aabdulrahim

Musk’s tweetstorm has so far given little concrete information on the strategy for the company going forward but he’s indicated two areas of interest. The first is Twitter’s role as a public space for debate, which in turn needs to be protected, and the second is product improvements to help improve “trust” and user experience. This could also include plans to promote a subscription model so it relies less on advertising.

If you find a developer that meets your needs, hold on to them as long as you can. But don't fret if you lose them because it is a sellers' market, and your biggest competition pays in dollars. Lots of dollars.

This raises concerns for the future of local companies building for the local market. How do they hire, train, and retain the best talent to create the innovations we need?

Consider, for example, that the rising cost of talent is not yet matched by increasing consumer spending power.

The net salary recommended by recruitment agencies for a senior full-stack engineer has risen to almost ₦1 million ($2,000) net a month in 2021. Meanwhile, Nigeria's per capita consumer spending has declined in recent years, strained by multiple recessions and a weak currency.

It is an incredibly exciting time to be in Nigeria’s technology startup ecosystem.

Despite widespread economic malaise, Nigeria’s Telecommunications and Information Services, the best proxy for the growth of tech-powered companies in the country, has grown by 57% since 2017, compared to overall national GDP growth of 6%. In effect, the sector has grown ten times faster than the wider economy in the last half-decade.

Yet that’s not the most impressive statistic.

In 2021, Nigeria’s startups raised $1.8 billion in venture capital (VC) funding, more than Kenya and South Africa combined ($1.4 billion). And the money keeps rolling in. In the first quarter of 2022, Nigerian startups raised $600 million, nearly double the amount raised in the whole of 2020 and 80% of the 2019 value. In fact, 2019 is the only year where Nigerian startups raised more than $600 million—the value they have raised so far in 2022.

Everyone is excited. Well, not everyone.

In the last six months, especially as many technology stocks in global public markets have tanked and Nigeria’s domestic economy continues to stall, questions have been raised about Nigeria’s tech ecosystem. Questions not about the growth or impact of startups, but about their valuations. In a hyper-positive ecosystem, it remains a fringe idea, but a few people—mainly ecosystem veterans and investors—are beginning to ask: are Nigerian startups currently overvalued?

These worries are primarily driven by notable growth in the average deal size, especially for early-stage startups. Few people (until recently, at least) query valuations for Flutterwave, Andela, and co, but eyebrows are sometimes raised when an unknown fintech raises a $1.5 million pre-seed round. Five years ago, pre-seed deals would rarely exceed $100,000.

The trend in average deal sizes provides some empirical support to this anecdotal view of deal size inflation. Looking at Partech Africa data on the continent, the average seed deal increased from $1 million in 2018 to $1.2 million in 2021, and the average Series A deal more than doubled from $4 million in 2018 to $8.8 million in 2021.

The valuation conversation is one worth having, if only because it benefits no one in the long run if founders and investors alike buried their heads in the sand. Furthermore, grappling with the issue should help adjacent ecosystem stakeholders like regulators and employees better understand the dynamics of market sizing and the underlying philosophy of startups.

But to properly answer the question, “Are Nigerian startups overvalued?” we need a better understanding of the type of answer that is possible and why the answer is important to the ecosystem.

We tackle both here...

Poverty is multidimensional; but to put it simply, it is one's inability to meet their basic needs and wants. So, food, shelter, clothing, primary education and sanitation—are collectively referred to as welfare. When an individual cannot afford these needs, the person is considered poor. The lack of access to these needs and wants can be monetary or non-monetary. It's monetary when the person does not have the money to afford these things and non-monetary when non-financial barriers prevent you from accessing these needs, like geographical limitations, culture and more.

In the long run, the true financial winners of a new internet built on Web3 will be those who are able to acquire or own key assets and infrastructure (capital)—and unfortunately, like the real world, capital isn’t evenly distributed across the world.