Understanding Startups - What Do They Mean?

When thinking of startups, one’s mind often drifts to Silicon Valley, a land of hoodie-clad founders pitching billion-dollar dreams. But as you know, the startup revolution is no longer confined to California. It has rippled across the globe, making significant waves in places like Lagos, Tel Aviv, and Kuala Lumpur. Nigeria, in particular, has had its own share of these entities, driven by necessity, youthful energy, and a unique blend of ambition and ingenuity.

Take Flutterwave, for instance. Founded in 2016 by Nigerians Olugbenga Agboola, Iyinoluwa Aboyeji, and Adeleke Adekoya, the company sought to address Africa’s fragmented payment systems. Today, Flutterwave facilitates seamless transactions across the continent and beyond, and it boasts a valuation exceeding $3 billion. Its rise illustrates how startups in Nigeria are increasingly built to solve real, systemic challenges, be it financial inclusion, logistics, or access to education.

The term “startup” is typically used to describe private companies in their early stages of operation that focus on innovating new products or services to meet a market gap. Unlike other types of new businesses, most startups have explicit goals of scaling and growth and often seek to disrupt an existing market or industry. To achieve this, they often must raise significant outside capital.

In the United States, companies like Uber revolutionized transportation, and Airbnb turned vacation rentals into a thriving industry. Similarly, startups in Nigeria are carving out niches to address specific challenges.

Take Max.ng, for example, a pioneer in Nigeria’s tech-driven logistics and ride-hailing sector. Its founders saw an opportunity to digitize the informal network of motorcycle taxis, known locally as okadas. Today, Max(dot)ng is not only an efficient logistics platform which has expanded beyond Nigeria, but also a source of livelihood for thousands of Nigerians.

Yet, scaling these startups requires significant investment—a hallmark of the startup journey. Founders often exchange equity for venture capital (VC) funding. However, the odds are steep; less than 1% of startups globally secure VC funding, and even among those, failure rates are high.

The modern notion of a startup gained prominence during the dot-com bubble of the late 1990s, with companies like eBay and Yahoo capturing the imagination of investors. But the concept traces back further. In 1976, Forbes magazine first used the term “startup” to describe fledgling companies in electronic data processing. Since then, startups have expanded into almost every sector, with technology leading the charge.

The top seven companies in the US by market cap—Apple, Nvidia, Microsoft, Alphabet, Amazon, Meta, and Tesla—all began as tech startups. Combined, they are currently worth more than $16T.

In Nigeria, the startup scene began to gain traction in the early 2010s. Companies like Jumia (often referred to as the Amazon of Africa) laid the groundwork for what would become a thriving ecosystem. Jumia’s success, coupled with increasing internet penetration and mobile adoption, inspired a wave of tech entrepreneurs. Many of its staff have gone on to set up startups and businesses. You probably know Chioma Ifeanyi-Eze.

So, how are startups different from traditional businesses? Well, startups operate differently from traditional businesses. Central to their growth is the pursuit of a minimum viable product; a stripped-down version of their offering that can be tested with early adopters. For example, Paystack, the payment gateway acquired by Stripe for $200 million, started with a simple goal: make it easy for Nigerian businesses to accept online payments.

Equally critical is achieving product-market fit, i.e. ensuring that what a startup offers genuinely meets the needs of its target audience. This often requires a feedback loop of iterations, as demonstrated by Kuda Bank, Nigeria’s digital-only bank. By focusing on the unbanked and underbanked, Kuda has rapidly gained millions of users.

While the term “startup” is nebulous, some experts argue that a company is no longer a startup when it either reaches $100M in revenue, has more than 500 employees, or is valued at $2.5B or more.

Globally, startups valued at $1 billion or more are christened “unicorns.” As of December 2024, there were roughly 1,200 unicorns around the world. Nigeria is now home to several, including Interswitch and Andela. These companies highlight the increasing viability of African startups in the global market. However, not every success story is a unicorn. Many startups find their “exit” through mergers or acquisitions, offering a healthy return on investment without necessarily reaching mythical valuations.

While Nigeria has no Silicon Valley equivalent, Lagos serves as the country’s startup hub, offering access to investors, talent, and a supportive ecosystem. The government has also begun to recognize the potential of the tech sector, with initiatives like the Nigeria Startup Act aimed at providing regulatory clarity and incentives.

However, challenges remain. Infrastructure deficits, regulatory hurdles, and inconsistent power supply pose significant barriers. Many Nigerians companies have ‘uprooted’ their registrations and become a Delaware corporation; a company that is registered in the state of Delaware in the United State, but can conduct business anywhere, strictly for regulatory reasons. Yet, some of these obstacles also create opportunities for startups to innovate. Companies like Rensource Energy, which focuses on solar power solutions, exemplify how challenges can drive ingenuity.

The rise of startups in Nigeria is a testament to the country’s resilience and creativity. Much like their global counterparts, Nigerian startups are built on dreams of disruption and a desire to solve real problems. The difference lies in the local context, where founders often operate in environments marked by significant hurdles but immense potential.

As Nigeria continues to nurture its startup ecosystem, one thing is clear: the next Flutterwave or Paystack could be just an idea away, waiting to turn challenges into opportunities and redefine what it means to innovate on the African continent.