Across the country, there are millions of music lovers like Obishai, who download songs from stream ripping sites or use the free tiers of music streaming services due to inability to afford such subscriptions or plain disregard for the value of the art. According to a report, Nigerians spend an average of 31 hours weekly — much more than the global average of 20.7 hours — listening to music, especially Afrobeats. And while there are now more people who are paying for music streaming platforms than five years ago, it’s not nearly enough revenue for the kind of growth the industry is witnessing.

The global music industry is dancing to the rhythm of streaming, with 67.3 percent of all music revenue worldwide generated from digital subscriptions to streaming platforms. In March 2024, The International Federation of the Phonographic Industry (IFPI) released the Global Music Report for 2023, which disclosed that streaming brought in 67 percent of the $28.6 billion realised in 2023, leaving the sales of physical copies and performance rights trailing behind with 17.8 percent and 9.5 percent respectively.

Sub-Saharan Africa had the fastest growth out of all global regions. It was the only one to surpass 20 percent growth as revenues climbed by 24.7 percent , fuelled by the growing popularity of Afrobeats and Amapiano tunes worldwide. Interestingly, while the Nigerian music industry is the largest on the continent, consistently churning out global hits and achieving billboard ranks; South Africa, the second largest music industry, has remained the most profitable music market in the region, bringing in the bigger bucks. According to the report, the rainbow nation contributes 77 percent to music revenue in sub-Saharan Africa — an impressive 19.9 percent growth from the previous year.

Joey Akan, a music journalist, isn’t surprised by this twist, as he shared that the Nigerian music industry has a long way to go before reaching profitability like its well-oiled South African counterpart.

“South Africans have a more structured industry. They have all their collection society rights which is basically a fanbase that values music and a government that punishes piracy. If you put all of these together, you have a better environment for music to generate more money,” he shared with TechCabal.

“It’s taken us about 30 years to build what this industry currently is, while South Africans were able to clock the system and build a functional industry which works for them. We have the artists to brag about, as well as the fanbases and cultural commitment to Afrobeats, but are missing one of the most important elements, which is the [revenue] numbers. This is why we cannot have access to certain deals and attract certain investments.”

While creatives across the world tussle with the illegal distribution of their work, Nigerian artists deal with a much more sophisticated version where bootlegged versions of their music might be even more popular than the original versions on streaming platforms. Nigeria was named the worst place in Africa to be a creative as it has the largest market in Africa for goods which infringe on intellectual property rights. Original physical copies of albums are almost nonexistent in the Nigerian industry, as pirated copies are already the norm.

Outside of the lack of regard for the value of music, Akan believes that the broader economy also has played a climacteric role in music revenue for the two countries as richer countries are more likely to have higher-yielding industries. The South African rand is stronger than the Nigerian naira, with one rand equaling over 70 naira. 

“It’s not new information that in Nigeria, everything competes with food,” he said. “The money the average Nigerian will pay for Apple Music can be diverted to pay for lunch.”

This means that for music artists in Nigeria, the biggest revenue opportunity lies in their music reaching international audiences across the Atlantic who bring in the juicier revenue; as the majority of their local fans cannot afford to pay for these streaming services.

*Kamal Chude, a popular artiste in Lagos is yet to get the “streaming cake” even after four years of making music, as he doesn’t consider the his earnings significant enough to withdraw yet. *Chude, who is in a two-year contract with a local distribution company he says isn’t transparent at all, has found himself still doing the bulk of the distribution work for his music despite having a 70:30 revenue split agreement. 

“I worked with them on one song, which is my biggest so far, and there isn’t much to show for it on the backends. I didn’t even get access to it until I brought my lawyer into the conversation. We checked the logs and found out that the streaming platforms that were on the list were not up to five. Meanwhile, the song was available on all the Digital Service Providers (DSPs) you can think of,” he shared.

Will partnerships save the music industry?

Distribution and record companies play a vital role in boosting artists and nurturing the industry’s growth, especially in today’s hyper-competitive global market, where social media platforms like TikTok are changing the game with their content-heavy environment.

Tunji Balogun, Chairman & CEO, of Def Jam Recordings, shared that one of the strategies that can be deployed for this growth is forging partnerships. 

“When it comes to music coming out of Sub-Saharan Africa, we’ve partnered with a label from Nigeria called Native. I felt strongly that I wanted to work with people that have a genuine connection to the culture on the continent,” he shared. 

In September 2023, Def Jam signed a Nigerian rapper,  Odumodublvck, who was one of the biggest new artists on the continent with over 252 million Spotify streams. Two of his songs, Declan Rice and Blood on the Dance Floor, were some of the top-streamed Nigerian songs in 2023.

Capital will always move to where it’ll find a profit, and more global labels are partnering with local names. Seventeen months after Def Jam and Native Records signed a partnership deal, Mavin Records, another heavyweight in the music ring, announced that the majority of its stake had been acquired by Universal Music Group (UMG) in a deal that is speculated to be worth about $125 million. The deal, which is expected to close in the fourth quarter of 2024, will give Mavin artists unhindered access to the resources at UMG, furthering their reach. 

This is excellent for the industry, except that it feels like deja vu for industry professionals like Akan. The journalist cuts through the positivity with blunt honesty, and shares that until the structural problems are solved, the challenges in the industry will erode all positive development. 

“We need to increase the numbers we have outside their [the West’s]  influence. We need to know that they can take whatever percentage of our money and numbers or this crop of artists, and we’ll still have the base to successfully nurture new artists and make money independently in the future.”

This sudden disruption wasn’t unique to Pascal. On Wednesday, February 22, news broke that Nigeria’s telecom regulator, the Nigerian Communications Commission (NCC), had restricted user access to the websites of Binance, Coinbase, and Kraken, accusing the companies of manipulating prices of the naira/dollar pair in unofficial markets.

