There’s a growing trend of foreign investors leaving the Nigerian startup scene

April 16, 2018
4 min read

Over the past decade, Nigeria has been welcoming foreign investors into the Internet startup space, both as players in the market as well as financers. But there appears to be a growing trend, over the last few years, of foreign investment and businesses exiting the country.

No doubt, the resulting effects of the global fall in the price of crude oil in 2014 made it more difficult for businesses of all sizes to survive Nigeria, which is basically running a mono-product economy.

A recent rumour circulating around was that Swedish invest company, Kinnevik, has pulled out of iROKO. The news, which obviously arose from the apparent omission of the video-on-demand platform from Kinnevik’s 2017 annual report, was immediately debunked by its founder, Jason Njoku.

According to its annual report for 2016 (PDF pg.36), Kinnevik’s fair value stake in iROKO was estimated at Swedish Krona (SEK) 111 million (US$12.2 million at the time) -- about 18.26% of the entertainment company’s valuation as at then.


iroko tv office vistor

Kinnevik first invested $2 million in July 2012, after which it joined Tiger Global and RISE Capital for an $8 million Series D round in 2013. The Swedish investor alongside CANAL+ further invested $19 million in 2016.

With the above summary of Kinnevik’s participation in funding iROKO, the question that comes to mind is the whereabouts of 18.26% stake, (calculated) based on the valuation with the last transaction in Q4 2016.

According to Franco Danesi, Investment Director at Kinnevik, iROKO wasn’t listed in the 2017 annual report as a result of the size of the actual holding Kinnevik has in it. Instead, iROKO has been grouped with other small assets under ‘Entertainment’, a sector that recorded the highest annual return rate of 35% with a year. Danesi however insists that Kinnevik’s stake in IROKO has not changed in the last two years.

But interestingly, another investee company -- Livongo -- of which Kinnevik has 4% ownership and a share value of SEK102 million as at Q3 2017 was listed in the recent report.

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This begs the obvious question of why an investment valued at SEK102 million was listed and that of SEK111 million wasn’t listed on the ground that the latter is a small size investment. And according to Danesi, the company is not planning on putting more funds into the iROKO at the moment but would consider the possibility of doing so in the near future.

As for Konga, he points out that Kinnevik’s divestment of its holdings in the eCommerce company was considered on its own merits.

Kinnevik investment showing Nigeria highlighted on the map but no company is listed.
Kinnevik map highlights Nigeria but no company is listed for the country

Kinnevik is not the only foreign investor that appears to be exiting the Nigerian Internet startup since Efritin was shut down by its Swedish-based parent company, Saltside Technologies, in 2017. Saltside Technologies CEO, Nils Hammer blamed the exit on poor Internet penetration, adoption, high cost of data and of course the challenging economic conditions.

Similarly, Naspers -- the global internet and entertainment group and co-investor in Konga -- shutdown the OLX office in Nigeria, only maintaining the website in the country’s domain name.

The shutdown, according to the company, was a move to consolidate the operations of other international offices. As at now, the only Naspers portfolio companies with a physical office in Nigeria are PayU, MultiChoice, and Media24. And the company has in the past shut down the likes of Kalahari, Mocality, and Dealfish.

The recent move with OLX and Konga can be an indicator that Naspers is slowly exiting the Nigerian market.

In February 2018, Zinox acquired Konga and more recently, we reported that Rocket Internet may be exploiting the possibility of taking Jumia public, a company which for the first half of 2017 recorded a loss of $61million.

All of these re-echo the question about the viability of eCommerce in Nigeria, and by extension, Africa since Jumia is operating across 12 countries on the continent. And despite the notion that Nigeria needs more eCommerce players, profitability still remains a big problem for industry in Nigeria.

We must not forget that ToLet acquired Jumia House in November 2017 for an undisclosed amount. Another acquisition that prompted another question that needs a response -- are the foreign big guns leaving Nigeria?

The Nigerian Internet startup space is developing at speed while also attracting local and foreign funds. According to the Nigerian Startup Funding Report for Q1 2018, foreign investment is still a major source of funding in the country’s Internet space.

Surely, foreign investments are impacting the economy especially the startup community. And this is not to conclude that there are no local investors, they abound.

ReadNigerian startups raise a lot of foreign cash, but how much impact do they have on the economy?

But there’s this tendency for local investors to seek early returns from investment. During the maiden edition of Techpoint Build, iROKO founder, Jason Njoku claimed that the Nigerian Internet industry doesn’t have long-term local investors that would give funds and wait a decade for its returns.

No doubt, Nigerian Internet startups are getting attention from both the local and foreign ecosystem. However, one can’t but notice when things are going the other way, which at the moment is a growing trend in the exit of some foreign big guns.

Mobile & African Tech Enthusiast │ Data Analyst │ Music
Mobile & African Tech Enthusiast │ Data Analyst │ Music
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