I was speaking with a very old friend of mine this weekend (I’ve known him since I was like 13 or something), and one of the founders of a Spark backed company, Lanre Akinlagun Founder of Drinks.ng. I asked him how things were. His response. Hard.
I smiled. Of course they’re hard. What did you think this was?
He actually responded that no one told him it be THIS HARD. I have said before and will always say, startups are bloody hard. Like really, really hard. There are very few short cuts if any to success. Whether you have a lot of capital or a little, building an actual company is bloody difficult. And it takes time. I would budget 5 years at least. The most intense period is the start, especially in the first two years as you fight for survival. At the beginning, most startups spend all their time fighting for their survival. Every minute, hour and day. Grinding. Hurting. More grinding. Boring, frustrating and more grinding. You can easily put in 100 hrs per week for 52 weeks in a year and end up with almost zero monetary output. Oh and you are overwhelmingly likely to fail.
Lanre has been grinding things out at Drinks and for all his efforts his 5 person team are generating (and have been for some time) 5-figure-USD monthly revenues across a wide array of channels. He has quietly built one of the most promising startups at Spark.
Lanre has worked in startups. But working for one and building one up is completely different. I’m a relative veteran at attempting to build startups. In fact, I am in my 10th year. I started whilst still at university in Manchester in 2003. I have seen the guts of 20+ startups in that time. 50% failed within the first 2 years, for all manner of reasons. But the chief reason is lack of revenue. So when building or investing in startups I like to see linear revenue models. And suitable funding where possible.
I was telling Lanre that I have been a founder for most of my startup career. But now I am learning slowly but surely how to be an actual CEO, they are fundamentally very different roles. It’s only in the last 6 months I have understood the distinction. But a distinction there is. I have a post on that in my drafts and will hopefully finish that this week.
Nonetheless, startups are the new sexy. They shouldn’t be. I hear so many people tell me about wanting to ‘try’ building a startup in their spare time or for 6 months. That is a loser’s attitude. I think more stories should be told about the realities of starting a company. It’s been known to drive people to suicide. Startups in Nigeria are harder, more intense and the success less certain. My universal thesis is that frustration is the fuel of entrepreneurship. It’s supposed to be hard hence the upside is considerably more non-linear. There is an immortal line in game of thrones:
When you play the Game of Thrones, you win or you die.
Startups are exactly the same. You win or your startups die. It’s simply binary. It’s simply brutal. No sexy here. Just years of stress, poverty and hardship. If you want to sign up, I applaud you. But it’s a full contact sport. And the grind is all you have. The trend to immortalise startups is a bad one. It will bring feeble minded wantrepreneurs into the mix. The trend also creates another, darker scenario. Lying. I have found that there is a fair amount of lying, smoke and mirrors in the sub-saharan African tech space. Spinning is different from lying. Lying is outright lying. And because I know people in all sorts of situations and scenarios, I can usually parse out the facts from the fiction. An emerging ecosystem doesn’t need that. Especially in Nigeria where people think we are land of crooks.
Anyhow, I remember in the lonely grinding days working so intensely at times, I thought I could hear my own thoughts.
You should definitely read: The Psychological Price of Entrepreneurship
Photo credit to EMMANUEL OYELEKE PHOTOGRAPHY
Nope. Not even close to it. There has been a chorus of all types of strange sayings recently about the imminent demise of iROKING platform and aggregation business. But then for the first time in over a year I actually looked at the revenue numbers. Although there are a number of issues I cannot address here, there is one I most definitely can. IROKING is not dead. It is still very much alive. Revenues are my metric of business success and iROKING has recurring scalable revenue. iROKOtv had its 2nd birthday yesterday. Today I am taking the reigns of iROKING. As the CEO. My baby has found its home with its founding father. Me.
In May 2011, I founded what became iROKING. All the early pitches I did myself. I had a 2 person team of executives supporting me but all chips were with me. I remember making myself ill sitting in traffic and running around Lagos trying to sign up musicians to the digital platform of the future. iROKING. I didn’t name iROKING though that has to go to Thelma or Henry who were working with me at the time. Those were brutal times pre-Tiger funding. NollywoodLove was profitable so we had the cash flow. I got so ill in fact I had to fly back to the UK to seek medical help. So after founding a company and hiring a CEO several months later to do a job and allowing me to take a back seat, I have had little to no input for the last 18 months. It was much easier to keep the iROKING narrative and communication separate whilst building the iROKOtv brand. Now, levels have changed. I am less of a founder now and more a CEO.
But now, all things considered, iROKING needs its principal promoter, its founder, its creator to step in and reiterate why it is still arguably the most valuable digital distribution platform on the continent. I have spent the last few weeks re-engaging with the remaining members of the iROKING team and trying to understand the business we have collectively created to date. There is a new, simple strategic vision.
