"Show Me The Mobile Money" - Alternative Models For Financing African Tech.

Everyone celebrates the rich man in Africa but very few will like to follow the path he took to get there. Very few rich men also reveal how they got there and they perpetuate the myth of “good luck” or “good fortune” or just plain “hard work”.

My big brother and mentor Austin Osuide posted recently:

“Structured Serendipity”:

“Successful people regularly put themselves in positions — by studying, relentlessly working, pursuing the truth — where they encounter luck.”

According to another friend on Facebook: “Opportunity does not always wear scarlet robes”.

We have probably heard it all before so then why do we still have very few celebrated successes and many hidden failures? I think failure persists because those who have overcome the odds quickly forget how difficult it was for them and how many more will take that path and make the same mistakes.

Do our own “rich men” do this on purpose to create barriers to that exclusive club? Amaete Umanah reminded me yesterday of “Think and Grow Rich” a book by Napoleon Hill written many years ago and which I agree with him is the “source” of all the other motivational books we see today. How many Africans have written similar books?

A lot of people will tell you (including myself and I am not a rich man…yet) that it was hard and difficult but very few again try to create a platform to make it easy for others to be like them. It is very easy to assume that the beggar on the roadside is lazy (maybe some are) when you have never been in a situation where you are pushed to the wall and have no choices left.

A lot of us have been there and it was rough. It is sometimes still rough but experience somehow gives us the tools to cope with the unexpected and makes us to plan for the expected. Experience is a hard teacher; its pupils don’t graduate alive.

Experience has taught us as tech entrepreneurs in Africa that very few if any understand what we are trying to do. They know we are doing some “smart stuff” but mainly see it as a hobby and are pleasantly surprised if you make any money from it. They don’t see it as serious business for serious people.

While your family may support you, they will still not understand why a smart person like you is wasting their intelligence and talent trying to suffer instead of going to get “a good job”. Why didn’t he use his/or her Engineering /Science/Business degree to work with Shell or Chevron instead of all this “pie in the sky” ideas and dreams? We become outliers, some are branded “stupid people”. After a while, a lot of techies really believe they can’t make it this way and give up. Those who persist and succeed become the darlings of those same family members and friends who had taunted them in the past and wanted them to give up.

I come from a relatively successful extended family and I have been an outlier in this family, the dark horse that does not conform. Even though family members have been very supportive, there are times their patience have been tested severely and they had to speak their mind. I remember coming back from Sheffield in 2006 to my 18 Year Old BMW 535i (Bella Bavaria! My first love which I still own till today) and realized after an embarrassing incident that in Lagos I needed a newer and reliable car.

I was going to work one morning and one of the wheels (thanks to the ingenuity of Lagos mechanics) decided that it did not want to be part of the car anymore. This was Monday Morning on Lekki Expressway in Lagos right in front of the current Addax building. I blocked the road for close to an hour and it was one of the most embarrassing experiences in my life. I decided that morning that it was time to get a new car.

I looked at all my options and realized that the best way to avoid the “Lagos Mechanic” was to buy a brand new car. I was however wrong in that assumption but that is a different story. To buy a car in Lagos you either have all the cash or you get a lease. Most people just save to buy the car because the conditions for getting the lease were too stringent and the interest rate was too high. Luckily for me I was working from my Uncle’s office and he had a relationship with a bank that leased all the cars he was using for his business. I decided to go under this umbrella to get one but the bank needed him to sign as a guarantor to the loan.

My uncle is a trained accountant; I always had to discuss anything business with him showing figures and projections. I took my spreadsheet and I met with him, he gave me another one of the most embarrassing moments in my life. He asked if was really successful at what I was doing if after 2 Masters degrees I could not buy a brand new car outright? I tried to explain that I was trying not to tie up cash because my business needed funding. I was trying to convince him with my projections and business plan. He then simply told me to go look at my business model again and review my funding strategy. He also said a lot of things I can’t repeat out here about my foolishness but basically I got the message.

I got the loan and paid it up in 18 months. The car is still in the business and now used by one of my colleagues. A lot of people who would have seen me then driving a new car then would have thought that I just went to England, came back with a degree, made plenty of money and was rolling in dough. A lot of them also would have thought, “he has a rich uncle and his uncle bought him the car”. They would not realize that we had to pay salaries and the car lease leaving about 100 dollars for the founders monthly. I went without a salary for 6 months after I got the car. How I survived is also for another blog post.

Getting that loan also exposed me to the problems small business owners and entrepreneurs face in Africa while trying to get funding from family and traditional banking institutions. First I was not qualified for the loan without my uncle’s intervention because I did not meet the bank’s risk acceptance criteria. We had some income and we had contracts to prove it but the problem was that the income was not regular. Those we worked for only paid us when they felt like it or if we were “nice” to them.

