Last week, I spoke about Nigeria’s latest policies, how they affect us, and how clueless I am about what can be done to alleviate the current suffering due to these policies.
Today, I want to pinpoint a specific policy and its effect on my all-time favourite subject: Startups.
“Double or Nothing”
You must have heard some grumbling coming from a few corners about how startups that raised money before the FX unification policy was announced were in hot pepper soup. It's quite simple (just like pepper soup): If a Nigerian Startup, let’s call it JuiceCo, raised $1000 dollars at N460 to a dollar, at the time of raising the money, Juiceco would be holding N460,000 of the investor's money. Now, with the unification policy, $1 is now closer to N800, which means the money in my possession is N800,000. I would have to pay my investor back almost twice what he gave me. This is without adding the interest payments and/or other financial pledges that were made during the deal (bear in mind that the company is in Nigeria and carries out sales and operations in Naira, so it's not like there is a stream of FX that will come in and save the day). The described business will be losing money. Of course, this is not a Startup issue alone, many companies with international dealings including MTN, many breweries, and two Dangote companies suffered the same fate.
So why am I whining about Startups? Apart from my bias toward them, Startups operate with a “fast growth” model. While profits are important, growth is a major part of startups: gain x customers, expand to x countries, offer x amount of products, etc. To do all that, a Startup will most likely burn more than it can make for a while. Hence the need for funding, but with funding becoming so expensive, what can they do?
The Man In the Mirror
The obvious answer is to look inward for funding, but doing that also poses a few problems:
We are quite broke in this country. No, this is not an insult. The USA has a population of about 331.9 million people and reportedly has 5.3 million High Networth Individuals (People with above $1 million), which means, one out of approximately 63 people is a HNI. Nigeria on the other hand, can boast of only 9,800 people (out of 120 million). So out of approximately 12,245 people, we can find one extremely wealthy person.
With this little prosperity, it would definitely be hard to see someone gamble a large sum of money on an idea, they’d rather invest in something more established, like a bank!
The vehicles that invest in Startups in the US (Venture Capital) are still budding here. In the West, they've had hundreds of years to develop their method. From financing whale expeditions in the 1800s to providing funds for the “cool dads” of tech in the 1960s to 1980s (Apple, Microsoft, FedEx), to watching companies like Google and Amazon grow, and now, to whatever it is currently doing. This longevity has helped it weather storms like the “dot com” crash and even come out stronger.
Nigeria (Africa) will need some time to develop systems that would work for us as well, so we can in turn weather as many storms that come our way.
Saying that you raised in Naira just doesn’t sound as “sexy” as raising in dollars. Dollars create a sense of acceptance and validation from the external world. Making your product look a lot nicer in people’s eyes. But this is an easy problem to solve. After one or two remittances, in the words of the great poet and modern-day minstrel Burna Boy: “You will be forced to obfuscate profusely, as every attempt to provide adequate evidence eludes you”.
“You will be forced to obfuscate profusely, as every attempt to provide adequate evidence eludes you”. -Burna Boy (Paraphrased)
So there it is, we need to generally get richer so our appetite for risk improves, and we need to develop a system that works so well for us, that investors won’t be scared to, well, invest.
Thankfully, we have hubs, accelerators, and incubators coming up in Nigeria (that seem to fit our style), and angel networks are also forming and funding. A killer move will also be the implementation of the Nigeria Startup Act, which will make Startup investments even more attractive to local players.
Till then, please don’t spend all your dollars my dear Startups. Try making do with revenues first. You just might need them later.
What have I been up to?
I read a lot of interesting articles this week. The most interesting of them is this one about a poor ex-dictator, Valentine Strasser. You should check it out, fascinating stuff.
I intently followed Dr. Bosun Tijani’s ministerial screening and the whole Twitter debacle before that. I think this thread I read best explains the lessons to be learned from the whole episode.
The price of Jolly Juice is about to rise, so I might be laughing less these days. Blame the economy.
Spent Sunday watching movies and lazying around. I’m now actively looking for roles in that sector.
Sycamore pays me. You might not get a salary from them, but you can apply for a loan.
Remember to reach out to Chiprent for your rental/real estate needs. Awesome work is being done there.
This whole weekend was spent listening to Dele. That guy’s music is so awesome, I made a whole thread to geek about him.
Finally, I dedicate this one to James and his daughter! It’s such a proud uncle moment for me, I pray she is the embodiment of greatness.
Thanks for making it this far. May the road ahead be smooth.
Great explanation on how FX losses affect startups. Well done 👌
Thanks Juice 😊