Building a platform
Currently, iROKING has several hundred musicians on the platform. We distribute their music across third party channels (YouTube, Dailymotion, iTunes, Spotify et al) as well as our own platforms we operate too, including m.iroking and iroking.com and our Android, Asha and W8 apps. Today, the business in the last 2 years has easily paid out over $1Mn in minimum guarantees and revenue share to musicians. The business generates tens of thousands of dollars monthly for the music industry at large. We have done this by simplifying multi-platform digitisation and distribution at a scale which makes it almost free for us to do this.
Across the entire network of platforms, iROKING reaches 5Mn uniques per month. 1Mn of those are on our own platforms alone. That is actually double the reach of people than iROKOtv gets. Full Stop. The only difference is that we make huge amounts of money on iROKOtv and considerably less on iROKING. There are strategic and industry structural issues which determine that. But, nonetheless, I would argue with anyone that month-on-month cash flow-wise, there is no other music startup which comes close our monthly cash flow. None.
iROKING is still unprofitable. It is something I don’t lose sleep over as typically when you are building and growing something you are usually happy to forgo short term profits for longer term strategic and economic advantage. Then we plan for significant profits later. As a subsidiary of iROKO, iROKING still benefits from our super strong balance sheet and as the CEO of iROKO (and now iROKING) I have all the authority to do as I see fit to build the most awesome music startup in Nigeria. Patiently.
People talk about the threat of Spotify, Deezer how all the music startups are going to die. We see it differently. We already distribute, and for some time have been distributing, via Spotify. What the bloggers may see as competition, we see as something completely different. But time will tell whether I am right or wrong. That’s the great thing about the business of startups. You are either right or wrong.
Focus on monetization.
iROKO has the most awesome team at monetizing Nigerian content online. We have built a multi-million dollar business in 2 years, distributing movies on iROKOtv. In 2013 our largest source of revenue is iROKOtv PLUS, our $5/mth subscription service. We have institutionalised managing and taking tens of thousands of payments directly from fans globally. Of the overall revenue, iROKING represents a mere 15% of our annual income, whilst at a monthly reach of 4Mn, 75% of our 6Mn unique per month reach. That for me is opportunity. Again my focus is to bridge that gap. In the end I founded iROKING. I know what it took to build the business we have today. iROKING is no longer a startup. It has recurring revenues, several hundred artist relationships and a lot of potential to live up to.
In the end the company that generates the most revenue for the industry at large will stay in the game. Those who do not, will not. It’s that simple. I like simple things. IROKOtv was built on such a mantra.
I am super happy to be back in the driving seat and ready to make a little dent in the Nigerian digital music universe.
Founder and returning CEO of iROKING
In finance, diversification means reducing risk by investing in a variety of assets. If the asset values do not move up and down in perfect synchrony, a diversified portfolio will have less risk than the weighted average risk of its constituent assets, and often less risk than the least risky of its constituent. Therefore, any risk-averse investor will diversify to at least some extent, with more risk-averse investors diversifying more completely than less risk-averse investors.
di·ver·si·fy (d-vûrs-f, d-)
I was having lunch a few days ago with a pan African VOD owner. We were waxing lyrical about all things internet startup related in Africa. Swapping war stories from East to West Africa. She relayed an oft mis-understood view point that Spark was created as a way to diversify away from iROKO and that well placed sources had indicated that this was the thinking behind its creation. That she understood the motivation. The only problem was I didn’t understand. If you literally look at any definition of the word diversification especially in the context of business / finance it involves reducing risk by investing in a variety if assets.
How does one diversify into the exact same asset class. Nigerian internet startups, whose value for all intents and purposes move in perfect synchrony. More importantly the assets are illiquid. Now I have been known as many things. Commercially stupid wasn’t one of those (at least to my knowledge).
Anyone who knows me or reads this blog will be aware that I spend a significant amount of time reading books and annual reports of listed companies from indices globally, I routinely circulate these to my team members at IROKO. Anyhow. If one wanted to diversify, considering I have been casually reviewing property prices in Lagos, NYC, London, JoBurg and Cape Town, surely diversification would mean moving beyond the ‘Nigerian internet asset class’.
To those who may not be aware other asset classes include - property (globally), equity markets (globally - LSE, BSE, NASDAQ, NYSE, AIM), fixed income (treasury bills or gilts) - I am fully versed on such things, Bastian was an oil trader at BP for six years and I have friends in private wealth management. So whichever way one slices or dices it there are zero ways one ‘diversifies’ within the same asset class (Venture Capital - Startups) - Nigerian internet startups. Especially in illiquid assets. The only conclusion I can come to are those who use the term or think as such don’t fully understand what it actually means. Which is very common in this part of the world.