These crypto exchange platforms became the go-to for direct crypto transactions—through their peer-to-peer trading feature—after Nigeria’s central bank abolished local financial institutions from enabling crypto transactions in 2021. The crypto exchanges have also played a significant role in determining unofficial exchange rates for the naira, with platforms like Binance often serving as benchmarks for local foreign exchange rates.

While the websites of Binance, Coinbase, and Kraken have been inaccessible in the country, crypto traders who spoke to TechCabal claim they now use alternatives like Bybit, Bitget, Kucoin, and Coincola and messaging platforms like Telegram, (which comes with an in-app wallet) to make transactions. However, Bybit has emerged as a favourite for these crypto traders who say the exchange’s low transaction fee—0.2%—is a reason for the choice. 

“Law enforcement in Nigeria notoriously follows a scapegoat approach,” claimed Caleb Nnamani, a technology reporter at Cardano-backed publication, Nodo. 

“If you’re going to do a thing, do it thoroughly,” Rume Ophi, a crypto analyst, told TechCabal, speaking on the spared exchanges. “It’s like robbing Peter to pay Paul.” 

As Nigerians turn to foreign alternatives to transact crypto, these traders have ignored local exchanges such as Zap, Furex, and Quidax. “Crypto-savvy Nigerians trust foreign exchanges because of their outsized liquidity,” Nnamani told TechCabal. “A hack to a global exchange behemoth comes with some assurances of payback.” According to him, Nigerian crypto traders don’t trust local exchanges to keep their funds safe in the event of a hack. 

“I think it comes down to popularity. We are more familiar with Binance, OKX, and the rest.” One crypto user said. “They have proven to be very good. I think that’s what is giving them the edge [over local platforms]”

A risky shortcut

Users’ options for crypto trade have not been limited to just alternative exchange platforms. Two Crypto traders who spoke to TechCabal said they have been trying out Telegram’s newly launched P2P trading platform as a workaround. Launched in September 2023, Telegram’s crypto wallet—a bot embedded within the messaging platform—allows users to trade cryptocurrencies directly with each other and even purchase crypto using their bank cards. While this method allows for the convenience of trading within Telegram, it is not a perfect fit for crypto traders. One crypto trader who spoke with TechCabal was sceptical about trading safely on the app. “It’s new and untested, and I’m unsure how they handle user complaints,” expressed the cautious trader.

These user’s fears are valid. Telegram offers a custodial wallet, which means it holds onto users’ access keys—critical for authorizing crypto transactions—which raises security concerns, as a third party holding the keys increases the risk of a leak if Telegram’s security is compromised.

A big concern with Telegram is its custodian wallet. Unlike other platforms, Telegram holds onto users’ private keys, which are essential for crypto transactions, meaning that in the event of a hack on Telegram, a user’s crypto could be stolen. 

Telegram did not respond to TechCabal’s request for comments.

Nnamani also expressed concerns about the limitations of trading on Telegram. “You’d prefer a fintech you can send, save, and probably do multiple money functions on,” he said. “Why would I p2p here then go and look for my other crypto needs elsewhere.”

Before the presence of crypto exchanges in Nigeria, crypto traders often clustered in messaging platforms like WhatsApp to source for crypto deals. Unlike regulated exchanges, trading on these messaging platforms lacks the security of escrow services offered by crypto exchanges, leaving users vulnerable to scams. However, the administrators of these groups often take the place of an escrow. Nigerians are fast returning to this mode of sourcing for deals since the closure of Binance. 

“I used to trade on a supposedly ‘trusted escrow’ group on WhatsApp,” shared a crypto trader who wished to remain anonymous. “Unfortunately, some members who didn’t use escrow got scammed.”

Binance, the embattled exchange

While crypto traders in the country continue to explore workarounds to trading since the ban of their darling exchange, Binance continues to slug it out with the Nigerian government. One of the company’s two executives, who flew into the country to resolve its blocked website, remains in detention, while the other, has reportedly absconded. As a result of the squabble, the exchange discontinued all naira services on its platform.

The Nigerian government has repeatedly suspected Binance of manipulation of forex prices on its platform. The suspicion was confirmed after the government analysed peer-to-peer trading transactions on the platform and found huge buy orders—as much as $1.9 million—for USDT by Nigerian retail traders who never followed through, raising suspicion about an attempt to manipulate prices for personal gain. The report also reviewed that artificial demand for USDT resulted in the naira’s quick drop from $1/₦1,500 to $1/₦1,950.

Before the restriction of its website, Binance placed limits on how much naira could be traded for the USDT, to help salvage the naira after the currency sank to new lows. The exchange also disabled selling USDT altogether and limited buying it to a fixed price of ₦1802. However, the recent report by the CBN claimed that more than 40% of the buy offers came from the same accounts. 

TechCabal reported earlier this week that the Nigerian government had filed tax evasion charges against the company,  and its detained executives, Nadeem Anjarwalla and Tigran Gambary. The government accused Binance of three tax offences: not registering with the tax collection agency, Federal Inland Revenue Service (FIRS), not paying value-added tax (VAT) and company tax, and not filing tax returns. 
Before the tax eversion charges, Binance had put out plans to patch up its relationship with the Nigerian government.

In a statement released on Thursday, March 14, Binance emphasized its commitment to compliance and collaboration with Nigerian authorities, claiming to have assisted Nigerian law enforcement with information needed to investigate financial crimes such as scams, fraud, and money laundering.

In 2023, Ali Baba, one of Nigeria’s veteran comedians, nearly broke the internet when he shared that popular Nigerian skit-maker, Mark Angel earned over $300,000 monthly from his YouTube videos. The 32-year-old creator, became an internet sensation in 2016 when skits of antics with his little cousin Emmanuella started going viral. 

