Incubating for success: Tracking efforts to improve prospects for ICT start-ups

One key challenge to the development of a vibrant local IT sector in any emerging market is the difficulty small and medium-sized enterprises (SMEs) face in attracting capital, hiring staff and accessing research, and Nigeria is no different in this regard. As in most West African economies, interest rates for commercial loans are well into double digits and SMEs often lack the paperwork to meet the requirements for a loan.

In an effort to bridge the funding gap for technology start-ups, Nigeria’s Federal Ministry of Communication Technology (FMCT) has embarked on a strategy titled “Companies, not Codes” to develop incubation centres in the country, with two centres launched in Lagos and Calabar (Cross River State). Both involve significant private sector participation, with representatives from private firms advising on the development of the initiatives and helping manage their roll out. Private sector representatives from the IT industry now comprise the board of the Information Technology Development Entrepreneurship Accelerator (iDEA), established as a special purpose agency to oversee the incubation programme. Access to the market and to capital is at the forefront of the FMCT’s programme, as is establishing linkages to expertise and incubation centres overseas, like the Stanford University SEED centre in Accra.

TAKING LAUNCH: Starting the process on creating the first batch of tech start-ups, Techlaunchpad was set up as an IT accelerator and is a collaboration between the FMCT and several large corporate groups. These include Chevron, ExxonMobil, Total, Shell, First Bank, Access Bank, Accenture and Digital Jewel for the first phase of the programme, with the second phase covering agriculture, logistics, construction and telecoms.

The first phase, completed in May 2013, consisted of online applications whereby entrepreneurs pitched solutions specifically addressing needs in the oil and gas and banking sectors. A total of 128 applications were received, and these went through several rounds of evaluation by industry chief information officers before eight were finally selected as “viable solutions that industry would be willing to purchase”. According to Bunmi Okunowo, special assistant on IT to the Nigerian Minister for Communication Technology, the next phase will be to develop the winning applications to the point where the solutions they create can be marketed and exported to other countries.

The programme will provide mentoring services such as business and legal advice, assistance in registering the companies and filing for patents and trademarks, and guidance in selecting board members and attracting investors. While continuing to issue briefs towards solutions that address industry-specific requirements, Techlaunchpad has also set out evaluation criteria to help tackle socioeconomic issues in Nigeria. For example, the programme is working with a firm that is developing traffic management software to combat urban gridlock. The goal by 2015 is to have incubated 25 successful businesses, with a successful business being classified as one that offers “commercially viable solutions that are locally relevant and globally competitive”.

A SOLID PREMISE: Narrowing the gap in funding as well as commercialising entrepreneurial ideas has been welcomed by industry insiders. “Private equity (PE) funds have made substantial investments in established technology companies in Nigeria. And in the past five or so years a number of PE funds focused purely on the tech space have been set up,” Niyi Yusuf, country manager for Accenture Nigeria, a technology and outsourcing consultancy group, told OBG. The challenge, according to Yusuf, has been the low number of software developers to create applications that are relevant to the sector and up to global standards. Tobi Oke, director for sub-Saharan Africa at Intel Capital, also highlights the risks and infrastructure gaps in Nigeria in attracting private capital compared to South Africa, Ghana and Kenya, and the importance of the government in “getting the ball rolling”. Indeed, the authorities have thus far provided around $15m in funding for iDEA and are also embarking on roadshows to secure financing from the private investment community.