Life on the Frontiers — African entrepreneurial talent shines across borders
I had the pleasure of spending February in the key ecosystems we invest and operate in at Lateral Frontiers. Reflecting on my travels my key conviction is that African entrepreneurs are proving that their global ambitions are not to be overlooked.
Recap: we are a frontier markets focused venture capital fund with core operations in Africa and the USA at Fund II vintage.
We started backing entrepreneurs building digital infrastructure in Africa, in 2018. Since then we have backed 23 companies across the continent and selectively in the Middle East, Latin America and South Asia. We have generated 4 exits, and most importantly built trust among our LP’s, exceptional founders, and team of 11 investors.
Whether you are reading this from one of our key markets or from far away, you will know that innovation ecosystems outside of the US have gone through tremendous growth, and numerous challenges fueled by demographics, talent and the rapid adoption of technology. You will also know that the volatility of fx, capital cycles and sentiment have operated at hyper speed. $100 invested in a bank account in Nigeria in 2012 would be worth $2 today (using CBN data). Nonetheless, the continent has also produced exceptional returns through innovation with the fastest growing and youngest talent pool globally and a rapidly maturing capital ecosystem. Venture Capital in emerging and frontier markets by default offers exposure to emerging managers given the relatively short time period that the asset class has been around in our key markets. As outlined in this piece, there is data to support the out performance of emerging managers over their more established peers.
Setting off from my home base in California, 10 flights and 30 days gave me the opportunity to spend time with our founding teams, investors, captains of industry and regulators across east, west and southern Africa interspersed by the tastiest jollof and nyama choma and most beautiful landscapes available to the human eye (biased perspective of a proud visitor to 75 countries).
End result: retained conviction in the caliber of talent and resilience that builds and funds innovation in the worlds fastest growing markets with a new found appreciation for the arbitrage available to old and new world innovation ecosystems working hand in hand.
Lagos, Nairobi, Cape Town and Cairo house the lion’s share of grey matter that venture capital has backed in Africa with Abidjan, Addis, Dakkar, Kampala, Kigali, Kinshasa and Tunis coming into focus more recently.
I”ll start in Lagos, the burgeoning concentration of talent, hustle and scale at the epicenter of our addressable markets by sheer size (15m of Nigeria's 214m people at 2022 census, projected to at least double by 2050). We started investing here in 2018 with fintech and SaaS as our departure point. Nigerian born Ph.D. holders represent the most populous talent pool of any immigrant community in the US. Recent fanfare over the sale of Global Infrastructure Partners, built and led by Bayo Ogunlesi to Blackstone for $12bn or the incredible success story of Calendly CEO Tope Awotona touch on the deep bench of talent we have come to know in Nigeria. Building a startup in Nigeria in 2024 comes amidst the compounding challenges of a currency that has depreciated by ~70% over the past 12 months with the move towards a free floating currency and the removal of fuel subsidies that offered the lowest pump price globally for decades resulting in YoY inflation well above 20%. Lastly, a relentless talent exodus with skilled emigration to the USA, Canada and the UK, colloquially referred to as “Japa” has led to a hybrid remote and in person reality for most “Nigerian” founding teams. Against this backdrop the founders we engage with innovate for solutions to the friction points of financial services product delivery and energy access for a population of 214m with an average bank balance of below $200 in savings.
Amidst this backdrop, after touching down at the somewhat improved new terminal at Murtalla Muhammed International Airport and navigating the cumbersome watchful and opportunistic eyes of immigration officials I weave through Lagos late morning traffic to attend a board meeting with Emmanuel Okeleji, CEO of SeamlessHR who we backed in 2020. Emmanuel and team have built a business that processes ~$500m of payroll annually, grown revenues by 8x since his last funding round and has started an expansion across the continent by taking his product to Kenya, Ghana and soon, South Africa. Seamless represents one of the most compelling datasets that a SaaS > fintech ecosystem can be built around. Over 100,000 professionals rely on the product for payroll. It has become an indispensable product for managing a vast workforce by sophisticated enterprise customers including banks, multinationals and media companies. Across town from SeamlessHR HQ in Ikeja is Zone’s main office in Lekki. Obi Emetarom and team have launched the first open blockchain payments protocol approved by the regulator which enables account to account payments and soon, the ability to make cross border payments backed by a stable coin. This results in over 90% cost savings to banks with near instantaneous settlement. The permanent drone of diesel generators powering corporate offices across Lagos, which has only sufficient grid capacity to power one 45W light bulb per resident per day do not thwart this focus on essential products and services that move money and put electrons on alternate grids. A meeting with the founders of SunFi, a solar financing company that fills the need for a marketplace between OEM’s, lenders, solar installers and the long tail of SME and individual customers underscores the demand for alternatives to grid power or diesel generators.