Skit-making is almost synonymous with comedy in Nigeria today. What started as a niche industry is now the third-largest entertainment industry in the country, worth about ₦50 billion ($34 million). At first, the process of creating this content was basic, requiring only a cell phone, editing skills and an internet connection. Now, as the industry grows and becomes more global, the skit-making process has become more complex; requiring larger teams, more money to execute, and a more strategic plan.

For over six years, Olufemi Oguntamu, CEO of Penzaarville Africa, has worked in the Nigerian creator space. His company, a talent management and media agency, is responsible for some of the biggest content creators and skit-makers in the country, including Broda Shaggi, Kie Kie, and Mr Macaroni, among others. 

According to a report published by Selar, in which they surveyed 2,000 digital creators, 29.3% of creators start hiring immediately after entering the business, while the majority of the sample study size, 37.6%, hired staff after six months. Due to the nature of their job, which requires a constant churn out of high-quality content, many creators often need to hire people to work with them to meet this demand. While production needs and costs differ from creator to creator, it’s almost impossible to do the work alone, no matter how small the project is.

“We have videographers, supporting actors, scriptwriters, production managers and assistants, make-up artists and costumiers, gaffers, and sometimes even a director,” he shared. “Sometimes, for the more popular creators, like Brodda Shaggi or Layi, we also hire security guards as shooting outdoors in Lagos can draw a lot of unwanted attention.”

Talent is often hired on a project basis, but some are more permanent than others, like production managers, who handle everything from liaising with other talent to planning and managing the creator’s time. The permanent employees are paid salaries, while other talents like videographers and makeup artists are paid on a project basis. Even after shooting, the post-production crew takes over; from the editors to special effects guys, to those who specialise in colour-grading. These people are hired to handle the post-production of these videos and digital products before they are ready for distribution. 

Many creators have different reasons for hiring, though the most obvious seems to be not having enough time to handle all the responsibilities that come with the job. The report from Selar confirms this:

On average, it takes about a week to produce and release a skit, and the costs can vary from between ₦800,000 to ₦1 million per skit on average, according to Oguntamu.

The effort put into these skits comes with a lot of material rewards. These skits attract millions of viewers and engagement to their social media pages. In 2023, Mark Angel gained over 197 million views on his Instagram account, which currently has about 3.15 million followers. Newcomer, Layi Wasabi, had the second-highest engagement, with 133.2 million views and 1.6 million followers, while Sabinus had 130 million views in total.

These numbers translate beyond stats to real money as these creators or skit-makers charge big bucks for promotion. Skitmakers can charge as high as ₦3 – 5 million for sponsored posts on Instagram, according to Oguntamu. Platforms like Facebook and YouTube offer direct monetisation options where they pay creators directly for their content.

“YouTube is a big market. Apart from monetising, it opens you up to a larger audience, even outside Africa. It’s interesting to note that creators who have a large audience outside Africa in places like Asia, Europe, and America, are paid more than those who have the majority of their audience residing here in Africa.”

Oguntamu adds that in order for creators to maximise their monetisation opportunities, it’s important for skit-makers to find their niche, and build a brand in order to be able to secure brand ambassadorships and partnerships when the proverbial stream of advertorial income dries up.

Beyond platform monetisation, there are ample opportunities available for creators. Endorsement deals, brand collaborations, and even physical appearances.

According to companies’ regulations in South Africa, a foreign entity cannot have more than 20% of voting rights in a South African broadcasting company. Mpumelelo Ndiweni, CEO of Colmin Group, an African markets advisory and investment company, told TechCabal that the CAF president’s involvement could help Canal+, a French company, to bypass this requirement. “The coming on board of [Motsepe] would ensure Multichoice remains in South Africa and meets the threshold of local ownership required by authorities,” he said.

Sherilyn Kamga, a senior strategic finance analyst, also states that a partnership with local players like Motsepe via a holding company structure would address this regulatory requirement. Motsepe would likely hold a majority stake in the holding company. “This way, it could exert indirect influence over the company’s management without exceeding the 20% voting rights limit,” she said.

Where there’s interest, there’s conflict

CAF, Africa’s football governing body, usually invites bidders for broadcasting rights to some of the continent’s premier football competitions including the African Cup of Nations (AFCON) and other inter-club competitions. Supersport, wholly owned by MultiChoice, bids for these rights. For Motsepe who owns Africa Rainbow Capital (ARC), having an ownership stake in MultiChoice could mean that he would have an impact, directly or indirectly, on which broadcaster gets the lucrative rights.

According to Jimmy Moyaha, founder of investment firm Lebowa Capital, although the conflict of interest is a potential issue, it would largely depend on the ownership structure that Motsepe and Canal+ would agree on. “Motsepe isn’t directly involved in the management of ARC, his investment vehicle, and I doubt he would be involved in the management of Multichoice,“ he told TechCabal. 

Moyaha also noted that ARC’s position as an investment firm could easily be limited to a shareholder with minority voting rights which would address this conflict of interest.

Additionally, Motsepe’s tenure at the helm of African football’s governing body ends next year. He could easily decide to step down from the position should he desire to have a more active role in the entity which would come about as a result of the partnership with Canal+.

For Motsepe’s ARC, an investment company whose portfolio companies include mobile network operator Rain and neobank TymeBank, having MultiChoice on its portfolio could help with diversification. 

The company, which is listed on the Joburg Stock Exchange, has stated that it invests in companies with an established market position, a demonstrable track record, and strong cash flow generation, among other qualities. MultiChoice—with its 22 million subscribers in Africa, its 30-year presence on the continent, and R3 billion (~$156 million) cash flow, per its latest financial results—ticks most of these boxes.

“For ARC, [the investment into] MultiChoice would diversify the business into media, further strengthening its operating model and investment strategy as an [investment vehicle],” Moyaha added.