All the things mentioned in the picture above are very true for the African entrepreneur but the last one is the most painful. We always have to beg to be paid because the clients think they are doing us a “favour” and supporting our “hobby”. Tech entrepreneurs are blackmailed into bribery and corruption because the clients know that they are really struggling. I remember a client threatening me once that he could call a white man to do this and job if I did not play ball. I didn’t play ball and reported him. Doing that gave me my first big break and it was a “White African” Mr. John Whitechurch, (MBE) who made that happen. I am forever grateful to him.

I was thinking recently about why failure persists with tech ventures in Africa and why those who are still determined to remain never scale. I realized that while funding is an important ingredient for this we might have been going about it the wrong way. We talk about seed funds and the new phenomenon of accelerators, hubs and co-working places all borrowed from Silicon Valley but we forget that we are still Africans in an African society with its own unique culture and pressures. Good education in Africa is not cheap and those who have struggled to gain the right knowledge and skills know that it is an investment by their family from which they justifiably expect immediate returns.

While we try to grow a community and ape Silicon Valley models, we must also realize that a lot of the people who end up becoming the stars have had to go through the grind and our cultural realities to get there. A lot of people who could have done even greater things get discouraged and give up because family and friends get tired of supporting them. Jason Njoku of Iroko mentioned recently that he went through a lot of failed startups before his friend in England funded him. We all don’t have rich uncles or wealthy friends who believe in us but we now have each other.

Someone mentioned to me recently that a lot of so-called successful older technology companies in Nigeria and Africa are largely fronts for corrupt insiders. The insiders give the contracts to their own companies at inflated prices and that is how real money is made. I have seen enough of this nonsense going on to know that there is a lot of truth in it. That is the current model of financing technology companies in Nigeria and most of Africa. Banks know that these things happen and know that most who “succeed” do so because of “patronage” and corruption so it is hard to take the sector seriously. If your entire business model is based on “knowing someone inside” then it is a risky venture and I don’t blame the banks.

How do we then solve this problem without copying SV models foolishly and only finding out years later that we are have not moved forward? I think it lies in a different approach. Techies are intelligent people and why don’t we prove that we are more intelligent than the bankers and the corrupt insiders?

Why don’t we build self-sustaining communities and specialized financial institutions to support those communities? Financial institutions who really understand the risks we face as techies in Africa and know how to mitigate them. A “VC” or “Angel” is still a “capitalist” and they are there for their own gain. While most pretend that they are interested in growing the tech community, they are only sowing seeds in the rough hoping that some will germinate so that they come for the harvest. They will easily go elsewhere if they don’t see returns soon enough and are not there for the long haul.

I read from GrowVC an article titled Do All Startups Need VC Or Angel InvestmentsFirst of all, it’s not necessary that all startups need large funding or have to raise large chunks of money from the word “go”! Startups need just enough money to sustain and grow. If a business model is self-sustaining why would you need big capital from an external source? In fact, self sustainable startups are the blue eyed boys in the eyes of both the investor, as well as the customer community”

The customer community in Africa needs these startups to survive, as the demand for services is almost insatiable. There are many more problems in Africa for tech to solve but where are the techies? Some never make it out of the door while others give up and end up working for those same people who capitalize on “insider deals” to grow.

The VCs and Tech funds in Silicon Valley also use specialized financial models that were developed for that community and that industry. Those models take cognizance of the ecosystem and culture. It is worthy to note that US is 22% of world GDP but 47% of global equity market capitalization. Almost half of the world’s market capitalization is in the United States. It is a “market driven economy” but others are “value driven”. Market capitalization does not mean profits but signify faith in potential and belief in models, which sometimes are hyped.

We can’t afford hype yet in Africa as the customer community still craves for service. Specialized financing models for African technology do not only help the tech startup community to grow but also help Africa to develop as well. We have specialized financial institutions for agriculture and commerce why not new ones for technology?

Mobile Money is an invention of the technology community and it has changed the lives of millions of Africans but the tech community has hardly used this technology to help finance itself. Why do we still depend on traditional banking institutions and family when we can create models that can finance and sustain us?

We say we are clever but we are really not. If we were clever there won’t be many bodies in the street, many hopes unfulfilled and many startups that never scale. Cars are not our problem any more but housing is. I told my colleagues recently that I am not in this “thing” to pay rent anymore but to buy houses and they agree. To buy houses the same problem of funding is still there. The mortgage finance companies don’t understand our business model and my uncle cant help me on this one this time.

We need to show that we are truly smarter than the rest of the crowd and help ourselves. We need to develop new models to ensure sustainability and not hype. My bet is on specialized Micro Finance institutions for tech ventures (similar to those for Agriculture) which we can also use as a basis for crowdsourced funding. We need all your ideas to make this work and create a greater Africa and not just many attempted Silicon Valley clones.