Meetings with the leadership of banks are interspersed with conversations with Uber and Bolt drivers in the week that Nigeria defeats my home country of South Africa in the African Cup of Nations soccer tournament. My barometer of urban sentiment, the Uber driver in their 11th hour of service indicates that main street is bent out of shape but not broken. Out of 40 drivers surveyed I learn that the highest days earnings in the last 6 months doesn’t top $25. While doing away with an archaic foreign exchange regime towards a free float and the benefits to the fiscal budget of dismantling a costly fuel subsidy make sense in the lecture halls of Keynesian economics students, the absence of a soft landing on main street is dealing a severe blow. At Lateral we have intentionally underwritten a digital infrastructure for SME’s and enterprise thesis rather than a focus on consumer spending and disposable income growth which powered South East Asia and more recently Latin America. We believe that the benfits of partnering with corporates to drive innovation and unlock the last mile to Nigerian prosperity remains clear as outlined in this thoughtful piece by TechCabal. In our successor fund which we recently started deploying we continue to look for talented builders of ‘digital rails’ and ‘energy access alternatives’ that unlock non obvious pools of value in the informal economy with legacy enterprises as partners. Outsized market share, the potential for value accretive mergers and acquisitions and learnings alongside exceptionally talented founders are the prize that Lagos will continue to offer on this ride. If history has taught us anything, as with their footballers, Nigerian entrepreneurs building businesses beyond their borders are a highly backable strategy.
After a seamless redeye to Nairobi (Kenyan Airways you outplay all US airlines), I cruise through a frictionless arrivals experience at Jomo Kenyatta airport and revel in the bright lights and perfect expressway into the centre. Kenya has executed on an enviable energy and transport infrastructure plan that has resulted in the country becoming a net energy exporter. The expressway has streamlined a commute that took up to 3 hours pre pandemic to a swift 30 minute trip into the leafy center for a $3 toll. In short, Nairobi is a massive lifestyle upgrade from many other innovation ecosystems. The corollary is that the hustle and urgency that accompanies a high friction reality in West Africa is replaced by a more modest pace of venture scaling. Don’t get me wrong, Kenya is grown up and open for business and is home to our core team at Lateral. My Uber driver attests to the trade up with a $40 day of earnings and on my weekend morning run middle class families both local and foreign (European, Chinese and Japanese predominant) watch their young kids at play while breaking a sweat in San Francisco worthy athleisure wear. The stability of Nairobi, with its influx of international capital providers and diverse talent may lend itself more than ever to the development of highly technical innovation across Artificial Intelligence and hardware innovation. An increasingly frictionless founder ecosystem with functioning infrastructure can afford innovators the luxury of working on more capital intensive innovation rather than forcing a focus on daily survival for its customers.
We have assembled all eleven members of team Lateral for our bi-annual offsite which I will be joining on a stretch of paradise that is the Indian ocean coast. Before a 45 minute shuttle flight to the beach, I meet with one of our LP’s who represents a European family office that has made a long term commitment to the continent. The discussion evolves around our work in connecting the dots between a talented hybrid Kenyan and Indian founding team that are growing beyond this launch market. The part of our work that has resulted in the best results involves identifying local technology solutions that can scale across borders in partnership with African and international enterprise customers and co-investors. There is a fluency emerging in this playbook whereby New York, London, SF, Amsterdam and Mumbai can operate hand in glove with African talent to win in these massive overlooked but fragmented markets. We agree on a nimble expansion plan which involves a multi market capital partner under the guidance of Nairobi leadership and the focus turns to three days of team Lateral strategy and culture time investment.
