According to the 2017 Global Startup Ecosystem Report (GSER) released by Startup Genome, the Lagos startup ecosystem is worth US$2 billion, making it the most valuable startup ecosystem on the continent.
For startups, Lagos, appears to be a land of promise with its huge addressable population of over 20 million people and a tech ecosystem that’s bursting with energy and dynamism.
Lagos is the most valuable despite only having an estimated 400 to 700 active startups, much fewer than the up to 1,200 in Cape Town—the largest startup ecosystem on the continent.
The Africa section of the global report focuses only on Lagos, Cape Town and Johannesburg, with Nairobi conspicuous in its absence. Nairobi is recognized as one Africa’s major tech capitals with a leadership in mobile platform technology globally. Startup Genome did not respond to Quartz’s queries about Nairobi’s exclusion from its report.
Nairobi’s exclusion aside, the report does shed light on several metrics not often measured including ecosystem value, early-stage funding and average salaries for software engineers.
Asides from being the most valuable, startups in Lagos also receive the highest average early-stage funding, compared to Cape Town and Johannesburg. But, at $77,800, early-stage funding available to Lagos-based startups pales in comparison to the global average of $252,000. Although not included in the report’s analysis, Nairobi, Kenya, alongside Nigeria and South Africa, is regarded as one of the continent’s leading destinations for startup investment dollars.
But for the software engineers tasked with getting these startups to work and deliver on their promise, the reality is quite different. While being in Lagos can prove a fruitful for investors and startup founders, it’s not as lucrative for the software engineers. Compared with their counterparts in Johannesburg and Cape Town, software engineers is Lagos are paid more than $5,000 less.
Ismaila Sanusi, founder of CoLab, a Nigerian tech hub for developers, suggests the disparity is linked “the size of the markets” where startups operate. “While we may have the numbers population-wise, South Africa actually has a much bigger market,” Sanusi told Quartz. “The smaller market means that startups here don’t earn as much and as a result can’t pay as much.”
The market size for startups in Nigeria was put in perspective when Kinnevik, the Swedish investment firm which owns a 34% stake in Konga, one of Nigeria’s largest online retailers, published its financial reports for the second quarter of 2016. After four years of operations and millions of dollars spent in advertising, Kinnevik’s report showed Konga’s active customer base was just 184,000—far less than 1% of Nigeria’s total population.
There might also be another reason for the salary disparity of software engineers in Nigeria, Sanusi says. “The very best ones freelance, because startups mostly can’t afford them and it makes more sense economically for them to freelance.”
“In the global comparison, Lagos is one of the weaker performing startup ecosystems to date. It is comparably isolated and inexperienced, but it has low cost engineering talent, who speak great English — assets that could enable them to increase their global integration,” the report stated.
It added, “We anticipate more headlines from Lagos as they work to establish themselves as a hub for startup investment and innovation over the next few years.”
While the Lagos Startup Ecosystem came tops in terms of value, Cape Town got the “largest startup ecosystem on the African continent” status with between 700 – 1,200 active technology startups. Other important findings are bulleted below.
- One third of startup founders in the city have gained at least two years of prior experience in a fast-growing startup, making them 5% more experienced than the global average.
- Cape Town’s startup ecosystem is valued at US$172 million.
- Cape Town startups have one of the lowest utilization rates of startup advisors in the world, with only 0.85 advisors with equity per startup.
- US$20.2k is the average amount raised by early-stage startups in Cape Town with its growth index pegged at 4.8, and Experienced VC index pegged at 5.3.
- 17% of startup founders are women while 18% are immigrant founders.
- The percentage of Experienced Software Engineers in the ecosystem is 76, with the average salary of Software Engineers being US$20.1k. It takes 53 days to hire a software engineer in the city.
Another South African city, Johannesburg, also featured in the report, doing better than Lagos and South African in terms of products its startups are churning out; 27% are offering a product that is the first of its kind globally.
The city’s startup ecosystem is second to Lagos in terms of value (US$1.36 billion), and has more female founders than Lagos and Cape Town at 25 percent. At 67%, the city has the 3rd highest percentage of startups that experienced positive corporate interest and involvement.