88mph, a high-tech startup accelerator with offices in Nairobi and Cape Town, is branching out to a third African country later this year when it begins a new operation in Nigeria's most important tech centre, Lagos. The company is forming a new venture, 440, in partnership with L5Lab, a local seed funding specialist and business mentor.
Since it launched in Kenya in 2011, 88mph has raised more than $4.5m from African and European investors and funded 34 companies through its three month "start-up garage" programs. Applications for the first cohort of 10 to 12 Nigerian companies will begin in May, and the program itself is expected to kick off in August.
Last week, Nigeria overtook South Africa as the continent's largest economy in GDP terms, with growth at around seven percent. 88mph founder Kresten Buch says that with rapid growth there’s an opportunity for private finance to get involved in the burgeoning startup scene.
"There's a lack privately funded initiatives run by experienced entrepreneurs [in Lagos]," Buch says. "You can't substitute that with government incubators and startup consultants that haven't built a business and don't have the pressure to deliver a return."
Buch, a successful Danish entrepreneur in his own right, founded 88mph after meeting Kenyan businessman David Owino at Stanford University in 2009. At the time, Buch says he was looking to create an angel investment fund in Europe, but Owino convinced him to look at emerging economies in Africa as ripe for Y Combinator-style incubators, with plenty of talent, lower costs, and little competition compared to Silicon Valley.
Buch says that the most successful venture has been ApexPeak, an online marketplace for small businesses seeking short term trade finance. ApexPeak has so far raised $2.4m from investors looking for quick returns, and Buch says that there's no shortage of demand for the service from firms looking for liquidity in markets where banks are reluctant to lend and slow at making decisions.
"It's a fantastic service in countries that don't have a very well developed credit rating facilities," he says. "If I don't have a credit rating, I can't get money out of a bank."
According to the latest report from the United Nations Conference on Trade and Development (UNCTAD), Nigeria has been the most popular destination for foreign investors in Africa since 2011.
One thing that makes the country attractive compared to its nearest rival, South Africa, is the relatively loose controls over foreign exchange. It's exceptionally difficult — and expensive — for foreigners to repatriate money invested in South African firms.
Canonical founder Mark Shuttleworth recently claimed that it cost him less to visit the international space station as a tourist than it did to move his wealth overseas from South African banks.
"A South African startup that wants to go for foreign markets has to be registered as a non-South African company," Buch says, bluntly. "If not, foreign investors who understand tech will not invest."
As a result, one big problem that South Africa faces, Buch says, is that many young entrepreneurs are moving overseas and not returning to invest financial and social capital, as they are in other African nations.
"Exchange controls and immigration rules are what is stopping Cape Town from becoming a natural tech hub," he says. "It has all the other things: smart people, attractive climate, very low cost of living — important when you have no revenue — and great quality products from food to accommodation.
"It is easy to get talent to move to Cape Town and whole tech companies would move here if the rules were different."