Back in 2011, Cell C sold off its 3,200 towers to American Tower Corporation for $430 million.  In June 2022, MTN sold its 5,701 towers to Nigeria’s IHS Towers for R6.4 billion (~$337 million), with the company stating that it will use the proceeds of the sale to fund the purchase of spectrum to high-demand spectrum frequencies and provide it with additional balance sheet flexibility. The following month, in July 2022, Vodacom announced that it would unbundle its over 9,000 tower assets into a separate subsidiary in which it would hold a 100% shareholding. The telco said the move was to enhance asset returns and lower communication costs. Last year, Cell C announced that it would switch off tower access and have its subscribers roam on towers owned or leased by MTN.

As these SA telcos continue to sell off their tower assets, with reasons ranging from raising funds for other investments to supposedly lowering communication costs and shifting business strategies, experts who spoke to TechCabal say there may be other reasons at play.

According to Jimmy Moyaha, founder of investment firm Lebowa Capital, telcos may be pursuing strategic goals which do not necessitate having the towers on their balance sheets. “We’re seeing telcos rather deploy their capex into more strategic things like buying spectrum and improving network capabilities,” he said. Cell C and MTN took this route as they immediately leased back the towers from their respective buyers.

Additionally, according to Moyaha, loadshedding might also be a factor in pushing telcos to move the towers off of their balance sheets. With the loadshedding situation having gotten worse over the last few years, telcos have constantly reiterated in their financial results the investment that they have had to make in backup power during blackouts.

MTN has stated in the past that loadshedding led to an increase in thefts at its towers; Vodacom has said it had to invest R1 billion (~$200 million) on backup power for its towers; and Telkom has said it had to spend over R500 million (~$100 million) on diesel for the backup generators needed to run its towers. 

“When loadshedding is severe, backup power doesn’t have enough time to recharge and replenish itself,” added Moyaha. “This then necessitates the need for additional power solutions to be deployed and that becomes a very capex-intensive undertaking.”

Yet another (possible) reason…

According to Tshepo Magagane, an investment analyst, shareholder pressure might also be a significant factor behind the selloffs. Over the last two years, when most of the sell-offs have taken place, Vodacom, MTN and Telkom have all seen their share prices tumble by 38%, 53% and 39% respectively. “Share price underperformance [has led] to pressure from shareholders which results in the companies convincing themselves that the tower assets are ‘non-core’.”

He adds that the fact that private equity firms, which emphasise cashflow generation, are buying up the assets indicates their cashflow importance. “Infrastructure assets [like towers] allow revenue prediction, stable margins, efficient working capital deployment, manageable and incremental maintenance capex to investors,” said Magagane. 

Following its acquisition of Cell C’s towers, American Tower Corporation reported significant returns from the purchase. At the time, the company stated that it was generating a return on invested capital of approximately 20%. Each tower had approximately two tenants at a lease rate of $2,500 per tenant.

According to Magagane, the prominence of such deals is likely to attract even more private equity investors to seek similar opportunities on the continent. “A consummation of deals this large should act as a catalyst for other investors to wake up to the fact that there are opportunities in South Africa and Africa,” he concluded.

These startups have gone on to amass over $1 billion in market value. The sector-agnostic fund has a focus on fintech, software-as-a-service, digital commerce, and healthtech startups. 

Following the deployment of its $10 million fund within three years, Oui Capital raised its second $30 million fund. With a focus on early-stage startups, the fund says it helps its portfolio companies with fundraising, go-to-market support and acquiring talent. 

In a YouTube video, Tosin Eniolorunda, the CEO of Moniepoint, shared that the fund helped with seeking product-market fit, traction and introductions to potential investors. “They have also been helpful in hiring, especially with some of our key hires,” he added. 

Oui Capital, which funds approximately 2% of the companies that apply to it, invests between $250,000 and $500,000 and looks to own between 5% and 10% of its portfolio companies. 

TechCabal spoke with Olu Oyinsan, the fund’s managing partner, and Oke Ekpagha, a senior analyst, as they shared the fund’s investment thesis and some of its biggest learnings.

Oui Capital has been investing in early-stage startups since 2019. Based on your experience, what would you say are the biggest challenges that these startups face? 

Oyinsan: There are two most important challenges: the first is finding product market fit (PMF). There are a lot of theoretical definitions of PMF, but it’s like trying to run a race and getting on the track that’s going to take you to what the product should do for customers, the type of customers that actually should be using the product, and if they’re paying for it. PMF is everything you need to put in place to start growing. 

The other one, which is very common, is getting the money you need to build the company. Money is scarce everywhere in the world, and for early-stage companies that don’t have traction, it’s very difficult to raise money. Founders have to lean on their other skills to serve as a proxy for the attractiveness of that company.

Does Oui Capital accept startups that do not have product market fit? 

Oyinsan: The short answer is yes. A majority of the companies we have backed did not have product market fit, and that’s why we are early-stage investors. We have invested in a company with zero revenue and very little customer traction. If you look at our portfolio, what the [companies in it] do today is not what we invested in them for. What made Moniepoint, Maad, Duplo and Akiba Digital successful wasn’t what they were doing when we invested. 

As early-stage investors, it’s our job and responsibility to invest in places where we can be helpful. It’s like having a co-founder who does not stay in your office because if we own the company together, we have to do everything we can to make sure that this company is successful. It’s what also generates financial returns. You’re more likely to make better financial returns if you invest in a company that doesn’t look successful yet than in one that has it all figured out. Eighty percent of the companies we invest in don’t have PMF. 

What’s the evaluation procedure like for your portfolio companies? How do you assess which companies you back?

Ekpagha: You don’t get what you’d expect to see, you get what the market has in store. Off the bat, there are certain things I’m looking out for. Firstly, how strong is the founder or founding team? Do they have domain expertise that can directly translate into the new venture that they’re trying to build?

