Beyond the Startup Act: Nigeria needs a secondary market for businesses

In the twilight of the Buhari administration, the super minister – Sheikh Pantami got a few bills signed pertaining to his huge portfolio. One such successful bill which became an act is the Nigerian Startup Act 2022.

Part I of the act states its objectives as to:

• Provide a legal and institutional framework for the development of startups in Nigeria;
• Provide an enabling environment for the establishment, development and operation of startups in Nigeria;
• Provide for the development and growth of technology-related talents; and
• Position Nigeria’s startup ecosystem, as the leading digital technology centre in Africa, having excellent innovators with cutting-edge skills and exportable capacity.

According to Part IV of the Act, a startup shall be so labelled (issued a certificate by the government to that effect) if:

• It is registered as a limited liability company under the Companies and Allied Matters Act, and has been in existence for a period not more than 10 years from the date of incorporation ;
• Its objects are innovation, development, production, improvement, and commercialisation of a digital technology innovative product or process;
• It is a holder or repository of a product or process of digital technology or the owner or author of a registered software;
• It has at least one-third of local shareholding held by one or more Nigerians as founder or co-founder of the startup; and
• In the case of a sole proprietorship or partnership, it satisfies the conditions set out in paragraphs (b), (c) and (d).

In Part V of the Act, the core incentives are mapped out viz:

1. There is established The Startup Investment Seed Fund (in this Act referred to as “the Fund”) to be managed by the Nigeria Sovereign Investment Authority (in this Act referred to as “the Fund Manager”).
2. There shall be paid into the Fund on an annual basis, a sum not less than N10,000,000,000 from sources to be approved by the Council —
3. The Fund shall be applied to —

• provide a labelled startup with finance;
• provide early-stage finance for labelled startups on the recommendation of the Fund Manager subject to the approval of the Council; and
• provide relief to technology laboratories, accelerators, incubators and hubs.

Now, since the signing into law of the act, I have had my concerns. I had challenged a few friends on the necessity of the act – the Startup Act. I don’t know whether that is how it is done elsewhere or whether we are being exceptionally innovative here. Startups by their very nature are meant to be very independent of government. They are companies set up by independent-minded young people with out-of-the-box ideas and are called startups in the USA where the idea is very common, because these young bloods start companies, grow them to certain levels, and then sell them off. They start up the company and sell. Someone with a bigger vision, finance and wherewithal can then take the company to another level.

So as things stand, I don’t know if the Startup Act is gaining traction already. If it hasn’t, let this article call attention to the well-intended act so that our young innovators rush for it.  But I hope the focus and attraction is not about the N10 billion fund with which startup ideas will be funded or some of the tax incentives that have been planned. If that is the idea, then those startup companies that will qualify intend to remain startups forever. Imagine that you are trying to start your car in the morning and the engine just keeps rolling until the battery runs down! The allure of cheap or free money or some badge issued by the government should not blindside our young and bright citizens from understanding that they should have bigger ambitions to grow their ideas and take on the world. We cannot be sitting on our hands here, waiting for the best ideas from foreign countries. We need to redefine entrepreneurship here, away from small companies to be able to grow our own large companies that can take on the world. And indeed, startups do not have to be necessarily in the tech space.

But I have what I think is a more urgent idea which we will do well to work on in Nigeria. And that is a secondary market for small and mid-sized businesses. There are millions of businesses in Nigeria – formal and informal – that will die the moment the owner becomes incapacitated. Many have gone this way already. Most of our children are not interested in the businesses we do. Many have chosen different careers and must be allowed to find their own destinies. In the few instances where children have inherited the batons from their parents, they have been forced to. And on many occasions too, these children simply wreck the businesses because they neither have the flair nor interest.

In the US – which is where the idea of startup came from – advertising businesses for sale in local newspapers is as common as taking out a name change for people who get married. When those running small companies are getting tired or even before, they project into the future and seek to get those who are on the lookout for opportunities to take over their business together with goodwill and lock, stock, barrel. That way, they can cash out moderately, take life easy, and sort out other challenges. Businesses are meant to be continued this way. The names of the businesses may be retained or not – depending on the agreement. But here, we have not thought about this idea and so people die with their companies. Big, medium, and small companies have expired in this fashion. What can we do to develop this format? We all don’t have to build our businesses from scratch – just as we like to build our houses. Whether it was for residential housing or businesses, our current model is inefficient, wasteful, unsustainable, and even selfish. We need to think collectively. The world is moving on without us.

I think the Small and Medium Scale Enterprises Development Agency (SMEDAN) and other groups should encourage this idea and propagate it among the 41 million MSMEs in their records. It will be a tough call but if we can rescue 10% or 20% of those MSMEs from extinction, we would have achieved something. And if in many years to come, the idea takes root, we would have avoided so much waste and dead capital (in dead businesses, wasted goodwill and wasted inventory everywhere). The Nigerian economy and society will be better for it.

Perhaps we oughtn’t have opened 41 million MSMEs if this idea had been implemented. Life is not all about the ego of opening one’s business or building one’s house from scratch. We need a new paradigm. This, to me, is better than the idea of establishing and encouraging permanent startups. Our startups must understand that at some point they need to grow up. They must never get addicted to the grants being proposed under the Startup Act. More importantly, ageing people who need to move on should be able to sell their businesses – mom and pop stores, pharmacies, supermarkets, welding shops and so on.