Invictus

 Out of the night that covers me,

Black as the Pit from pole to pole,
I thank whatever gods may be
For my unconquerable soul.

In the fell clutch of circumstance
I have not winced nor cried aloud.
Under the bludgeonings of chance
My head is bloody, but unbowed.

Beyond this place of wrath and tears
Looms but the Horror of the shade,
And yet the menace of the years
Finds, and shall find, me unafraid.

It matters not how strait the gate,
How charged with punishments the scroll.
I am the master of my fate:
I am the captain of my soul. 

 William Ernest Henley

5 responses
Well said bro! We must look for ingenious ways to fund technology ventures. We may have to start by lobbying the National Assembly and possibly the Bank of Industry and Commerce.

However, if we really believe in ourselves, there is nothing that stops technology companies from investing a a fund that actually funds startups other technology companies! Bill Gates invested in Apple when Steve Jobs went back to Apple and look at what came out of his investment! Microsoft also bought a chunk of Facebook long before other people thought to invest in them.

Unfortunately, micro finance in Nigeria is really mico lending - NGN500,000 ($3,125). That can barely by a server not to talk of paying for programmers for a month or two. That said, it is still possible to create a special funding vehicle that can attract funds from different entities.

Unfortunately, the powers that be do not understand Mobile Money. The banks want to use it to increase the number of their customers and cannot understand, or refuses to accept, that most Nigerians DO NOT LIKE OR TRUST banks for the simple reason that they overcharge and do not give value for the money they collect from us under the guise of providing services. The banks' overheads ate too high, thus bricks and mortar banking is much more expensive than mobile payments which is transactional. You make money (small charges, not what currently prevails in Nigeria) from every transaction. A mobile money float, provided it is guaranteed by a bank or fund, can actually be used as investment fund in technology. Mobile money can also be successful in Nigeria but i needs people who understand it and how it can be used to solve existing and future problems that we have in Nigeria and not those who think it is another way of getting into telecoms, which when it when GSM was introduced more than ten years ago made a lot of people lots of money.

Interesting read. You make some salient points although as a believer in capitalism I have to say that the most efficient businesses are those who run from a profit making view point, e.g. banks and VC's. :) You write about crowd sourced funding and targeted Micro- financing companies as a solution, but the truth about micro-financing in Africa is that due to a very low payback rate a great number of the companies that get involved get burnt. If it is approached from an altruistic point of view I'm not sure it will be altogether successful. That being said it's an interesting idea that should be explored perhaps with a small cell of people that grows over time once the culture has been well formulated and is transferable.
@kolapo Thanks for the excellent ideas! You are very right about the tech community investing in itself as it happened in Silicon Valley. Sadly for now we still have unsustainable models and outsize egos. We need a number of real succeses and committed people to make this a reality.

I agree with you that MFIs are still too small and dont even understand the tech space. Your ideas on using MM float as a fund are brilliant!! I believe if there is a will to move forward, hybrid models can be developed that will be to the benefit of the tech sector. The tech sector however has to come to the table as well.

How many of our techies actually understand mobile money besides looking at it as a means for their customers to pay for their services? How many of our techies are actually playing in this space? All the technology is foreign, we have very little input for now.

East Africa is making great progress in getting the local tech community in building the MM ecosystem and as stakeholders they can also build platforms to help themselves but sadly this has not happened. They still depend on Silicon Valley models.

West African techies have a real chance to make this happen but they must also come to the table but with clean hands and genuine intentions. It may be a dream now but one day we will get there.

@Konaa

Referring to your assertions that "the truth about micro-financing in Africa is that due to a very low payback rate a great number of the companies that get involved get burnt."

This is not true. Nigeria has the one of the lowest delinquency rate in the entire world in micro lending. But due to this a lot of micro lending institutions have got very greedy and they are milking the poor like crazy !!

Kiva for example whilst operating in Nigeria through a partner, gave out a total loan of $4,976,700 and they had a whooping 0% delinquency rate for years !!

Very altruist article.

Victor, everything you say makes a lot of sense. In my view the only way tech can be funded in Africa is if you and I risk the funds. Just like what Mohammed Yunus did. He risked his personal funds to start up the loan capital, and, once he started to see traction, the government moved in and forced themselves into his business.

I started a venture some years back with a friend. We searched high and low for capital, to no avail. Until we realised that we had to risk the capital ourselves, and do what we could do at our current levels of self-finance. That was when the venture finally took off. We lost some money, but we made it back eventually.

I plan in the future to put some of my personal fortune towards funding tech entrepreneurship in Nigeria. Right now, I'm still working hard trying to make that fortune:-)