Nonetheless. Here we are. Mis-understanding aside. The simple fact was Spark was founded because Bastian and I felt there was a once in a lifetime opportunity to build the next generation of monster African internet companies. Today. Not tomorrow. Every company Spark has invested in has the opportunity to grow into $10-100Mn valued independent entity. It will take at least 5 years to get there. Minimum. We are not the only ones who noticed this alpha. There is a reason Rocket Internet are pouring money into the Nigerian internet space. There are few markets of this size with little to no real monied competition. In any other 100Mn+ populace emerging market’ Russia, Brazil, China or India Rocket backed companies face ferocious ventured backed competition. Expensive and brutal competition. In Nigeria? Very much less so. Chika Nwobi was definitely one of the first to seize the Nigerian digital opportunity and sits comfortably at the epicentre of the classified surge. Jobberman and Cheki dominate their respective spheres. He was there early. To replace them would be difficult and bloody expensive. One Africa Media company and their $80Mn valuation has shown the value here. To the victor goes the spoils.
Once upon a time in 2009/2010 I happened across a massive massive mis-aligned and completely untapped opportunity. But a brutally simple one. Distributing Nigerian content online. It was there for everyone to see. Anyone who would bother to look. But for whatever reason they didn’t. I was able to exploit it with zero competition. iROKOtv is the result of that. Where I currently spend 98% of my time and energy. I remember lucidly how I was looked down upon by the elite expat Nigerians as I was playing around with Nollywood.
Bastian and I placed our chips on a mega trend which is the Nigerian internet world. It wasn’t a diversification. It was everything on black. We started at $50k and have gone deeper and deeper up to $300k per startup today. If required, we will still go deeper. What we do today will have significant impact in 3-5 years time. Spark as a group and as a separate entity will be worth $10Mn (value at last fund raising) or $250Mn in the next 10 years. The value will be somewhere in that range. Today I am a fool for thinking such. Time will show me a pioneer or a fool. I am happy with that.
One day I am going to start a mini hedge fund, investing in globally listed (read liquid) Technology, Media and Telecommunications companies. That, my friends, is diversification. Or perhaps I could just buy some land in Lekki.
Now back to the grind. Everything else is noise.
The fastest way to legitimise dubious wealth is via property. Hence Lagos’ property market makes absolutely zero sense to me.
I have just returned from an 8 day trip to SA. I was in Houghton Estate in JoBurg (one of its wealthiest suburbs in Johannesburg), I then went onto spend several days in Camps Bay in Cape Town, again said to be one of the wealthiest suburbs in South Africa, hence arguably some of the wealthiest places to live in Africa. Full stop. It got me thinking about the value of things in Lagos where I have been half looking to buy a place in the next few years. I wondered. What would a $1-2MN get you in these places compared to Lagos.
To say I was shocked at what $1Mn (USD oooh) can get you in Lagos vs Cape Town and JoBurg is a massive understatement. It actually demoralised me to seriously thinking of never buying a place in Lagos. Ever. Of course my wife would have none of that.
This property isn’t gated. Its definitely not new. But its priced at around $1,000,000
Off Awolowo Road. Ikoyi. $1,250,000
This is the same neighbourhood where Nelson Mandela has his family have a home. The house below will set you back $1,185,604
With Atlantic ocean views and awesome mountain scenery, Camps Bay in Cape Town is simply the most un-African location I have ever come across. $1,136,678
I will leave you to judge, but from my humble experience, Lagos property prices are simply absurd. There is obviously something else driving the prices up. In South Africa there are the largest banks in Africa. I believe the Standard Bank market cap is larger than the entire Nigerian banking system. With the most structured banking system. There is huge liquidity in the system too, so getting credit in SA is not a problem. Mortgages are common and in abundance. In Nigeria, it is the complete opposite. Finance Minister Ngozi Okonjo-Iweala this year announced there that there was less than 20,000 mortgages in Nigeria, a country of 170Mn. There is no real credit system here. The banks simply refuse to extend it. I thought it could have been the churches - they definitely have a significant impact on the local housing markets, but not enough to drive the prices upwards. The above values make no sense.
Where is the money coming from?
How can there be a massive inflation in land and property prices in Lagos if the credit system isn’t driving it? And in every market I have looked at, relaxed credit usually drives price inflation. London, NYC, Tokyo etc. Except when the money isn’t clean. London has become a mecca for emerging market billionaires to clean their ill gotten gains away from the scrutiny of their home markets. I believe dubious money is driving up the price of everything in Lagos. If you steal / obtain $20Mn via dubious circumstances, where can you actually put it in Nigeria today? The equity markets are difficult and high risk. Capital exportation is less easy and in the West, anti money laundering legislation means it’s increasingly unsafe to park cash there. The banks (cash can be easily seized) in Nigeria are still happy to freeze accounts if your wealth is challenged. But in property, you can easily hide $20Mn in a few transactions across housing estates in Lekki or several plots of land in Ikoyi or Ikeyi GRA.
