Lateral Frontiers
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Lateral Frontiers

Lateral backs Lynk. Libra for Africa. Flipping the Switch on Digital Africa.

From our July 2019 newsletter issue. You can subscribe here.

Thoughts & Themes

Before diving into developments in African technology it is appropriate to start by saying farewell to one of the great pioneers of the African digital technology revolution. Bob Collymore was the driving force behind M-Pesa and mobile money adoption in Kenya, the market with the highest mobile money penetration in the world. Under his leadership, mobile applications that have had the greatest impact on the unbanked in Africa came to be.

  • Who do you trust? Libra for Africa: As Seyi Taylor highlights in this thoughtful analysis, Facebook’s foray into payments via Libra speaks to the disconnect between its geographic growth channels and the cost of monetizing the user base driving that growth. In short Q1 2019 Average Revenue per User (ARPU) in North America was 15x higher than in the rest of the world (ROW) at ~90% margin per user vs -82% for the ROW. North America now comprises less than 30% of Facebook’s user base, but more than 70% of its Revenue, with minuscule user growth. Payments as a substitute for Advertising Revenue (98% of Revenue) offers Facebook its chance to monetize Peer to Peer and SME e-commerce marketplace infrastructure that much of Africa relies on it for.
  • On the face of it, the stable coin backed Libra project thoughtfully addresses its greatest challenge: trust. The network of 20 Libra Association founding partners that Facebook has secured include payments behemoths and traditional financial infrastructure stalwarts as highlighted by founding partner Fred Wilson at Union Square Ventures.
  • Facebook trust issues aside, the list of African governments that have banned crypto-currency use includes Ethiopia, Kenya, Nigeria and Zimbabwe. Potential benefits to the continent are game changing: friction-less P2P remittances, disintermediated payments, and rewarding content creators per impression. Payments is perhaps the most well funded vertical in African VC. Libra makes for a compelling fix all; but alternative solutions that address digital identity and leverage mobile money might provide a backdrop for financial inclusion without the associated security risks and potential for governments to flip the switch on digital currency that Libra might. For a great summary of the debate on Libra in Africa, check out this BBC Africa roundup. The payments turf war just got a little more interesting… enjoy the ride.
  • Flipping the switch on Digital Africa: Last year the GSMA institute estimated that internet connectivity in Africa had delivered meaningful increases in productivity and social benefits via its Social Progress Imperative (SPI) Index. In Cote d’Ivoire for example 99% of school registration fee payments were made digitally by 2015. Other positive externalities from mobile internet access included increased literacy and access to clean energy. Cote d’Ivoire now represents the eighth largest mobile money market globally by adult penetration (34%). Yet in H1 2019, 6 African governments turned off the switch to the lifeblood of startups: internet access.
  • As the FT’s David Pilling writes: “on the face of it, an internet shutdown in Africa seems less noteworthy than one in Europe, China or North America, where the use of online technology is more widespread. Internet penetration in Africa … is still just 37 per cent, against 61 per cent in the rest of the world. Yet in some ways, Africans are more dependent on internet and smartphone technologies than people elsewhere. Nigeria has gone from 100,000 working fixed-line phones in the early 2000s to 170m mobile subscribers today.”
  • We have been watching the venture landscape in Ethiopia advance with interest, but as Lateral partner Capria VC and TechCrunch highlight, Ethiopia’s prospects as a startup hub rely on increased internet connectivity. Last week Ethiopia’s government shut down the internet for the entire nation. Flipping the switch on digital Africa to quell civil unrest on social media presents a dangerous headwind for the next batch of regional champions following the advances we have seen in Kenya, Nigeria and South Africa.

What Caught our Attention

  • Asia in African VC:

As outlined in our January predictions, the pace and scale of Chinese Venture funding in Africa has been spellbinding. After ample funding across tens if not hundreds of payments startups, OPay announced a $50m funding round short on the heels of its mobility sibling ORide led by parent company Norwegian Mobile Browser OS Opera under the leadership of its Chinese CEO Yahui Zhou. Participation from Sequoia China and Meituan-Dianping to facilitate the virtuous circle of consumer convenience (Ride, Buy, Eat) is likely to eat many Nigerian Fintech’s lunch.

  • Africa in Asian VC:

African Fintech giant Naspers’ portfolio company PayU (think the Paypal of emerging markets) announced a majority acquisition of Singaporean RedDot financial as its entry point into Southeast Asian payments. The acquisition offers PayU’s ecommerce platform merchants a single API integration access to the region for payments.

Portfolio News

  • Lateral Capital leads Series A investment round in Lynk Kenya

We are thrilled to announce our 9th portfolio addition with our investment in Kenya’s Lynk. The informal economy represents ~80% of Kenya’s GDP. Lynk’s founding team have deployed a technology solution to gigify the informal economy by rolling out a “trust” platform that unlocks the services and products of informal workers. Launched in 2016, Lynk’s platform matches informal workers with work, depending on their skills set. This is revolutionizing the way Kenyans access traditional services, from day labor to home care and beauty services. The investment was led by Lateral Capital’s Nairobi based Samakab Hashi, with participation by Kenyan Cornerstone Group. We are excited to continue on our journey with Lynk as they expand beyond Kenya. Welcome to the family.

  • Koko Networks roll out

After a seamlessly executed product development cycle, Lateral portfolio company Koko Networks has officially launched its network of clean fuel Koko Points in the Nairobi market to bring ethanol into households as a cooking fuel substitute for dirty fuels. Koko have demonstrated cost savings and health benefits from its product in the $20bn per annum cooking fuel market in Africa.

Best,

Rob // en route to Lagos

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