capital and VC time are the real currency in today’s venture market. Aside from deploying funds, does OUI take board seats? How involved are you in the businesses you invest in or do you just write checks and ghost?
A: First of all, writing checks and ghosting is a strategy in itself, even though that’s not our strategy. At Oui Capital, we invest in entrepreneurs very early and coincidentally, these are the times when entrepreneurs need the most help. A lot of time when we invest in companies, sometimes we take board seats, sometimes we take advisor seats, sometimes we take board observer seats. But we stay very close to the companies to give them the necessary support they require. Sometimes this support might be introducing them to other investors, introducing them to customers, introducing them to possible partners, helping them to find and retain some of the best talents around. Sometimes it might even go down to settling co-founder disputes. So, we are actually quite involved because of how early we get to invest in these companies. As these companies get bigger and bigger, the need to hand-hold becomes less and less, which is actually every venture capital’s dream.
Q: Most VCs make an initial investment and “reserve” funds to keep ownership in subsequent rounds or to assist a struggling firm in need of funds. What percentage of the budget is set aside for “primary” versus “follow-on”?
A: In our first fund, Oui Capital Fund 1, which we’ve almost fully deployed, we kept about 40% of the fund to make follow-on investments in the companies that we invested in. You’re correct, we do this to keep our ownership in subsequent rounds, something they call anti-dilution tactics in venture capital. We usually keep that because it helps us to be able to double down on the companies we think are doing very well. Many VCs have different ratios of what they keep, at Oui Capital, we usually keep 60% to make fresh investments and 40% for follow-on funding.
Q: Capital is clearly important, and most start-ups need some funding to get started, but is it the determinative factor? Does raising a large amount of capital make a start-up more likely to succeed?
A: The short answer is yes, because now we’ve seen a lot of startups who are good at doing what they do, but having a warchest of capital helps you to scale and achieve your objectives even quicker. A lot of times, bootstrapping is very good and very effective, but it comes with a slower speed of growth, especially in times where the markets are quite competitive, a player with more capital as well as efficiency, sometimes is favoured to win in those markets, especially if it’s a winner-takes-all market. So, yes, capital does help to make it more likely to succeed even though that’s not all that’s needed.
Q: What Factors, in your opinion, would guarantee success for a start-up ?
A: There are many things, some that we can control, some that we can’t. A few of the things we can’t control are: regulatory environment, macroeconomic factors, political stability, sometimes FX risk and just some kind of keyman risks. Those things cannot really be controlled. But there are some things that can be controlled, like: a strong team, tenacity of the founders, ability to listen to their customers and learn from there and sometimes, capital to quickly try things, fail, restrategize and go again. A bunch of these things actually do help, the most important thing is that the company is even viable from the start, that there’s a market, there are people willing to pay for those products and the product and the market are a fit.
Q: Do you think that there needs to be a conversation on what an African start-up is? I mean, would a company started in Africa by non-Africans be described as an African start up?
A: Yes, this is tricky. But, I think it’s the intention and the objective behind the startup that actually makes it an African startup. There are immigrants across the world, so if we have immigrants in Africa starting a business for Africans, I think it can be described as an African startup. Many Africans go across the world, immigrate and start businesses, it doesn’t make it an African business. I think it’s the soul and the sentiment of the business that actually makes it local to a particular location.
We have a lot of bias today, both nationalistic and racial in how funding is distributed. That’s a different topic on its own and a problem that needs to be solved.
If a company is started in Africa by whoever, but with Africans in mind, we can describe it as an African startup.
Q: While the Tech sector has continued to grow, there appears to be a sought of brain drain in the sector. Scarcely available tech talents are easily poached by Bigger international firms. What do you think can be done to train and retain tech talent in Nigeria ?
A: This is really tough because human beings whether in the tech sector or any other sector would migrate to greener pastures. Unfortunately, Nigeria and many other African countries are still some of the poorer countries in the world with more limited economic opportunities. These will always happen especially when the talents have global appeal.
Because of the pandemic and how the world is distributed today, a lot of our tech talent will work for international firms abroad but still stay in Nigeria, I think there’s an economic advantage to be gained from that. The fact that they will pay taxes here and spend some of the money here, basically it’s a source of foreign exchange for the country.
But I’m not sure we can ever reverse the trend of tech talent especially because tech talent now are almost digital nomads and so it’s really hard to enforce. Even if you enforce them being here physically, you cannot physically enforce who they work for.
I think it’s a global trend that has happened, the only thing we need to do is become more competitive as a tech ecosystem and more competitive as a country, that allows us to also get talent from outside. I think this is just a global phenomenon that is set to continue.
Q: What Nigerian start-ups has OUI invested in and what informed your decision to invest?
A: To name a few, we’ve invested in:
● A fintech giant, TeamApt as one of their early investors
● MVX, which is the leading digital freight forwarder in Africa using tech to help merchants and entrepreneurs deliver their goods from point A to point B and anywhere else in the world.
● A micro mobility startup called Awabike, operating in several Nigerian universities.
● Intelligra, helping middle and low-income people achieve the goal of owning smartphones by paying monthly.
These are actually just some of the many companies we’ve invested in Nigeria. We also have a portfolio that spans Kenya, Ghana, Nigeria as I mentioned, South Africa, Zimbabwe, Mauritius and the rest.
Q: There’s an unspoken idea that it takes a lot of money to get a start-up to the point where it can go public. Is this the case? If no, what aren’t we seeing a lot of Nigerian start-ups going public?
A: Going public is the north-star of startup life. Basically, it’s going from a small startup to a big company where the public can actually now start buying shares. It means you have gone from probably a niche product to a household name and most times a multibillion dollar company. It does cost resources to grow companies for sure and the growth of these companies are in life stages. About 5 years ago, there were hardly any unicorns (companies valued at over a billion dollars), even on the African continent, talk less of Nigeria. Now, there are a few, even in Nigeria and the trend is given to continue.
