Paystack and Olumide Soyombo: Achieving Lift-Off for Nigerian Tech
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Case study Paystack and Olumide Soyombo: Achieving Lift-off for Nigerian Tech COMPANY Paystack LOCATION Nigeria SECTOR Fintech ANGEL Olumide Soyombo STAGE Seed ENTRY 2016 EXIT 2020 ENTITY LeadPath www.africanangelacademy.com “PAYMENTS GIANT STRIPE HAS BOUGHT NIGERIAN PAYMENTS STARTUP PAYSTACK FOR AFRICAN EXPANSION” – QUARTZ AFRICA On 15 October 2020, the headlines a 1,400% return on investment have to be us again.” emblazoned across every major (ROI) – the largest exit for Nigerian By the time Shola had approached tech news platform carried the tech investors to date. For angel him for seed funding for Paystack same thrilling news about the investor Olumide Soyombo, in 2015, Olumide knew angels Nigerian fintech phenom Paystack. however, the exit was more than a would need to plan on a second The acquisition, reportedly valued lucrative cash out; it was a turning seed, or even a third, to get these at US$200 million, was a big deal point for the Nigerian tech sector startups to the growth round. But – a very big deal. For Stripe, a he had been helping to build out in the years after Olumide became Silicon Valley unicorn with global for more than a decade. Paystack’s first Nigerian investor, ambitions, it represented a major local investors were still slow on the strategic move. They were already Olumide had been part of the uptake, pushing Olumide to become on a growth streak that year, having Lagos tech ecosystem as an one of the most prolific early recently expanded services into entrepreneur since 2008, when he investors in Lagos, where he had five new European markets. The founded Bluechip Technologies, seeded 26 local startups by 2020. acquisition of Paystack – their which offered business intelligence Which is why when Paystack exited largest to date – marked their solutions and services. In 2014, at over US$200 million to one of the official entry into Africa. when he began to see digital world’s most highly valued unicorns, platforms as the key to expanding it sent an unmistakable signal to For Paystack CEO Shola Akinlade the market and scaling services, entrepreneurs and investors across and CTO Ezra Olubi, it was the he decided to become an angel Africa, and across the globe, that realisation of their long-held investor, providing seed funding Nigerian tech was in the game. vision for the company. When they to local startups building software, founded the fintech platform in mobile technologies, and digital In one sense, the deal felt like a 2014, they had not minced words platforms. culminating event for the founders about their vision of building of both Paystack and Stripe: a a “Stripe for Africa”, and now, The experience immediately long-awaited milestone in their Paystack actually was. While opened Olumide’s eyes to the pursuit of financial innovation. But Paystack would still retain its reality of early-stage investment for local entrepreneur-investors operational independence, the opportunities in Nigeria. He already like Olumide, the deal felt like a acquisition was going to power knew from his own founding catalysing event: a starting point their expansion into other African experience that local angel for many more founders in Nigeria’s markets. They had been in Ghana investors were scarce, but he had tech sector. since 2018 and they planned to not realised that the local venture launch in South Africa in 2021. capital ecosystem was equally “When Shola told me about the underdeveloped. deal,” Olumide remembered, “the For investors, it was the kind of first thing I said was, ‘Now we have exit every early-stage investor “There were no investors to pass lift-off’.” dreamed about. Angels who deals onto,” Olumide recalled. “It entered at the seed round in 2016 made us realise that the follow-on were estimated to have earned investors we were looking for would 2 www.africanangelacademy.com REWIND When entrepreneurs succeed, It’s 2008 and Olumide Soyombo has just had his first brush with investment, this time in the role of society as a whole wins, entrepreneur. He had just finished his master’s in business information and technology after studying whereas they almost single- systems engineering as an undergraduate, and there was handedly take on all the risk. no question in his mind that he would be an entrepreneur. He co-founded Bluechip Technologies with Kazeem So entrepreneurship is vital Tewogbade as an enterprise technology company providing vendor-neutral business intelligence solutions, for this continent; data management services, and consulting services entrepreneurs are the ones that would introduce industry best practices into local enterprises. His father made the first seed investment into uniquely suited to solving the the company – an equity deal of US$30,000 for 50% of the company, with a share buyback agreement. major challenges we have.” That same year, Shola Akinlade co-founded his first business: an open-source collaboration software company called