The magic that happens when a distributed team operates at full throttle for 96 hours interspersed with laughter, shared meals and the occasional cliff jump into the emerald waters of Diani is difficult to describe. Our fortune lies in the culture that we built as our foundation which unlocks relentless curiosity, diversity of thought, ownership of initiatives and service to founders and LP’s. Our team has grown from the initial partnership of Samakab (Somali), Steven (New Yorker) and I to an investment and operations team that can compete on a global stage, complimented by a stable of experienced venture partners with experience in fintech, AI and global emerging markets. Over the course of our offsite we present, debate and agree on updated sourcing, investment process, talent acquisition, fundraising and fund operations action plans to deliver on our mission to build the leading venture fund in Africa and beyond. This does not come at the expense of sharing personal triumphs and challenges and laughing together.
On our return to Nairobi we host an event to gather current and future founders in our portfolio. We are always inspired by the impact of founder to founder experience sharing and the education we receive in their presence. An API company clinks glasses with a SaaS founding team as they explore a payment integration. We watch as a deeply technical founder discusses customer acquisition with a business development jedi. This is what we set out to build!
Unfortunately another redeye from Nairobi to Cape Town via Johannesburg awaits. As I touch down in my former hometown of Cape Town, the fuel of perfectly crafted local caffeine sets me on my way to back to back meetings with prospective investors in our current fund. We underweighted our exposure to South African companies in Fund I in a belief that the infrastructure and income paramaters of SA coupled with a still to be improved integration with the rest of the continent lent itself to an opportunity set that was to be revisited in the future. Things have changed. South Africa has the most robust consumer opportunity within our markets, but we have now also seen a concerted effort to scale north of Table Mountain. We were fortunate to have the opportunity to back the team at Carry1st who have boldly forged a path to market leadership in Africa’s overlooked mobile gaming space. Founders Cordell, Lucy and Tinotenda exemplify the playbook of partnering with enterprise partners (Riot Games, Sony) to serve customers in multiple markets by offering the most accessible platform and rails.
I am struck by the presence of American VC’s and founders that have made this San Francisco of the southern Atlantic home and their conviction in the ability of South African startups to play beyond their borders. South Africa has been mired in slow economic growth, ineffective leadership and decades old structural unemployment resulting from an ugly legacy of the willful undereducation of the majority of its citizens. The Cape Town I spend time in every year has evolved to serve as a highly scalable test bed for international innovation. After all AWS was conceived here near the Cape of Good Hope.
Frustratingly, the daily power outages of ‘load shedding’ as the national grid creaks to a halt has added significant friction for SME’s and technology companies trying to offer their wares. The infrastructure quagmire aside, a diversity of realities and influx of diasporans from across the globe has catapulted hipsters that give Hayes Valley or Venice beach a run for their money together with deeply technical skills sets and agile business executives who now also innovate by necessity. We have taken note that the mesmerizing beauty of this entrepreneurial ecosystem has produced break out startup success and we are on the hunt for a local venture partner to join our ranks to execute on this development. South African banks, telcos and mature startups are on the menu for relationship building by yours truly. In the few days that remain I cram my schedule with founder and enterprise customer meetings interspersed by a glass of wine or two with entrepreneurial family members in the family wine making business led by my visionary uncle. I sneak in a visit to my 95 year old grandfather and childhood friends without wasting the opportunity to reload on more Cape Town flat whites and fortunately fewer great whites in the cold water when I catch a beloved Llandudno beach wave on the surfboard that has served me since undergraduate days.
Before long it is time to head to international departures to start the odyssey back to the Golden State to get back to the work of connecting the dots between these fast growing entrepreneurial arenas of the African continent and the global center of technology in the USA. Please reach out with thoughts or any requests to connect to learn more about our work at Lateral Frontiers as we continue to build alongside founders and capital.
Rob