In London, it’s a problem
Matt Griffith, an associate fellow at London’s Institute for Public Policy Research, notes another, less virtuous draw.
“It is a very easy way to launder money,” he says. “It is a way to legitimize dubious wealth and to do so on a very large scale, which is hard to do with other types of assets.”
All the government contract money. All the oil money. All the drug money. All the maga don pay money. All the tithes of the devoted money. All the GDP altering corruption money is basically ending up in property, completely distorting the market, making it nigh on impossible for anyone to get onto the property market. Or demotivating legitimate folk like myself.
Lagos is Lagos is Lagos. To understand things you have to be here. Just my thoughts.
At Microsoft there used to be a saying that if you throw more developers at a problem, it doesn’t necessarily speed up its development. Things are usually ready when they want to be. Throwing more people at it doesn’t change anything. In fact, smaller more focused teams have demonstrated themselves able to outdo larger teams over and over again. In essence the edge for all startups is their nimbleness.
Patience people. Patience. It’s not a virtue. For a startup founder it’s a necessary skill to be able to identify when to speed up business and customer development and when to slow down to improve your product or measure and recalibrate your approach. For the first 2-3years, you are supposed to constantly be in experimentation / iteration mode. Constantly breaking stuff to figure out where the alpha is. Stopping, starting and stumbling are just natural courses pretty much every startup takes and are usually twice as expensive as you originally budgeted. iROKO has seen some pretty torrid growth over its 35 month history, but there is still a very long way to go. I read an article on Techcrunch a few months back where it gave the average success time for internet startups at 7-10 years. That should give you some indication of how long you should expect to serve your startup to be considered truly successful. Success in startup world today is usually considered $80Mn in annualised revenue growing at 20-50% yearly.
Most startups will never get there. That’s fine, there are varying degrees of ‘success’ in the lower regions. But for true IPOable success you need 7-10 and $80Mn in revenue. Simple.
I have heard many people say they will ‘try the startup for 6months’, I think that’s setting oneself up for failure. You need to remove ALL options for yourself. Hunker down as the world refers to you as a loser and build something so awesome that in 10 years time your wee little startup seed becomes a beast which helps you fulfil all your desires.
So I have been in South Africa for the last week. From my keynote at Discop last week to a nice little feature on CNBC Africa, on this trip I have been in JoBurg, Durban and now in sunny Cape Town. Yesterday I had a bit of a down day so decided to go andvisit the good people at startup incubator 88MPH. The picture above is of their Nairobi office so I didn’t get the chance to see it real time.
Nonetheless it was an interesting visit, unfortunately the person I originaly communicated with wasn’t around but Dan Bowyer made me feel welcome enough. We discussed all things startup related in Africa. How the differing hubs are positioning themselves, what type of companies are being funded etc etc. During this conversation I finally realised how aggressive Spark had been in terms of funding companies. There are very few incubators who are happy to fund companies more than $100,000 in the the first year. We have 5 startups who have gone beyond that. There were other distinct examples and differences between how our incubators operate. I think there is an important role for funds like 88MPH in any startup ecosystem. Their initial investment is $25k. We are getting to the stage where anything less than $100,000 first in would be very useful to us. We simply don’t have the capacity.
* 88MPH fund ideas. Spark funds founded companies.
* 88MPH leads with technology and product-centric founding teams. Spark primarily leads with market and business development founding teams.
* 88MPH are small <5 product teams. The contrast with Spark companies who employ a lot of people to execute. ToLet have 42 employees, Hotels ~30 and Bus ~22.
* 88MPH fund up to $100,000 then stops or spins out, Spark has funded up to $300,000 per startup to date, but will probably be happy to fund >$1Mn over 2014/15
* Because of their pan-African nature they look at broader markets. Spark focuses on Nigeria. Sequentially. Lagos first. Most of our startups should be able to break even from their Lagos operations
* Spark have very firm and aggressive break-even targets. With $200-300k invested we expect our companies to break even with 18 months from first money in. A couple are within 30% of reaching that number and should definitely do so by Q1 2014.
Capital is a coward. It doesn’t need too many excuses NOT to invest. African capital is a wizard. It is literally invisible. I have a healthy respect for anyone actually deploying startup capital in Nigeria today. Dan asked me if we were competitors. Today the market and capital are our problems, not each other. It’s not zero sum. I can’t fund all the startups. No capital for that. I am feeling positive today but only time* will tell whether we are frontier pioneers or fools.
*Time and some significant ROI on the 88MPH or Spark companies.