I also look at the business model: is it a scalable business model? Is it fast-growing in terms of businesses that have been in that space? How big is the market and how fast is it growing? Of course, the companies that we tend to invest in are doing something new and are going to be market leaders, but they could be growing quickly in terms of traction and not be able to grow beyond what the market is going to allow. 

I also look for any traction that I can use to benchmark the rest of their success against. Typically, the startups we back don’t have major traction for their users or revenue, but we need to approximate and have an idea of how fast they’re growing already and what that could look like in the future.

What type of founder does Oui Capital back?

Oyinsan: We don’t care where you went to school, what you look like, or what nationality you are. That doesn’t build great companies. Entrepreneurial ingenuity is what builds great companies. I don’t care if you went to Stanford or the Federal University of Technology, Akure.

As you can tell, some of the bigger companies, especially in Nigeria, don’t match the pattern [of studying in Ivy League schools], but the ones who match the pattern are often the ones you are writing about that defraud investors! 

We care about the problem you’re solving, and if you look like you have the grit, guts and expertise to go after it, we will back you. 

Also, some things, like the market and product, don’t depend on the founders. I was talking to a brilliant founder this morning and I told him that he’s probably pursuing the wrong thing. He’s trying to build another payment company and I told him to take a step back and figure out something else because he probably will not be able to get money from us.

Does Oui Capital participate in follow-on investments?

Oyinsan: Yes, we do. In our old fund, we had a ratio of about 20% of the fund for follow-on investments. The new fund has a smaller allocation because we noticed that our first cheques have been more successful than our follow-on cheques.

It’s common knowledge in venture capital that follow-on cheques protect your position, but there are some follow-on investments that we made in our first fund, even though the fund was hugely successful, that we might not have done, following introspection. 

There are many reasons VCs follow on besides financial benefits; sometimes VCs follow on an investment for optics and to catalyse the new round. We could invest in a company in the pre-seed round and it’s doing very well and now they’re raising a new round. New investors want to talk to you about the company, and their next question always is, “Are you investing in the new round if you believe in the company as much as you say you do?” So, sometimes, it’s not even a financial decision. It’s a show of good faith and support for the founders.

Sometimes investors follow on to ease the funding stress and bridge the gap because the company is in a place where they don’t want to spend a lot of time fundraising. Remember, if a company fails or runs out of money, as an investor, you lose your original investment. 

Sometimes investors follow on because they didn’t get the desired percentage or as an anti-dilution tactic. 

What are the ways Oui Capital supports its founders and startups besides funding?

Oyinsan: What usually happens is that we reach out to founders to feel the pulse and ask what keeps them up at night and see how we can solve that. For example, I’m talking to the founder of one of our portfolio companies and he’s very straightforward. He says that he is looking to acquire one or two companies making at least a million dollars in revenue in Ivory Coast and South Africa. Someone on our team has to find the best companies that are making a million dollars a year because that’s what we have to do. We are one of the highest shareholders and we are going to do that at no extra cost.

We also help portfolio companies look for board members or senior staff, we turn out our Rolodex and look for founders whose companies failed or people we have worked with for help. 

If our portfolio companies want to raise a new round, we can also help. For example, with Moniepoint, I took Tosin with me to Rwanda for a conference because other investors were going to be there. The rest is history. If you care about the company, you do everything you need to do to make sure the company succeeds.

Oui Capital has been backing startups for five years now, starting from the time when there was a bubble to the post-bubble reality. What’s your biggest lesson? 

Oyinsan: Coming from the bubble, first of all, we were never the type to FOMO into deals. Look at our portfolio. We never participated in deals where the hype around the deal was greater than the fundamentals of the company. What you call a bubble, I don’t see it as that. But I understand that there was a time when there was valuation inflation and a lot of cash. 

Our biggest lesson is that you have to stay true to your thesis. It pays you over cycles. For example, we don’t have a single portfolio company that was caught in this bubble, and we have over 20 portfolio companies. It’s about just staying true to your thesis. You have to stick to your investment strategy and you just have to stay there. Don’t let the market move you left or right, because if we had invested based on the climate, we would probably not be around by now. 

What problem did you want to address with Oui Capital?

Oyinsan: We said we’re going to democratise access to venture capital. Five years ago, some founders could not get in front of investors. I remember when we introduced Moniepoint to a firm, the first thing they asked was what school the founder went to. What does that have to do with anything? These people were one of the most entrepreneurial teams that you could find at the time. 

Our thesis was to break away from this thinking. I felt I could not do that in any other arrangement. We stick to real entrepreneurs and we have a very strict valuation strategy. We don’t need a large number of companies. We just think it’s not a strategy for Africa; we are more concentrated than most early-stage firms. In our new fund, we’re only going to back 15 portfolio companies. Our thesis is to have a significant portion of equity and significantly support these companies. 

Are you still very hands-on with the companies in your first fund following your new fund? 

Oyinsan: Investing success is not really about investing, it is about returns. You have to build successful companies and you have to take money out. Today, we only take money out of our first fund because these are the companies that have developed enough. You have to keep an eye there because that’s where your interest is going to come from. 

Besides, there’s a magic word called monthly updates. We don’t look at it as fund 1 or 2 because once you’ve made that investment, they are a portfolio company so you support them as a whole. 

It seems that we are now in an era of market correction. How are you thinking about future investments? 

Oyinsan: We never change. What has changed is that easy money has left so it has enhanced opportunities for hard-working money or money that knows what it is doing.  That has presented us with an opportunity to pick up Series A-type companies for seed round prices. 

We are seeing fewer companies with no PMF trying to raise a $7-$10 million pre-seed round. There was a company on the phone with us last week that was trying to do that; I had to laugh. 

We’re now able to spend more time getting to know founders, performing due diligence and sticking to our guns on pricing. I think that’s the only thing that changed. The reason why I said there was no bubble is because the few investors who have stuck to their fundamentals did not suffer the damage of a bubble. It’s the investors who are not versed in doing VC or doing Africa who lost money. 

