The tech scene in Lagos is constantly making headlines with its rising number of startup founders. The city is hailed as Nigeria’s tech powerhouse. What we fail to see is the struggle that goes on behind the scenes. The journey for tech startups in Lagos is proof that resilience overcomes all odds.
This SimplVest article will take you behind the headlines to explore the challenges faced by tech startups in Lagos. The complex regulations and volatile economic environments that tech startups overcame before they succeeded.
The Origin Story of a Tech Startup in Lagos
Previously, Yaba⬈ was an area known for its busy markets and railway. With time, Yaba became the nerve centre of Nigeria’s innovation economy. The transformation is the result of a mix of human capital and infrastructural upgrades.
Yaba’s physical location played a role in its transformation; it is on the Lagos mainland, with proximity to Lagos Island. Two Nigerian leading schools, the University of Lagos⬈ and Yaba College of Technology⬈, are also located in Yaba. They train ambitious young Nigerians who make their mark on the world.
The Birth of Yabacon Valley
In 2013, MainOne⬈ completed the installation of a subsea fibre optic cable and brought fast internet to the Yaba area. This connectivity ignited the tech businesses in Yaba. The establishment of the Co-Creation Hub⬈, or CcHub, cemented Yaba’s position as the tech hub. It became a gathering point for great minds and entrepreneurs.
Young, creative minds met, shared ideas, and got mentorship in the co-creation hubs. That supportive environment nurtured some of Nigeria’s well-known startups and attracted investors. BudgIT and LifeBank are some of them. The name “Yabacon Valley” is a blend of the words “yaba” and Silicon Valley.
It is drawn from California’s innovative hub, Silicon Valley. The community spirit in Yabacon Valley is the reason why the Yaba startup ecosystem thrives.
Nigerian Tech Success Stories
Yabacon Valley’s successes are evident in the number of tech startups that thrive in its space. Currently, Lagos is home to Interswitch, Jumia, Flutterwave, OPay, and Moniepoint. All five startups are worth over a billion dollars in value and change how Africans do business.
Interswitch ⬈ is a Nigerian tech success story. It pioneered electronic payments in Nigeria. Processing over 70% of electronic transactions in the country with the Verve card. Flutterwave ⬈, co-founded by Olugbenga Agboola ⬈ and Iyinoluwa Aboyeji, also built a payments infrastructure for global merchants across Africa.
Its $3 billion valuation shows the potential of African solutions to African problems. Another landmark achievement was Paystack’s acquisition⬈ by US-based Stripe for over $200 million. This confirms that Lagos-based tech startups are globally competitive. It also proves that understanding local challenges leads to scalable products.
Apart from the advancements made by fintech startups in Lagos, other startups have also created solutions in vital sectors. For example, in healthtech, LifeBank delivers essential medical supplies, while 54gene provides a genetics testing platform for Africans. The logistics sector also saw innovations with companies like Moove and Treepz. Moove provides vehicle financing for gig workers, while Treepz, a bus-hailing app, provides transportation services.
The Agricultural sector was not left out. The Agricultural sector is also experiencing growth with Agritech firms like ThriveAgric and Farmcrowdy. These Nigerian tech success stories are a testament to the entrepreneurial spirit of Yabacon Valley.
The Challenges of Tech and Starting a Business in Yabacon Valley
Despite the success stories, entrepreneurs in Nigeria experience many challenges. One of the challenges of starting a business in Lagos is funding. Many startups in Nigeria struggle with the following challenges:
Inability to Secure Funding
This is due to currency volatility and limited access to a wide range of investors.
Inflation and the Devaluation of the Naira
Inflation and the devaluation of the Naira increased operational costs and “shredded dollar returns” for investors. Forcing tech startups and founders to shift from a “growth at all costs” mentality to profit and cash management.
Difficulty in Accessing Capital
For new entrepreneurs starting a business in Lagos in Nigeria, finding capital is a challenge. Most tech startups in Lagos rely on a mix of grants and debt financing to grow. This gives rise to a market where long-term viability is valued over short-term user acquisition.
Poor Infrastructure
Another major challenge for tech startups in Lagos is the poor infrastructure. Frequent power outages and high internet costs force tech startups to rely heavily on generators and backup internet connections. This costly alternative creates additional operational friction for entrepreneurs in Nigeria.
Complex Regulations
Tech startups in Lagos face an inconsistent regulatory landscape in Nigeria. Multiple taxation makes starting a business in Lagos look like navigating a labyrinth. It is an expensive and time-consuming endeavour. These challenges forced many Nigerian innovators to leave the country in what we call the “Japa phenomenon.”
The Impact of the Japa Phenomenon
A threat to the Yaba Valley is the mass exodus of skilled talent popularly known as “Japa”. It was coined from the Yoruba word ”JAPA,” which means “to flee.” It refers to the mass exodus of many skilled tech professionals in Nigeria. Many left the country for better-paying jobs and improved living conditions in Europe and North America.
This brain drain threatened the yaba startup ecosystem, with long-term implications. However, the “Japa” phenomenon has a surprising silver lining. Instead of being a brain drain, it has become a form of “brain circulation.” The Nigerian diaspora sends back billions of dollars in remittances every year.
A vital financial lifeline for families at home and entrepreneurs in Nigeria. They acquire valuable skills and capital abroad and transfer them back to Nigeria, improving the country’s economy. Many japa returnees have created innovative startups after returning home; Kaltani is an example. It is a plastic waste recycling startup revolutionising waste management in Nigeria. Remote work in Nigeria is becoming popular.
Talented Nigerians now earn international wages without leaving home, reducing the brain drain.
The New Reality of Funding for African Startups
The investment climate in Nigeria has shifted. Foreign investors demand that local investors have “skin in the game” before they can provide funding for African startups. This new reality makes local VC firms like Ventures Platform and Ingressive Capital more important now. Founders and investors must focus on profit and sustainable business growth because investors prefer to invest their money in bankable ventures.
This new approach may reduce opportunities for early-stage funding for African startups. But it creates a mature ecosystem that values long-term businesses. Nigerian entrepreneurs and tech startups in Lagos must adapt to this shift for sustained business growth.
Conclusion
Lagos’s position as a global tech hub is a story of contrast and incredible resolve. It is a place where five unicorns emerged. Founders battled challenges of tech, such as infrastructural challenges and a complex regulatory environment. The journey of tech startups in Lagos shows that local problems can inspire globally relevant solutions.
It also shows how a strong community, like the one in the Yaba startup ecosystem, can be the most valuable asset of all. For more Nigerian tech success stories and tips for startup founders, subscribe to the SimplVest Newsletter.
