It’s not a coincidence that TechCrunch has covered more African startups in the last year than any period in our history. Many of those companies are Nigerian, and when we look at venture capital data, we can see why. The country had an incredible 2021 as the most active venture capital scene in Africa, collecting more than $1.8 billion, or 34% of the $5 billion raised across the continent, according to Partech, a pan-African VC firm that also tracks investments.
The country has posted steady progress in the last three years as the leading African startup market. In 2019, startups based in Nigeria attracted $747 million, or 37% of Africa’s total VC investment. Those numbers decreased to $307 million, or 21% of the continent’s total, the following year, though 2020 was a venture capital year much impacted by outside forces.
Thanks in part to a global boom in venture capital activity last year, Nigeria became the first African country to singlehandedly cross the billion-dollar mark while also collecting bragging rights as the preferred destination for mega-investors like Tiger Global and SoftBank.
Y Combinator is paying attention
The ample optimism in Nigeria’s tech community and belief that better days are ahead are unsurprising, despite questions around investors’ due diligence and the eyebrow-raising valuations of some of the nation’s startups.
Speaking of valuations, no seed-stage company in the country is better priced than those in the Y Combinator club. Yesterday, the accelerator graduated its first startup batch featuring its newly revamped terms. The new “standard deal” at YC now features more capital, and prices for Y Combinator graduates are reportedly greater than ever. (Keep in mind that only 10% of the current Y Combinator batch had monthly revenue of more than $50,000 when they were accepted into the program.)
Apart from revenue thresholds, the accelerator shared another interesting statistic concerning Nigeria. With 18 startups, it is the first African country to have the third-largest representation when categorized by country. That’s a milestone for Nigeria, yes, but also an indication of how quickly the African startup scene has developed in a short period of time.
The country’s rise has been sufficiently sharp — it makes sense that Nigeria garners the most African representatives in any Y Combinator batch. But to land in third place after the U.S. and India is a remarkable feat; it means that Nigeria beat known tech markets like the United Kingdom, Germany, Brazil, Argentina and China. Nigeria is not alone in its ascent, however. This week’s Y Combinator batch had 24 African startups in total.
The remote impact
To understand how Nigeria got here, we should recall an email Y Combinator sent to TechCrunch during its Winter 2021 batch, explaining the increase of India’s representation to over 40 startups — the first time India had the second-largest representation in a single batch.
“YC going remote has helped make YC more attractive to companies at different stages and far away geographies. For companies in India, founders no longer have to spend three months away from their customers or teams,” it said. “COVID has also taught us that building a program that is remote and more software-based makes YC more accessible to founders around the globe.”
The pandemic played a massive part in Y Combinator going remote and accepting more companies outside the U.S., including those in emerging markets. Africa has benefited from that shift, along with other markets like Southeast Asia.
A ripple effect is that founders unable to make the temporary move from Lagos, Abuja, or Ibadan to Mountain View for three months (as was previously required) are now applying to YC. And getting in.
But there’s more afoot in Nigeria’s rise: The flywheel created by the success of older startups spurred more YC applications from the country.
Flywheels
Four of the six most valuable African startups backed by Y Combinator are Nigeria-based. They include unicorn Flutterwave, Reliance Health, Paystack and Kudi. In the past, founders have been vocal about their YC experiences while sharing application tips with up-and-coming founders. They include Flutterwave’s Iyinoluwa Aboyeji, who now runs Future Africa, a pan-African venture capital outfit; Paystack’s Shola Akinlade; and Reliance Health’s Femi Kuti.
Aboyeji’s Future Africa still reviews Y Combinator applications and invests in some startups before and after they get into the accelerator. Another pan-African fund, Ventures Platform, where Y Combinator’s Michael Seibel is listed as an investor, is also known to invest early in some startups that the accelerator backs.
Startups that get into YC do so on merit, but these are just a few instances where Nigerian startups leverage the relationship between previous YC founders [and local investors] and YC to get noticed by the accelerator.
The gap between Nigeria and other African countries — Kenya had two, while Ghana, Uganda, Sudan and Ethiopia had one apiece — in this recent batch has made onlookers accuse YC of selecting a bunch of startups from a single country while neglecting others in the continent.
While that may seem the case on a surface level if Africa is taken in isolation, it’s not entirely accurate. For instance, Southeast Asia got two countries in the top 10 list (Indonesia with 16 startups and Singapore with 10). Latin America also had Mexico and Colombia with 10 and seven, respectively.
Nigeria’s robust crop of fintechs (nine out of the 18 startups represented in this YC batch are fintechs), the valuation of its portfolio companies, and its position as Africa’s premier VC destination gave it a leg up. But what also appears evident here is that local investors and founders in Nigeria are creating pipelines to connect companies to YC and other global investors, something that’s rarely seen or less effective in other dominant African tech ecosystems.