How are you thinking about exits? 

Oyinsan: There are different ways, but for early-stage funds, the most attractive one is secondaries when portfolio companies raise Series A–C. It’s a very significant opportunity because it usually takes startups 10 years to get to the IPO stage, and the average age of a fund is probably 7–10 years.  

Sometimes there might be a need to pass on the baton to other investors who are in the first year or so of their fund. For example, Reddit, an 18-year-old company just looking to IPO—it probably wouldn’t make sense for an investor from their pre-seed round to still hold shares in the company; their limited partners would probably sue them. 

In Nigeria, freelancing is a thriving market, especially for creative, non-technical skills like writing. According to the World Bank, there are an estimated 17.5 million online freelancers in Nigeria, Kenya, and South Africa, with most of them being from Nigeria. In its 2023 freelancer report, Payoneer, a payment service used by Upwork, also shared that the countries with the highest number of users outside the USA are Bangladesh, Nigeria, and India. Upwork and Fiverr, another freelance platform, provide freelancers the chance to trade in-demand services for some dollars, but the emergence of artificial intelligence threatens to disrupt this flow. 

Since its release in 2022, the chatbot ChatGPT has been widely used in writing. While some writers use ChatGPT to improve their processes, small business owners are increasingly using it to create content, cutting out the need to hire writers. On social media, for example, there are thousands of videos and threads teaching people how to leverage AI writing and designing tools to secure freelance jobs without any prior knowledge or experience. It is increasing competition in an already-saturated freelance market.

Double the hustle for half the pay

According to Onyi, payment rates for simple gigs on Upwork have dropped significantly in the past year as competition on the app is now steep. Clients went from offering about $100 for 10K words to half the amount as there are always freelancers desperate enough to accept meagre pay.

This situation has led Onyi to secure twice as many clients as she would normally take on in order to meet her income target. This is more tedious, but she’s found tools that make her work faster. According to her, about 60% of the words in her drafts, especially the novels, are generated by AI tools.

“I have to write quickly to attend to the next project,” she shared with TechCabal. “Sometimes I have to write something I don’t know about and so I need these tools. If I don’t take the low-paying jobs, others will, and there’s no guarantee that I’ll get the higher-paying ones either. In the time I’d wait for one $100 job, I could have completed four $20 jobs or two $50 jobs.”

Onyi is not alone, as this situation, coupled with global inflation, is placing additional pressure on freelancers to take on more work. In this report which had 2,000 freelancers surveyed from over 120 countries, 55% of them admitted to taking on more work just to meet up with income demands.

Beyond the most popular freelance marketplaces like Fiverr and Upwork, smaller marketplaces also feel AI’s impact on the interaction between talent and clients. Femi Taiwo, CEO of Nigerian freelance marketplace, Terawork, shared that his company has seen a slight decline in the number of gigs available and the rates offered. 

“Apart from the freelancers, I know people who have let their contract staff go because they felt that they were too expensive for the services they were offering,” he said. “After all, why should they pay so much for an analyst when AI can create reports for you?”

According to Taiwo, freelancers on his platform earn more than popular platforms like Upwork and Fiverr, on average, and produce better-quality results.

Toyosi Godwin, a freelance content and copywriter, was forced to leave Fiverr as a result of the paltry pay. Godwin, who has offered writing services for the past five years, shared that, at some point, he was getting offered $5 to $10 per article on the platform. He knew he had to leave to find clients elsewhere. Now, he gets clients mainly from social media, which guarantees significantly more pay.

Godwin is aware a lot of writers use AI tools to save time and take on more work. “When you get paid this small amount for your work, you will likely not want to invest a lot of your time and effort into it,” he said. 

The bulk of gigs on platforms like Upwork and Fiverr are targeted towards freelancers from the Global South, and this is evident from the low compensation offered. A 1,000-word article can receive as low as $20 as payment. A sizable number of clients who cannot afford or are unwilling to pay for full-time staff outsource on these sites, specifically targeting talent who are desperate enough to accept these rates. In this global freelancers report by Payoneer, freelancers from Africa and Asia have lower hourly rates on average, compared to their counterparts in North America and Western Europe.

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Projects with higher price tags are more expensive, in terms of time, money and qualifications. According to Onyi, these gigs with higher pay typically state clearly that only writers from certain countries like the United States, are welcome to apply. 

“Getting good projects from Nigeria is difficult, and most clients immediately lose interest as soon as they realise that you’re Nigerian or black,” she shared. 

These gigs also cost a lot to secure for new freelancers. On Upwork, users need “connects”, which are essentially tokens used to bid on job opportunities. One hundred and fifty connects cost about $30, and the higher the job’s pay, the more connects you need. 

“If you can’t afford to pay for connects to secure better jobs, then you’re stuck with the low-paying ones,” Onyi said.

Redefining the value of work for freelancers

Jasmine-Jade, a freelance writer for over five years, typically has a lot of clients and doesn’t need to use freelance marketplaces. According to her, the bulk of her freelance opportunities come from referrals and inbound marketing, as opposed to what she calls “sitting on platforms and waiting”.

Because a lot of these clients come to meet her, she’s able to set her rates which are higher than if she were on a freelance marketplace where the price already was specified and hundreds of people are already bidding.

While she’s had several friends and colleagues lowballed by clients on these marketplaces, it’s not something that she has experienced herself.

Despite market realities, Taiwo believes that freelancers can still get paid decent rates depending on how well they position themselves and offer value.

“Now, freelancers, especially in Nigeria, have to provide more value beyond what they were doing before that will make them stand out,” he shared. “There are AI tools for graphic design but people still employ graphic designers because they know that the result they’ll be getting is more unique.”

According to him, while AI is threatening the value of freelancers, the effects of the 2023 layoffs make up for this decline, and more businesses are laying off full-time staff to employ freelancers as they have realised that it’s a less-expensive alternative.

