What Tech Investors Fear And Find Interesting About Nigeria’s Twitter Ban
What tech investors fear and find interesting about Nigeria’s Twitter ban
For the second time in six months, a significant government announcement has startup founders and investors contemplating the impact of politics and sudden regulation on doing business in Nigeria.
It was the Central Bank of Nigeria's ban on cryptocurrency transactions in February. This time, it's Twitter, a social media platform that has been used for everything from crowdsourcing pro bono lawyers for people in need to locating missing persons.
On January 11, the Cowrywise team received a direct message from Sahil Lavingia, a Silicon Valley-based tech entrepreneur and angel investor. He'd learned about the savings and wealth management startup and was interested in investing, so he reached out via Twitter.
Cowrywise closed a $3 million pre-seed round two weeks and two days later. It was led by Quona Capital, a multinational investment firm, and included participation from Lavingia and other investors.
Lavingia declared following the announcement, "The power of Twitter."
“The timing of this direct message was flawless...” Cowrywise's CEO, Razaq Ahmed, stated.
In a previous decade, startup fundraising in Africa necessitated lengthy travel. Investors needed to physically verify business authenticity, assess startup-investor chemistry, and speak with customers, as a result of stories of fake companies and phantom Nigerian princes.
Investing in Nigeria in 2021 can cost one DM. However, this ease and perfection are now threatened.
One less medium for investor contact
Following last week's government-imposed ban on Twitter, a number of startups are wary of using the platform.
The majority have suspended customer service on Twitter, while others have stated that their accounts are not operated in Nigeria.
The ban's anxiety has spread to the international community of startup investors as well.
Investors, as capital providers, exert influence over the pace and scope of innovation. Frequently, their decision is motivated by their perceptions of the business environment. What are their current feelings and fears about Nigeria?
According to Ido Sum, a partner at TLCom Capital, the ban "may temporarily dampen some foreign investments in technology companies, but this is unlikely to be sustained."
Nigeria garners attention as Africa's most populous country, with a population of 200 million. That figure does not necessarily reflect the size of the opportunity for each startup; after all, the country's poverty rate of 40% is the highest in the world.
However, 81 percent of the country's 106 million adults own mobile phones, and 40.6 percent have access to broadband – a significant increase from 19.69 percent in June 2017. A growing pool of high-quality tech entrepreneurs, including former employees of Paystack and Andela, is fueling the annual growth of more startups.
Sum, whose firm has invested in companies such as uLesson, Okra, and Terragon, believes investors will continue to pay attention to this trend.
Satoshi Shinada, general partner at Kepple Africa Ventures, is constantly monitoring the 89 companies in 11 countries in which the firm has invested. He's had to focus particularly on their Nigeria portfolio – which includes Decagon, Lifestores Pharmacy, Bamboo, and BuyCoins – as a result of a flurry of regulatory actions this year.
“I believe that the Twitter ban will undoubtedly have a negative impact on investor sentiments and perceptions about Nigeria, particularly for remote foreign investors,” Shinada says.
As he describes it, Twitter has served as a platform for such investors to connect with one another and engage in conversations that shed light on the Nigerian market opportunity.
He believes, however, that the impact will be negligible. Nigerians discovering alternate ways to access Twitter demonstrates the market's resilience, which keeps the investment corridor open for business.
Two additional technology investors who spoke with TechCabal agreed with this assessment of the Twitter ban's potential impact on foreign investment in technology startups.
Five days after internet service providers disabled Twitter, the site continues to be accessed via VPNs. As a result, DMs remain accessible to prospective investors and founding teams. It helps that such chats are never made public unless one party discloses the history of the conversation.
However, other modes of communication exist. According to one investor, the primary channels for hashing out term sheet details are email and then WhatsApp. Zoom calls and regular phone conversations continue to function normally.
More discount on regulatory risk
One area of investor concern in the aftermath of the Twitter ban is a "heightened sense of political and regulatory risk," where unilateral decisions can jeopardize entire companies.
Apart from evaluating Nigerian startups on the basis of market size and penetration of tech gadgets, there will now be a need to discount potential returns significantly more to account for political risk.
However, if investors are forced to discount potential returns significantly more for political risk, would this not increase their reluctance to invest in the first place?
It would for firms that discover that adjusted returns do not align with their investment strategy. When a firm's Internal Rate of Return is set at 40% and it receives 20% after accounting for these risks, it is likely to decline such opportunities.
This means that an investor presented with a comparable opportunity in a lower-risk market, such as Ghana, is more likely to fund the Ghanaian startup.
However, investors who purchase million-dollar tickets and have a long-term view of their play in Nigeria are unlikely to be put off by such discounts.
“This has no effect on investors like ourselves who are committed to Africa for the long term, and we hope that this will be the case for non-African investors as well, who will continue to see the tremendous long-term potential and upside in the African tech ecosystem,” says Sum, a TLCom Capital partner.
He also hopes that the Nigerian government will recognize that bans have failed and instead seek collaborations and partnerships with the country's "very influential" tech community.
Courses and Certification
Information Technology Fundamentals Course and Certificate
Fundamentals of Science and Technology Course and Certificate
Twitter Marketing Course and Certificate
Social Media Marketing Course and Certificate
Social Media Course and Certificate
Business Analytics Course and Certificate