I just think it’s a progress of our ecosystem. The more unicorns you see, then the more likely you are to see more companies go public. I think it’s a numbers game and it’s only a matter of time.
Q: Most start-ups still face stifling roadblocks from state actors such as the CBN and SEC. Do you think the Nigerian Economy is over regulated?
A: I don’t think the Nigerian economy is over-regulated, I just think it can be better regulated, in the sense that all stakeholders need to be coming to the table to create regulations. It’s the government’s job to regulate and enhance the activities in the ecosystem.
I think what can be done better is creating regulations that actually work for the good of the people and it requires participation from all stakeholders. Other stakeholders can be better involved when these regulations are going to be made. It also has to be made not just to fulfill politics, but to fulfill the good of the common man.
Q: Is there any particular regulation you would like to see relaxed by either SEC or CBN?
A: Not really, but I will just like to see these bills be a little more inclusive and then the features of some of those regulations tweaked so that it works for both the regulator and the people being regulated, because the regulator serves the interest of the regulated.
I also think involving the startups in the roadmap of regulations far before they have to come down with bans and restrictions will really help preserve stakeholder value and it will not scare away investors as this current set of regulations are doing.
Q: Investments in Crypto Currencies Bitcoin in particular is among the successful investments in the last decade and International VC’s have started investing huge capital in Crypto and blockchain Technology. What is OUI’s strategy for investing in Crypto considering the Ban placed on crypto trading by the CBN?
A: There is no doubt that decentralized finance is the future of financial inclusion or financial intermediation around the world and it’s going to be adopted on a large scale even going forward across the world. Crypto trading is just a very small use case in the whole universe of decentralized finance.
At Oui Capital, we would keep investing in infrastructure that allows people to do business with one another in a more efficient and cheaper manner and crypto currency gives us this ability. We will however not invest directly in crypto currencies or tokens as the volatility in these asset classes is not part of our strategy as a fund. We understand that there’s been a ban on crypto currency trading by the Central Bank of Nigeria, but remember, that Nigeria is only one of the many countries in the world and trading is only one small part. There’s a lot that can be done on blockchain technology that will be useful for Nigeria and the whole of Africa going forward.
I’m not really bothered about the ban by CBN, which is temporary, I think what we should focus on more is the universal blockchain infrastructure and what it can do to change our world.
Q: Where do you see the crypto economy in the next decade?
A: First of all, I think that bitcoin and all the other crypto currencies behave very differently but I’ll speak on them as a whole. I think that the adoption of crypto currency is growing, especially in emerging economies. It allows us to leapfrog the financial systems that have been built in developed countries over the last 50-100 years. So, I think it’s an opportunity to quickly develop payments, blockchain infrastructure, more efficiently and cheaper for emerging markets and I think the adoption is going to be on the rise. In 10 years, I think it will be a lot more ubiquitous than we see today.
Q: Investment into Nigeria Fin-Tech start-ups seems to be the major focus of investors these days. What other aspects of the economy do you think needs to be looked into by both founders and investors?
A: I think fintech has led the way because there is a renewed focus on how we do business and all the other technologies that allow us to do business to economically empower our people. Fintech is the clear and obvious first step. A lot of other things are going to follow, regarding trade you will see a renewed boom in ecommerce, digital trade, freight, third-party logistics, mobility and all the other things that allow trade to happen seamlessly.
On the other hand, you will see investments in tech-enabled businesses that support infrastructure, what I call VC 1.0, in places like education, healthcare and support for industries like manufacturing and the rest.
Q: For Medium and low-income earners who would like to invest in a VC like OUI, how can they go about it, or are such investments solely for big ticket investors?
A: There are two ways to invest in a venture capital fund. First of all, venture capital is traditionally a US investment asset class which has spread across the world. In the US, it’s mostly open to either people called qualified or accredited investors (they are rich people with a net worth of $1million and above). But with new regulations both in the US and Nigeria, we’ve seen regulators open up to accept crowdfunding ideas.
In the US, you would see what we call Regulation CF, which stands for crowdfunding and allows some entities to raise up to $5million from people who are not qualified or accredited investors. Also, under the re-edited CAMA guidelines, companies are allowed under circumstances to raise through crowdfunding programmes from the general public. I know some companies have set up what we call investment syndicates, which allow small ticket members to come together, pool their resources and invest in VC. That’s a viable option for small ticket investors.
Q: In Nigeria, the investment landscape is quite murky; many retail investors have lost money to fraudulent Ponzi schemes masquerading as legitimate businesses. How can such Ponzi schemes be easily identified?
A: I think the golden rule is to do research and find more information before investing in things. To some of us who work in investing, these things that you refer to as legitimate businesses are ponzi schemes from the face of it. But, unsuspecting investors go and put money there. Risk and reward are two sides of balance in investing. If it looks too good to be true, sometimes it is and the potential return in investment programmes are usually a tell-tale sign of the kind of risk that you’re getting involved in.
What you should do is either go with a respected institutional investment firm or don’t do it at all. The third option if you want to go in is to do significant and sufficient research on the investment asset class before you invest in it.
Q: In your opinion, what emerging technology do you think promises the best return in five years?
A: These are the kinds of questions that open the doors for ponzi schemes. Investments are supposed to be identified and assessed on a case-by-case basis. There’s no single investment you would say that generates the best return, it depends on how you approach that investment. Generally, you can see that tech adoption is growing across the continent, so personally, I think investment in tech and tech-enabled companies might be a good place to look at in the next five years.
Q: What was the most important career advice you were ever given?
A: Things take time.
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