Precurio. Inspired by the rise of cloud- based applications, Shola built the Precurio app as a data sharing and storage alternative to Dropbox for businesses in emerging markets. Olumide and Shola crossed paths in 2010 when a mutual friend introduced them. Initially, the Precurio app had been available for free as a download, after which it quickly gained traction and was soon offered in six different languages. The idea was to partner with Bluechip to package the app as a solution for local businesses. Olumide was impressed by the quality of the software, which was evident in the market reception. “To show you how awesome the product was, people were using it in Brazil. From out of Nigeria, people had found it on the web and started paying for it,” said Olumide. By the time Shola left Precurio in 2013, over 200,000 companies were using his software. It was still early days for both entrepreneurs at that point. Shola’s next stop was developing software for local banks. Meanwhile, Olumide was trying to grow Bluechip at a time when business analytics and process automation solutions were still very new in the local market. And so for the next two years, the entrepreneurs focused on their own projects. 3 www.africanangelacademy.com FUNDING THE FUTURE “We wanted to solve a problem in the larger market. I’m a firm believer that certain companies just have to exist in certain ecosystems. An e-commerce player has to exist, a payments player has to exist, an education player has to exist, an API player for payments has to exist.” Before long, Bluechip had become that could distribute customer day to pitch to other investors. With a prominent pan-African brand. risk among a broader client their fund of US$1.5 million, they After securing strategic partnerships base. But it was not just about began making seed investments with leading original equipment solving a problem for Bluechip, or between US$25,000 and US$100,000 manufacturers, the company seizing on a new opportunity as through capped simple agreements expanded into Zambia and the entrepreneurs. of future equity (SAFEs). However, Democratic Republic of the Congo. reality soon set in and Olumide In 2014, Bluechip was recognised by “We wanted to solve a problem realised the model would not work Oracle as their Specialised Partner in the larger market,” Olumide within the current environment – of the Year for business intelligence explained. “I’m a firm believer not yet anyway. and enterprise performance that certain companies just have management operations in Africa. In to exist in certain ecosystems. An For one thing, three months was spite of their success, Olumide had e-commerce player has to exist, a not nearly enough time for the growing concerns about demand- payments player has to exist, an startups to accelerate. Even the side risks. education player has to exist, an API most driven founders with the player for payments has to exist.” clearest visions were constrained “At companies like Bluechip, who by the pace of their corporate were working with all the major Olumide and his co-founder partners, their own expertise, or banks and telcos, our revenue decided they needed to help more the existing infrastructure, which was very concentrated amongst of these companies exist. In 2014, they had to work around. But even a few clients,” said Olumide. “So they made the decision to create when founders managed to make for example, in 2014, Bluechip a special purpose vehicle (SPV) significant progress with a minimum was making about US$5 million in called LeadPath, which would allow viable product (MVP), they faced a revenue, but that was concentrated them to use their profit shares from far more formidable challenge. among two or three clients, so you Bluechip to invest as individual lose one and that hits your bottom angels in local startups who could “We had seen MVPs built, business line immediately.” populate the emerging data models proved, early customers, economy. Initially, they modelled but then no follow-on investor with The rise in mobile penetration and LeadPath after the Y Combinator the cash to propel growth,” said social networks across Nigeria accelerator in Silicon Valley: they Olumide. increasingly drew Olumide’s would provide small seed funding, attention to the data economy and work with the entrepreneurs for platform-based business models three months, and then host a demo 4 www.africanangelacademy.com AN ECOSYSTEM APPROACH “I typically invest in teams that have technical founders because the cost and time to market is reduced since you are not sending that work to an offshore shop to develop and come back,” explained Olumide. “So the technical founder can get things running right off the bat.” Olumide realised that providing “People know me as someone who competitions at local universities, multiple rounds of seed funding writes cheques quickly, and so hosting tech bootcamps and as angel investors, and convincing they direct founders to me, but it’s hackathons, and running internship others in their network to do the not just about the money.