Global investors scramble for Nigerian fintech start-ups

…as more local firms lose ownership 

Nigerian startups have continued to attract the attention of global investors looking for the next big African opportunity to invest in, Business Hallmark findings can reveal.

According to BH findings, many local startups have been bought over by foreign investors and venture capitalists from Europe and America, who have been snatching them up in an effort to gain a foothold in Nigeria’s growing technology-driven banking, telecommunications, ticketing and health markets.

While many of the original founders and investors of successful and internationally recognized startups have become extremely wealthy from the injection of foreign capital into their companies, virtually all of them have lost or are on the verge of losing control of the firms they built from scratch to outsiders.

From Paystack, to Healthplus,  Interswitch, Jobberman, and Jumia, many Nigerian startups are no longer owned and controlled by their Nigerian founders,  despite still  being referred to as Nigerian companies.

One of the biggest casualties of foreign interests in Nigerian startups are two Nigerian-born computer science graduates and entrepreneurs, Shola Akinlade and Ezra Olubi. The two friends founded  Paystack, a financial technology (fintech) firm in 2015 to provide online and offline payment solutions to businesses across Africa.

The company quickly grew in strides, becoming one of the leading fintech firms not only in Nigeria, but Africa. In November 2020, the British Broadcasting Corporation (BBC) News reported that Paystack processed over 50% of all web payments in Nigeria and served over 60,000 organizations, including FedEx, UPS, and MTN.

Lose of Ownership

BH findings revealed that despite the astuteness and managerial abilities of its founders, Paystack’s exponential growth is largely aided by the massive support it received from outside the country.

For instance, Paystack received  seed funding of $1.3 million in 2016 from two Silicone Valley investors, Tencent and Comcast Ventures, to expand its business.

The Nigerian startup also secured $8 million in a Series A funding round from a consortium of investors led by American company, Stripe in 2018. Two world renowned firms, Visa and Tencent, also participated in the funding round.

Paystack has since gone on to process online and offline transactions for millions of companies and individuals from around the world, especially those wanting to send money to and from Nigeria.

With the stupendous wealth  streaming in from the company’s business activities, its founders lived a very comfortable and cosy life. The co-founder of Paystack, Ezra Olubi, particularly lived a loud and ostentatious life extensively covered by the media.

It, however, came as a shock to many Nigerians when news broke recently of the suspension and later sacking of Olubi by Paystack’s board for allegations bordering on sexual assault.

Many Nigerians questioned how possible it is for a founder of a company to be suspended and later sacked from a company he co-founded.

But what most of the commentators are not aware of is that Stripe, the American company that initially arranged a seed funding of $8 million for Paystack had outrightly purchased the company for a fee in the region of over  $200 million in 2020.

Though Akinlade and Olubi were retained as CEO and COO respectively by Stripe to continue to run the company after buying them out, Stripe, which already had a leg in Paystack after it helped it to secure funding in 2018, is the ultimate power behind the company.

The unceremonious exit of Ezra Olubi from the company he had helped birthed is a sad commentary of how Nigerian founders are daily losing their companies to foreign investors.

Like Paystack, another company founded by Nigerians entrepreneurs but no longer belonged to them, is Jobberman, Nigeria’s number one recruitment website purchased by One Africa Media (OAM).

In November 2021, Messers Ayodeji Adewunmi, Opeyemi Awoyemi and Olalekan Olude, who founded the firm when they were still studying at the Obafemi Awolowo University (OAU), Ile-Ife in Osun State,  announced that OAM group had acquired 100% stake in the company for over $10 million.

“We started Jobberman with the vision of being the No. 1 destination for jobs in Africa; a mission we continue to work toward.

“With the additional funding provided by OAM, and the new group designations, we are better poised to achieving this goal and also growing other sister companies of Jobberman in the OAM group.

“We can now go on to conquer Africa and keep a firm grip on Nigeria, which is Africa’s most populous nation and largest economy”, one of the founders, Adewunmi had said in a statement announcing the acquisition back in 2021.

A South African based company, One Africa Media, owns and operates a portfolio of leading online marketplaces across jobs, cars, real estate and travel. Its businesses operate in Kenya, South Africa, Ghana, Uganda, Tanzania, Zimbabwe, and now Nigeria. It offers exposure to growing markets using internet and mobile apps.

It Gets Bigger

Another successful Nigerian startup that has been taken over by a foreign company is Interswitch, established in Lagos in 2002 by Edo State born  Mitchell Elegbe, who developed the idea of Interswitch after using an Automated Teller Machine (ATM) for the first time in Scotland, the United Kingdom.

