Is Jumia using Jazz?

Serious side eye
Boat loads of cash = $100m+
Washing Money = Money laundering
Jazz = Diabolical spiritual powers aka Juju

Late last year, one of the largest and most prominent Africa Private Equity funds reached out to me to have a chat. Instead, we ended up having lunch at a swanky central London restaurant. It was great. I was totally seduced. He was so positive, bullish and aggressive. He wanted to invest up to $50m in IROKOtv. Jeez. I was smitten. I didn’t need that much money (yet), but hey, I like these kind of conversations. Uncle continued talking.

This wasn’t the first time. It has happened before. Over the years, Venture Capital and PE firms periodically have reached out to IROKO, with a view to investing. All inbound. Usually we just smile and keep it moving. You know. Face our work. But this was different. We were expecting a strong revenue for Q4 and good y-o-y growth. So even though we weren’t fully ready (IROKOtv is still growing but definitely deep in experimental mode, there isn’t a specific plan to execute mind you) in January we hired a tier1 African investment bank and solicited interest from African investors. This article is from my real world, last few months’ experience. Evangelising and pitching to folks across Cape Town, Abidjan, Lagos and London. All of the above, I probably shouldn’t be saying, as the process is still on-going. But it’s context as to what comes next. And I need to vent small.

By far the most common question was how far is IROKO from cashflow break-even or EBIT profitability. On one hand, I could understand. You know. It was the first few months of 2018. Nothing but bad news for consumer internet companies. It was widely reported that Konga investors had exited in distress, Naspers-owned OLX was shutting down offices across Africa and Wakanow was having Nigerian bank issues. It became clear real quick. Nobody in Africa was interested in funding losses. Everyone loved growth stories. You know, scale stories. Which is strange because pretty much ALL of the big consumer internet listings of recent memory have been losing money hand over fist, pursuing growth. All are big and growing. That has been natural in technology. Forget profits. Grow. Grow. Grow. But they ALL raised hundreds of Millions or Billions of dollars to get there. In Nigeria? Not so much. I have spoken to many others in the Nigerian tech space to see whether this was just me or a wider phenomenon. You know I try to check myself. Ensure I’m not buying into the hype I am most responsible for pumping. After-all, Perhaps IROKO isn’t that hot. Perhaps I need to shake body. Prove myself and all. But look at the graph below. 78% growth isn’t tooooo bad.

irokotv Q1 y-o-y revenue grew 78%, the colours are different payment platforms

Dunno. But we just had our best quarter ever in Q1 2018 and expect to grow both revenue (50%+) and subscribers (150%+) amazingly in 2018. But again. Maybe it’s just me. Oh did I mention that IROKOtv is likely growing back into the largest business unit at IROKO for the first time in three years?

Back to the point.

Quick. Grow, grow grow…

$148m in losses for Jumia in 2017. One Hundred and Forty Eight Million US Dollahs. Konga, in its entire history, never raised that much money. If you counted the entire venture capital gone into consumer internet companies minus Konga in Nigeria, I doubt it would still reach. We are not mates. That’s an unimaginable amount of money to little me. But here is the craziest part. It grew y-o-y. Whilst revenue increased a mere 11.2%, the losses expanded from €91.3m to €120.1m. How the F&*K is this even allowed? I wish I could block investors like that. That top line GMV growth number is straight up fantasy. Like Disney Land. It’s the most epic vanity number in the world. Revenues. Well 11.2% is the reality. If only my business had such a number. Unfortunately there isn’t one. Dear JUMIA INVESTORS. Notice me. I am here. Bring Dollars. It’s allowed.

Lala Land growth metrics

Remember. Little me was asked to shake body and show the path to cashflow positivity in the short term and direct clear sight line to rivers of EBIT profits. Let me be fair. And for transparency. IROKO is still losing money and expected on a P&L basis to be negative -$1.7m in 2018. Because we must F&*king survive this will be our last year of losses. Amen? Amen. But at what cost? What’s the opportunity cost of being ‘forced’ to generate cash and profits this early in our journey. Are Nigerian startups thus going to end up structurally smaller?

Jumia has raised $767m from some notable investors including MTN, Millicom. CDC. Axa.

I was discussing my Jumia dilemma with someone and rightly so they said it’s Ecommerce. It’s different. It’s a bigger opportunity. Perhaps. But none of the internet paid content operators are cash positive. They are all, in fact, very negative. But are they massive? Very much so. Very much so. Billionaire Boys.