“Some freelancers might be losing jobs and getting paid less but some are seeing more opportunities now,” he said. “If you have a track record of doing good, quality work that people can see, then people will always see your value.”

Pamela Ephraim, a journalist, understands the concept of value as a freelancer on Upwork. The writer and editor who started using the platform in 2022 had a hard time finding well-paying gigs at first. After two projects which paid her $10 each, she reached out to someone with more experience navigating the platform who put her through a series of Zoom meetings, profile optimisation tips, and YouTube tutorials. She updated her profile to show all her work qualifications and added useful writing samples, and she was strategic about applying only for projects within her niche and a certain pay range, as that gave her some exclusivity.

“In about a month, I landed my first $150 gig which was for a 1,000-word article,” Ephraim said. “I’ve been on the platform since then.”

Ephraim no longer has to apply profusely as she did in the beginning and her profile now brings in gigs she didn’t apply for. According to her, apart from writing convincing proposals and optimising your profile, one of the most effective tips she can share is to treat freelancing as one would a full-time job.

“Initially, I treated it as a part-time hustle and didn’t put a lot of effort into it,” she said. “You need to treat it as you would an actual job and also ask clients to leave good reviews. Platforms like Upwork thrive on good reviews.”

When asked if she wasn’t bothered about being phased out of employment by AI, she said she didn’t think it would ever happen. The future of freelance storytelling belongs to creatives who cannot be replaced with AI, she said.

However, collecting repayments is a significant problem for these lenders. Some digital lenders shame and harass defaulters, creating a tense and harmful environment for borrowers. 

It has created a market for ethical collection agencies like BFree—who recently raised $2.95 million in funding—and Mwanga, startups that use phone calls and text messages to remind borrowers of their outstanding balance and the consequences of non-payment. Ethical loan collectors—BFree claims to have upped loan recoveries for their clients by 70%—say they treat borrowers respectfully, even in cases of defaults.

But banking experts doubt the effectiveness of ethical methods, particularly when borrowers face financial hardship. 

“There is a significant limit to ethical loan collection in Nigeria, especially for small loans,” said Adedeji Olowe, CEO of Lendsqr. “Lenders are walking a fine line, it’s only at a sizable level that you can manage finance risk. At the bottom, it’s a free for all.” 

The underlying economic realities that push borrowers to default in the first place may mean that repayments are impossible no matter the collection method. “Without addressing these issues, ethical collection may not be enough,” said Adedeji Olowe, CEO of Lendsqr. 

One expert who asked not to be mentioned believes unethical loan recovery methods could be avoided if digital lenders filter through the behavioral data of their borrowers to know their ability to repay. According to him, borrowers with betting or impulsive buying habits can be screened during the loan underwriting process or before they’re given loans. 

While these checks are in place for some digital lenders, ethical collectors might struggle to recover debts because rogue lenders are learning to game the system and exploit loopholes. 

For instance, if borrowers know their salaries will be directly debited within 24 hours, they might be tempted to empty their accounts upon receiving their paychecks, hindering repayment, one expert who asked not to be named told TechCabal. 

Another challenge posed by ethical loan collection for digital lenders is the cost of outsourcing loan recollection to collection-as-a-service startups. These collection-as-a-service startups charge between 10-35% of the loan amount recovered, which digital lenders account for in their interest rates to lenders, bumping it higher than the average interest rate and possibly deterring borrowers from lending or leading to more loan defaults. 
In 2022, the National Information and Technology Development Agency fined Soko Loan ₦10 million for privacy violations, sending a strong message to the industry. While regulatory bodies like NITDA have taken action against unethical loan recovery practices, experts who spoke to TechCabal believe there should be similar consequences for defaulters to make ethical loan collection work in Nigeria.

Mugovi is one of the many startup founders who have forged on with building startups, despite the unfriendly operating environment in Zimbabwe fuelled by sanctions and hyperinflation.

Zimbabwe has been under economic sanctions from the US, the European Union and most Western countries since 2003. The country has also been experiencing hyperinflation since 2008, with inflation rates going as high as 80,000,000% in some periods. 

Mugovi tells TechCabal that access to funding is one area that has been mostly impacted by the country’s macroeconomic challenges. “Foreign investors consider us a pariah state, so getting access to patient venture capital is next to impossible.”  

Despite all the challenges that have been presented by hyperinflation and sanctions, startups in Zimbabwe are still alive and kicking. Some have built products serving a significant local market, while others have scaled to neighbouring countries after achieving product-market fit in the country. Stakeholders who spoke to TechCabal state that although the operating environment has been less than desirable, it has also presented opportunities for tech entrepreneurs.

According to data by venture funding tracker Africa: The Big Deal, Zimbabwean startups collectively raised only $2 million in 2022. In the same period, startups in neighbouring South Africa raised almost $500 million in venture capital funding. Some startups have resorted to borrowing from microfinance institutions to address the funding challenge. However, in addition to high rejection rates because of lack of collateral, this capital is usually too expensive for startups, with interest rates averaging between 20% and 40%.

Leonard Sengere, the editor of the technology publication TechZim, adds that a poor population also adds to the unattractiveness of Zimbabwe as a venture capital destination. “When a startup finds a problem, the business model falls apart when they realise customers can’t pay what’s needed to warrant the business.” 

To traverse through the funding problem, startups are looking to diaspora remittances to fund their ambitions. According to data from the World Bank, remittances by Zimbabwe’s diaspora community reached $1.66 billion in 2023, or 11% of the country’s GDP.

Startups are resorting to their fellow countrymen abroad as foreign investors who may not understand the challenges of operating in the country, push them away. “The diaspora community knows the ability of innovators in Zimbabwe, so they are open to angel investing in startups in the country,” another founder told TechCabal.