Initially set up as a transaction switching and processing company with a focus on Nigeria, Interswitch soon evolved into an integrated payments and digital commerce platform, especially with the successive launching of Quickteller, a retail payments ecosystem linking merchants and billers with consumers, as well as Verve, a homegrown, EMV-certified payments card scheme.

However, Elegbe and his team lost control of Interswitch in 2010 when they sold 70 percent of the company to Helios Investment Partners, a United Kingdom based private investment firm managing funds totalling $3.0 billion.

Originally wholly owned and controlled by two Nigerian-born British citizens, Tope Lawani and Babatunde Soyoye, the duo diluted their equity in Helios in July 2010 when it opened its doors to a new partner, Fairfax Africa Holdings Corporation to create a pan Africa-focused alternative investment manager – Helios Fairfax Partners Corporation (HFP) that is traded on the Toronto Stock Exchange under the symbol HFPC.U.

With the dilution of ownership, several partners are now represented on the management and board of HFPC.

They are the two co-founders,  Lawani and Soyoye, who are the company’s Managing Partners/Members of Executive and Investment Committees.

Others are Tavraj Banga, Partner & Co-Head (Climate); Christopher North, Partner & Co-Head (Climate); Zineb Abbad El Andaloussi, Partner, Investment Team; Dennis Aluanga, Partner, Portfolio Operations Group; Paul Cunningham, Partner/Chief Financial Officer; Luciana Germinario, Partner/Chief Operating Officer and Member of the Executive Committee; Mark Hartmann, Investment Advisor/Member of Investment Committee; Nitin Kaul, Partner/Head of Portfolio Operations Group and Member of Executive and Investment Committees, as well as Henry Obi, Partner/Public & Regulatory Affairs/Member of Investment Committee.

Though BH can not  independently verify the claim, sources in HFPC revealed that while Lawani and Soyoye currently manage the company, they now share power with the partners, who are major shareholders and are on the board of HFPC.

Another Nigerian entrepreneur, Mrs. Bukky George, has been fighting to retain ownership of HealthPlus, a leading pharmaceutical chain she founded in 1999.

Always The Same

George’s travails began in 2018 when she received funding from a UK based private equity firm, Alta Semper, to be injected in HealthPlus for its expansion.

According to the terms of agreement, Alta Semper is expected to invest $18 million in HealthPlus in two installments of $ 9.4 million $8.6 million

However, dispute arose after  Alta Semper, which had  provided the first tranche of $9.4million in March 2018, failed to provide the second installment of $8.6 million as agreed.

Owing to the inability of Alta Semper to provide the second tranche of funds, Mrs. George reportedly looked for funding elsewhere, incurring huge finance cost in the process.

However, Alta Semper moved in to seize HealthPlus from Mrs. George after accusing her of financial inappropriateness. The UK firm claimed it owns 51.1% stake in HealthPlus going by the agreement it signed with its founders.

However, industry stakeholders, who are aware of the deal, alleged that George was tricked into transferring 51.1% stake in  HealthPlus to Alta Semper.

“After paying the first tranche, Alta Semper could not complete the second tranche due to the outbreak of Covid19 and its negative effects on the economy of many nations.

“Even, the original fund it (Alta Semper) raised through two family businesses came at a very high cost. Unfortunately, Covid19 struck and the families were not able to provide the second tranche.

“Unfortunately too, Alta Semperare struggled to find new funds at lower costs, prompting George to declare the deal invalid.

“Alta Semper’s decision to recover its funds trapped in  HealthPlus must have instigated its decision to seize control of the company from George.

“There is a little bit of desperation and opportunism on the part of Alta Semper, who I think entered the arrangement with a very ulterior motive.

“Thankfully, Nigerian courts have made it very difficult for Alta Semper to take over the firm from the back door from Mrs. Bukky George. Her saving grace is that Semper was not able to complete the payment that would have pushed it equity from 26.2 percent to to 51.1 percent”, the source, who begged for anonymity informed our correspondent.

In the same vein, the two original co-founders of e-commerce giant, Jumia, Tunde Kehinde and Raphael Afaedor, both left the company in 2015.

Till date, the real story behind the exit of the two Nigerian tech entrepreneurs from the promising company they jointly set up with Jérémy Hodara, a French citizen and Sacha Poignonnec, a French/Canadian citizen, has not been told