As seen on Jason Njoku’s blog
Part of the Built to fail – the realities of VC-backed companies
I was talking to some young founders yesterday night. It was 8.40pm and I was just about to leave the office. They asked me how was iROKOtv? I began explaining that things are not easy. This big switch is creating all kinds of pain internally. Dramatic things usually do. They looked at each other and laughed. That things are not as bad for me as it was for them.
I smiled and replied. No one is killing it in Nigeria*
Hype aside. iROKOtv is NOT successful. Yet. Small internet companies and the larger funded ones are all experiencing the same problems, just on different scales. We are all constantly trying to stare into our data to gain interesting insights to help build long term sustainable businesses. For the most part we are ALL too early to know whether we are actually making the right choices. All of us. I speak to most of the funded internet companies in Nigeria and we all share the same angst. Except if you are an iROKOtv or a Konga. To change some fundamental aspects of the business it may take 3-12 months. With a small startup (<20) it can take a a few weeks. When I make strategic decisions it effects tens of peoples’ careers. We only have around 120 people. It costs us like $700k per month just to keep the activity up and lights on. Burn cash baby. Burn. The other internet guys have 300+ so who knows how fast we collectively burn through cash. With the switch to building out Internet TV in Africa, we banished the opportunity to become a profitable entity for the foreseeable future. We exited $2m worth of 2013 revenue which we will now need to replace. So we need to raise more external capital to fund that growth. Founder equity will go down (obviously), our hope is we create more value in the long run.
There is a misconception that because we are VC funded, we have ‘made it’. Whenever I hear this I realise how little the ecosystem (or people in general) truly understand about the nature of value creation in technology. The reality couldn’t be further from the truth. When you raise funding the stakes have just changed. Forever. And not necessarily in your favour. In 2011, before we were VC funded, we were a nice profitable business. We were making $30k/monthly in free cash flow. Once we accepted the money we embraced the reality of losing money year after year after year until we either failed (most likely scenario) or created a huge success. Note that no revenue numbers were mentioned.
I sent an email to Bastian this morning concerning the $970m acquisition of another VOD play Twitch. Good for video at large as these deals always are.
Twitch started out as a mere channel on social live stream company justin.tv (which was founded in 2006), its growth blew away the rest of the channels so they spun it out independently in 2011. Justin.tv raised $8m over 7 years before closing in 2014. The original idea failed. Twitch growth accelerated and went on to raise $35m over 2 rounds. There, it now sees 55m uniques per month. They had created a unicorn. It just took 8 years to realise that. In the West. In the most advanced internet economy in the world.
Most Nigerian internet companies are less than 3 years old. In this market we haven’t started yet. Our internet users are immature in their understanding of what is possible online, buying data in Nigeria is still among the most expensive I have seen, the power and payments infrastructure is fucked and the venture capital is largely nowhere to be seen.
So, people of the internet. Internet company building is hard. No matter the stage. And no one is really killing it in Nigeria. And 75-90% of all today’s startup activity will likely end in failure. Those who are funded have merely bought extra time.
Hype aside. That is reality.
* except the sports gaming guys. They are destroying it.