In 2021, the government also launched the National Venture Capital Fund (NVCF) and assigned ZW$300 million (~$3 million then) at its inception. Additionally, the treasury also introduced tax incentives for VC firms, announcing that they would not be liable for income tax. 

B2C startups are impacted the most

Zimbabwe’s macroeconomic factors have mostly affected B2C startups compared to B2B startups, according to stakeholders who spoke to TechCabal. “It is extremely hard to move money out of Zimbabwe because of a combination of our policies and other countries’ policies concerning us,” said one founder of a B2C payments startup who requested anonymity. As a result, most startups find it hard to scale their products beyond Zimbabwe, making them unattractive to growth-oriented VC purses. 

Zimbabwe currently employs a multi-currency financial system comprising the US and the Zimbabwean dollar. However, because of waning confidence in the Zimbabwean dollar, data shows that nearly 80% of local transactions are done in US dollars.

Unlike B2C startups, enterprise-oriented startups have access to a customer base which can pay in US dollars, managing to hedge against the Zimbabwean dollar’s instability. “Accepting payments in the local currency is hard because sometimes rates change by multiples of 10 per day, so we pivoted to a B2B model,” said a founder of a B2B fintech startup who also preferred to speak anonymously. 

Another factor working against B2C startups in the Zimbabwe ecosystem is negative consumer sentiment about digital wallets or any form of non-cash transactions as a result of hyperinflation. “People here believe more in cash because, in the past, they have seen their savings in more stable currencies converted to Zim dollars by the government,” said Njabulo Sandawana, a Zimbabwean technology entrepreneur.

For startups looking to change consumer sentiments and increase adoption of their products, they would have to spend a significant amount of capital on marketing and community outreach.

Signs of brighter days ahead for Zimbabwe startups

Despite the multiple challenges brought about by Zimbabwe’s macroeconomic environment, they have also presented some opportunities. “Because of difficulty in accessing and paying for foreign-made enterprise software, we have seen an increase in demand for our products,” said the founder of an ERP software startup.

For B2C startups, as a result of a limited addressable market in Zimbabwe, some have been forced to think outside the country’s borders. Instead of making products primarily for the Zimbabwe market, some startups use the country as a sandbox to verify their theses and product market fit.

These include Cashlinq and Tano Digital who have expanded to Zambia and Botswana, respectively. Some other preferred expansion destinations include South Africa, Malawi and Mozambique.

Zimbabweans are also gradually being attracted to alternative financial technologies away from the traditional banking systems as a result of being burnt in the past. Technologies like blockchain and digital wallets by fintech are gaining prominence as the citizenry looks for alternatives.

“When people look back to the early days of hyperinflation when savings would evaporate, they look at offerings by fintechs and think, surely these can’t be any worse,” said Tinodashe Dubayi, head of digital transformation at fintech startup ClickNPay.

Some of these offerings include Innbucks, which allows customers to receive loose change at restaurants; Ecocash, a digital wallet; and O’Mari, a superapp which includes mobile money, insurtech and investech products.

With the US having recently relaxed its sanctions on Zimbabwe, innovators are excited about what that could mean for the ecosystem in the country.

Having experienced two decades of sanctions, Zimbabwean technology entrepreneurs are ready to take on the continent on a more level playing field, armed with the experience of innovating in a harsh operating environment. “The last two decades have built tenacity into Zimbabwean entrepreneurs, and they are ready for whatever challenges they face,” concluded Mugovi.

“The share price has begun to reflect the proper value of the organisation,” Olaniyan told TechCabal on a call.

Investors are rewarding Chams for a decision to move on from government clients after it lost $100 million executing a contentious national identity project.

“We no longer deal with the government. We only deal with consumer projects; that means serving you,” said Demola Aladekomo, the company’s chairman. 

One important part of that shift is a holding company structure for Chams. Its subsidiaries will now compete across various spaces in financial services: mobile money, cross-border payments and education financing. 

Its switching subsidiary, ChamsSwitch, will focus on cross-border transactions and provide gateway payments. The subsidiary believes there’s a profitable business solving payment bottlenecks for traders buying goods from international partners. 

“The volume of business transactions in Computer Village at Ikeja that come from China is huge, and there is no means of payment.”

ChamsSwitch partnered with UnionPay in July 2023, a Chinese financial services corporation that provides bank card services within China. That partnership, along with an integration with Nigerian banks, will allow the subsidiary to issue UnionPay cards that support international payments. 

“Providus Bank should go live by the end of Q1 2024.” Wema Bank and Heritage Bank are also among the financial institutions being onboarded.

CardCentre is taking a slice, but now it wants the whole pie

If you own a debit or SIM card, the odds are that CardCenter, a Chams subsidiary, produced it. 

An August 2022 ban on SIM card importation means only local players can manufacture these cards. The subsidiary produces five million cards weekly (SIM and debit cards) and plans to expand its production lines. In July 2023, CardCentre added a second line for card production. 

CardCentre already produces SIM cards for MTN Nigeria and expects to produce cards for Airtel Nigeria too. It also plans to expand to other African countries and look to its foreign partners to help achieve its ambitions. 

In addition to its ambitious expansion plan, CardCentre wants to undergo a backward integration to fully produce cards in Nigeria. It does import a few components to help personalize these cards, but Nigeria’s foreign exchange volatility is forcing the firm to embrace local production to save costs. 

Chams’ bet on the NGX

As Chams’ share price continues to stabilise the NGX, boosting investors’ confidence, Olaniyan says listing on the NGX is “best for sustainability, continuity, and accountability.” This is despite the scrutiny that comes with being listed which many tech startups may be avoiding. 

While it remains a leader across different tech sectors, Chams, through its subsidiaries—ChamsSwitch, ChamsMobile, CardCentre, and ChamsAccess—is building investor confidence that could see further growth on the NGX by the end of the year.