Read our interview with Flutterwave founder and CEO Olugbenga Agboola from September 2023, or watch our video interview with Mr Agboola from October 2023.
The past three years have seen the dramatic growth of fintech investment hubs across Africa, as a new generation of start-ups operating in comparatively underdeveloped markets attract ever larger amounts of capital from regional and, increasingly, international investors. As the continent’s most populous country and second largest economy, Nigeria stands out among Africa’s hubs, adding three fintech unicorns in 2021 alone.
In recent months however Nigeria’s fintech scene has been generating headlines for the wrong reasons. Damaging allegations have been levelled against Flutterwave, the country’s largest unicorn to date, and its CEO and founder Olugbenga ‘GB’ Agboola, with employees from other tech firms publicly speaking about the toxic work environment.
Such allegations are unlikely to dissuade international players from flocking to the continent’s high growth markets. Yet such scandals — not to mention similar occurrences in seemingly more developed hubs around the world — highlight the need for improved governance for both local start-ups and those investing in them.
A unicorn’s damaged wings
Founded in 2016 in Lagos, Flutterwave provides customisable payment applications via application programming interfaces to both small and large businesses operating in Africa, while helping international firms — including Booking.com and Uber — expand their business across the continent. Flutterwave’s payment infrastructure has expanded to 34 countries across the continent, processing 200 million transactions worth more than $16bn to date. Around 900,000 businesses globally use the company’s service to process payments in 150 currencies and across different payment modes.
After formally achieving unicorn status in 2021, the company became the continent’s most valuable fintech start-up in February, with a Series B funding round from investors including Tiger Global, B Capital Group, Alta Park Capital and Whale Rock Capital, giving it a valuation of more than $3bn.
Within weeks of that announcement, however, the company found itself the subject of some embarrassing accusations. In early April, Clara Odero, CEO of Kenyan fintech Credrails and former Flutterwave employee, accused Mr Agboola of bullying her over a sustained period, while also accusing the company of negligence that had led to fraud. Flutterwave and Mr Agboola have denied any wrongdoing.
Further allegations were published days later in the local media, including that Mr Agboola had created a phantom co-founder identity with the aim of awarding himself more shares in the company’s early years, and had offered low-ball prices to Flutterwave employees looking to cash in their share options, which in turn went to an investment vehicle under his control.
Flutterwave has dismissed such claims as “false”.
“Flutterwave is a private company, and we have followed all legal processes and procedures to allow third parties, including former employees, to sell their shares to other third parties,” the company told The Banker in a statement.
“As part of our commitment to operating an ethically responsible company in compliance with all applicable laws, we take claims of this nature seriously and act when appropriate to maintain high workplace standards.”
Governance woes
The allegations have amplified concerns over work culture and governance across the country’s booming fintech sector. Allegations about a toxic workplace culture at fellow Nigerian fintech start-up, Bento Africa, in the local press (again denied by the company) saw the hashtag #HorribleBosses trending on Twitter in Nigeria as workers in the tech sector shared stories of bullying and sexual harassment.
“Governance issues are not unique to start-ups in Nigeria or Africa, nor can they represent an entire ecosystem’s behaviour,” says Vishal Agarwal, chairman and CEO at Kenya-based venture capital firm Full Circle Africa, highlighting recent failures at Germany’s Wirecard and India’s BharatPe as failures of governance in far more developed investment environments.
“Africa’s fintech hubs are at a much earlier stage in their lifecycle than hubs elsewhere in the world, so of course there’s a lot of work that still needs to be done,” he adds.
Concerns over governance within the fintech community have perhaps understandably taken a backseat in Nigeria given the sheer speed of the sector’s growth in recent years, according to Raj Kulasingam, senior counsel at Dentons and an angel investor with Mr Agarwal in African start-ups.
“In the past three years, there’s been incredible growth in Nigeria’s tech sector with the likes of Flutterwave and OPay becoming unicorns very quickly,” he told The Banker.
“When the sector is growing so rapidly, it’s only natural that there will be growth pains as part of the natural evolution of the ecosystem. One of the things Vishal and I have been pushing for a number of years is better governance, transparency and regulation for the ecosystem as a whole, not just the start-ups themselves; particularly fund managers who are managing third-party money need greater scrutiny and tighter regulations,” Mr Kulasingam says.
With international money pouring into African fintechs, it is particularly important for investors based outside the region to take a hands-on approach with the firms they invest in. They can do that by leveraging credible local investors in the cap table, says Mr Agarwal.
“Of course, it’s big news when international players come in and invests millions of dollars in African companies, but it represents a very small percentage of their overall portfolio,” he says.
“At the end of the day, [international investors] often don’t have the bandwidth to really scrutinise how the money is being invested and to really work with these companies on improving their standards in this area. Collaboration with African investors and advisers therefore is all the more important,” he adds.
Invested interests
Controversies at Flutterwave and Bento Africa have thus far had little impact on international investors’ engagement with local fintechs. Point-of-sale terminal providers, payments firm Interswitch and insuretech Etap are among the Nigerian fintechs to have announced international funding since the allegations against Flutterwave were first made public.
New York-based hedge fund Tiger Global, one of the lead investors in Flutterwave’s February fundraise, was one of the largest participants in $15m-worth of funding for Namibian business-to-business e-commerce retail platform Jabu, announced in late May.
Tiger Global declined to comment on whether the recent Flutterwave allegations would impact its investment strategy on the continent.
Even as valuations in Nigeria and elsewhere rise, international appetite for the country’s fintechs shows little sign of running out of steam, says Mr Agarwal. “While valuations are much higher than they were three years ago, they haven’t yet reached Silicon Valley-levels yet,” he says. “Investors are still willing to invest in these companies, as they’re solving real problems and operating in a big market with many opportunities. If a company can gain traction with a good team and a good business case, people are going to invest.”