Why wouldn’t he be hailing Wakanda and smiling. HipHop is the most popular genre on Spotify

Netflix. $2.5B in negative cashflow in 2017. Today has a market cap of $133B

Spotify. 2017 had losses of -$1,24B. Today has a market cap of $27B

Pandora. 2017 had losses of -$518m, today has a market cap of $1.35B

iQiyi. 2017 had losses of -$574.4m today has a market cap of $13.4B

FuboTV raised $75m yesterday, they launched in 2015 (bringing total investment to $150m). They announced they had passed 100,000 subscribers in October 2017. (IROKOtv has more than that). Granted, I am sure their ARPU’s are considerably higher than IROKOtv’s and they are touting growth figures which reach an annual run rate of $100m by mid 2019. Yet FuboTV offers viewers over 30,000 sporting events per year, 10,000+ titles in its video-on-demand library. Their content costs must be astronomical. And their losses… You guessed it. Equally astronomical. It’s scary just thinking about it.

But if it’s about growth. That is easy. Give me $100m and I will grow baby grow (remember my -$1.7m). But I would also burn baby burn. I was even thinking of introducing an ‘IROKOtv lite’ (free) tier so as to race to 10m+ MAU’s to show the ‘top of the funnel’ vanity metric, like Jumia’s GMV, as investors seem to love that (Dropbox has 500m free users, 11m paid users ~2% base. Investors love the big 500m number though. Love it. Dropbox had-$111.70m and currently boasts a market cap of $11.65B). But cooler heads prevailed. Dean, my CTO rightly, cautioned me that once I opened a free (example 1 free-movie per week plan) it would be almost impossible to control the costs. The dollars it would destroy sends chills down my spine just thinking about it. I wanted an answer to another often asked question, how big is IROKOtv’s market? Is this a niche? I felt perhaps I needed to demonstrate that Nollywood is much much much bigger than everyone thinks.

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens”- Andy Rachleff source

Most folks seem to see it as a niche. At IROKO, we believe there are at least 50m people globally who are willing to pay. It will just take us a long ass time to get there, and boat loads of cash. Without the boat loads of cash. Man o man. That’s the challenge when dealing with the base of the pyramid. Investors are typically not even there mentally or spiritually. Most people have zero concept of the strength of Nollywood and the impact it has on the masses. To boost my morale, I started listening to the audiobook Slugfest. Inside the Epic 50-year Battle between Marvel and DC. In the 60–70s, Hollywood laughed at comics as they were considered to be for children. Marvel or DC couldn’t even get a film deal. Imagine this. The rights to Blade were sold by Marvel for $25k. Yes. That’s right. Twenty Five Thousands dollars. The Blade Trilogy went on to gross $415m at the box office. Marvel now owns the cinema. Owns it. But 50 years ago it represented nothing.

Back to the point.

The crazy thing is that there is IPO talk for Jumia. IPO talk?! But you know what? I wouldn’t put it pass them. They will probably exit. Sell on the Africa execution risk to the pensioners of Germany (and other smaller European countries) and move onto the next one.

Remember this fella. Why is Konga worth “only” $35m and Jumia $1 billion? He wrote the article and left the same month. Was he pushed?

In Conclusion, building an ecosystem, securing a geographical diversification, leveraging on its strategic investors and having secured consequent access to capital is according to me what explains the huge difference between the current valuations of two biggest e-commerce players. Now, the accuracy of either nominal valuation is still to debate…

Please read Ngozi Dozie’s response. It’s amazing

IROKOtv has done a better job than Jumia in most regards (geographical and diversified revenues — 180 countries people and strategic investors IROKO+ across FSA. We just haven’t been able to establish the bridge to the boatloads of excess to capital ($767m+ for Jumia and $35m for IROKO). But it’s okay. We push on. We outlast. Tactic by tactic.

Where does that leave us? Nigerian-led founders of consumer internet companies. In simple terms. Structurally smaller. Whereas I don’t believe it is a grand conspiracy, I do believe our stories are treated differently to our Non-Nigerian founded market peers (Jumia / Andela / Branch). I believe I can spin stories with the best of them and equally show demonstrated execution and brutal operational abilities. So many outlasted over the years. But it’s like my stories, they are not ‘entering’. As Ngozi mentioned in the past

So what am I saying? Let me spell it out, I don’t think African founders looking to execute on the continent get a fair shake.

If Nigeria wants to create really really big (as in Billionaire Boys big), we need a scenario where investors are ready and willing to fund those losses. Because to grow big, I haven’t seen many examples of in consumer internet without boat loads of cash.

Nigerian CEO

So to reiterate. Jumia has raised $767m from some notable investors including MTN, Millicom, CDC and Axa. They are burning this money and showing modest growth. As a Nigerian I think this one has entered a spiritual realm. I have been suspecting this of this Oliver fella for some time now. Walk with me. He makes crazy announcements ‘Jumia is a proven winner’, ‘IPO this year, ‘113% y-o-y growth’ etc. etc. Think about it. Who else in Nigeria talks like that? Nigerian billionaire business men. Always making pay dirt whilst their company is burning or distressed. Oliver and Jumia is out-Nigeria-ing us local Nigerians.

In summary Oliver and Jumia, are either using Jazz or washing money?

I literally don’t understand nor have a scientific explanation on how they are getting that boat-load of money in Africa. FYI — I don’t believe they are washing money. So they must be entering forest.