In a recent episode of the Techpoint Africa podcast, I argued that much of what is referred to as the Nigerian tech ecosystem is, more accurately, the Lagos tech ecosystem.
Per Disrupt Africa, 88.4% of the country’s startups operate out of Lagos, an unsurprising fact considering the state has the highest number of active Internet subscribers as of Q4 2022 and nearly 20 million residents. Furthermore, startups in the state reportedly landed $750 million in VC funding in 2022. But if a group of investors and founders have any say in this, Northern Nigeria will be hot on its heels in a few years.
Their first line of action is a newly released report detailing the opportunities and challenges available in the region. The Northern Tech Ecosystem Report, which surveyed 188 startups, reveals that three states — Kano (25.8%), Abuja (17.22%), and Kaduna (12.9%) — are responsible for more than half of the startups in the region. Bucking a continental trend, most of the startups in the region are dev shops.
“Due to the base of the government being in Abuja, there are a great number of companies that are focused on servicing that sector and developing software for them,” Surayyah Ahmad, Founding Partner at TT Labs and Chairman of the Northern Founders Community, told Techpoint Africa.
Beyond dev shops, the agricultural and food processing sector is the second most popular, boasting startups such as Tomato Jos, Baitus Foods, and Thrive Agric. Edtech is the third most popular sector in the region, although fintech and eCommerce follow closely. The concentration of startups in the agricultural sector is not entirely surprising, as the Northern region boasts the highest percentage of households involved in agricultural activities. However, heightened insecurity has hindered agricultural activities in the region.
While the nature of startups built by founders in the region may differ from what is obtainable nationwide, the composition of founders bears some resemblance to the national outlook. 76.6% of founders in the region are male. The founder population also skews young, as 52% of startup founders are between 26 and 35. A significant portion (53.7%) of founders in the region hold a bachelor's degree, while 3.72% have PhDs.
In line with the age of the founders, most startups in the region have been in operation for less than three years and have 2-5 employees. Similarly, these startups are not yet generating significant revenue, as most of them earned less than a million naira in the last fiscal year.
For startups in the region, limited funding, insufficient support, and the paucity of skilled workers have limited their ability to scale. 148 startups reported struggling with raising funds at inception, while 107 continue to grapple with it. The smaller number of successful startup founders and investors in the region also makes it harder for founders to readily access support. Low infrastructural development necessary for the growth of technology businesses remains a problem, as does political instability.
“A significant gap I have noticed is the lack of role models in the ecosystem. While there are successful founders and startups in the North, they need to be more proactive in mentoring and inspiring the next wave of entrepreneurs. There’s also considerable untapped wealth in the region that could be strategically channelled to foster a more vibrant tech ecosystem,” Kola Aina, General Partner at Ventures Platform Fund, said.
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Despite these challenges, the group sees immense potential in the region. With the population in the region growing two times faster than the south, the report believes that it creates an opportunity for startups. Already, the region can point to a few success stories as evidence of what can happen. Sudo Africa, a fintech startup founded in Kaduna, raised $3.5 million in 2022, while Abuja-founded YDS has seen significant success.
The group is also not sitting on its hands, and plans are underway to train owners of accelerators and incubators on best practices for building world-class startups.
“In terms of quantity, the ecosystem needs to see and hear more success stories to continue building, and this will happen as we bring more startups into the limelight,” Ahmad said.
There’s also a $10 million fund that will be launched before the end of 2023 with a mandate to invest more than 50% in startups based in the North.
“Funding is a significant challenge. Many startups, according to the survey, have bootstrapped to good revenue without external funding. If some of these companies are funded, they will be able to scale quicker and give the ecosystem [the] motivation it requires to keep building. It will also help us create [a] multiplier effect, where staff working in those startups can also branch out and start theirs,” Ahmad shared.
You can get the Northern Tech Ecosystem Report here.