Health-focused startups have been low-profile players in Nigeria’s burgeoning tech ecosystem over the past decade—but that’s starting to change.
Startups identifying gaps in the healthcare delivery value chain across Africa’s most populous country are increasingly winning investor attention and dollars. The sector reached a milestone this month as 54gene, a genomics company focused on African DNA, raised $4.5 million in a seed round—the largest by a Nigerian health tech startup. Investor participants in 54gene’s seed round included Y Combinator, Fifty Years, Better Ventures, KdT Ventures, Hack VC and Techammer.
While the investment size pales in comparison to other sectors such as fintech which is characterized by bigger-ticket funding rounds, it reflects the nascent nature of the health-tech startup space, not just in Nigeria but across the continent.
In the long-term however, health tech startups are likely to experience a growth path mirroring fintech startups given their crucial similarities in solving fundamental problems. Like fintech startups, health tech startups are often building technical infrastructure from scratch and innovating solutions in a sector that has been slow to evolve over the years.
Given the several low-hanging opportunities—ranging from drug distribution and insurance to medical records and data—to resolve inefficiencies across the sector, health tech startups are likely to command larger investment amounts as they prove product market fit and become embedded in the value chain.
Six months after its founding, 54gene’s record seed round will be deployed to fund its ambitious plan to bridge the lag in African genomic data and research by creating the world’s largest and first African biobank. It’s a lofty target given the continent has contributed only 2% to global genomics data. “We haven’t been invited to the table where decisions as regards our healthcare have been made,” says Abasi Ene-Obong, founder of 54gene.
The net effect of is that drugs development is hardly based on African DNA while drugs also typically reach African markets many years after being launched and often at high prices. Last month, a report by the Center for Global Development found users in low and middle-income countries pay up to 20 times the “minimum international reference price” of basic medicines. To bridge the gap, Ene-Obong says 54gene will ensure that developed drugs based on its genome samples are trialed and used in Africa first as it focuses on studying diverse African DNA samples to find “naturally occurring mutations” which can be modeled as drugs to treat both Africans and non-Africans.
The company has tested its processes in a pilot program with three local university teaching hospitals and hopes to hold 40,000 samples in its biobank by the end of the year.
MDaas Global, a startup focused on providing diagnostics services, also raised $1 million last month in a seed round led by Consonance Investment Managers with participation from Techstars, FINCA Ventures, the Fund for Africa’s Future and Greentree Investment Company. With a model based on addressing the unequal distribution of standard healthcare services beyond Nigeria’s most developed urban centers, MDaas Global operates as a centralized diagnostics department for a network of clinics lacking in equipment or seeking second opinions. It also connects walk-in patients with clinicians who can offer follow-up consultations based on test results.
Soga Oni, co-founder of MDaas Global, says the company is looking to correct the prevailing culture of assumption-based treatment by doctors and patients who self-medicate, especially in areas where diagnostics services are unavailable or below standard. The company has one center in Ibadan with two more planned this year in Ilorin and Osogbo—all densely populated cities in Nigeria’s southwest.
Other health-tech startups that have won investor conviction in recent years include Helium health, an electronic medical record startup which raised $2 million in September 2017 while LifeBank, a startup focused on sourcing and delivering life-saving medical products, including blood and plasma, also raised $200,000 early last year.
As these startups double down on exploring gaps in Nigeria’s healthcare space, they can look to another startup in neighboring Ghana as a model of what’s possible: MPharma, a six-year old startup which manages prescription drug inventory for pharmacies and their suppliers, has raised over $25 million in funding and expanded to East Africa in March by buying Kenya’s second-largest pharmacy chain.
Given the human impact of their work, health-tech startups are often categorized as social enterprises and are expected to seek early funding mainly from grant and donor sources. The size of the healthcare problem and the lack of infrastructure locally has also meant that most of the prior investment has come from development financial institutions (DFI), says Victor Asemota, Africa partner at Alta Global Ventures, a US-based VC firm. “Because of this extensive DFI and donor agency influence, healthcare work has been mainly impact work and not necessarily for profit,” Asemota says.
But with venture capital funding pools often larger, Ene-Obong says “going the semi-commercial route” is the fastest route to boosting innovation. “You can leverage the resources of commercial partners…if it makes a difference, that’s how you make social impact,” he says.
For his part, Oni suggests the availability of venture capital is a measure of the opportunity which exists. “Right now, we’re at this transition point where people [venture capitalists] are looking for newer models to solve healthcare problems in Africa and that’s what’s driving funding.” The opportunity is amplified by the reality that “governments are not going to be rich enough in the short-term to solve these deficiencies,” he adds.
The growing involvement of VC funds in health startups is also “a massive data play,” Asemota says. “It is important to know basic data about things like health and life expectancy before you build products for a demographic. Healthcare data is important for so many other adjacent sectors,” he says.
But, given as venture capital is profit seeking by nature, it often means health-tech startups also have to manage a balancing act of determining pricing points that deliver both profits and maximum social impact, as Temie Giwa-Tubosun, founder of Lifebank, has discussed. For MDaas Global, that challenge lies in determining pricing in areas outside Nigeria’s most developed urban centers where patients may find diagnostics too expensive or are used to cheaper, lower grade services.
Oni says the company is “making the numbers work” and creating a “volume business” by building a strong referral network among partner clinics. Venture capital firms funding health tech startups also keep that balance in focus: Fifty Years, a 54gene investor, says it funds companies that can become “both massively profitable and make a serious dent in achieving one of the Sustainable Development Goals”
Going forward, the healthcare industry will require even more startups to fill still existing gaps in a sector that has been “stagnant for decades,” Ene-Obong says. And as more startups emerge in the space, it will be imperative to work together by providing different services across the healthcare value chain to deliver maximum value to patients, he adds. “The healthcare ecosystem should be a network of companies all connected to each other somehow as opposed to having fragmented, disparate groups that are all siloed.”