Lateral Frontiers
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Lateral Frontiers

Profitability 101, Mobile Money 2.0 and beating Sillicon Valley Tech in Africa

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

Thoughts & Themes

Profit over Growth…. [again]

In September the music stopped for ‘growth-at-all-costs’, bottomless venture funding in New York with the failure of WeWork’s IPO ambitions and exposure of Adam Neumann’s corporate governance fiasco. It turn’s out discipline around unit economics isn’t only a requirement for African early stage companies.

Following Union Square Ventures’ Fred Wilson’s viral blog post The Great Public Market Reckoning, New York Times journalist Erin Griffith questions the need for a reset on limitless VC funding in the US in this piece. We regularly get asked what the biggest difference between early stage companies in Africa and the US is. For us it is the fact that African companies typically optimize for unit economics over growth out of necessity. While total funding to early stage African companies is increasing exponentially, it remains a drop in the ocean compared to larger EM peer regions South Asia and Latin America.

Sidebar: @Stephen Deng flagged the striking similarity between the development of Venture Capital Funding in Southeast Asia and Africa on a 4 year time lag:

Keeping with the theme of profitability vs growth, In this Op Ed, Eline Blaauboer echoes our founding principle that it is essential to achieve product / market fit at attractive unit economics before pursuing growth at all costs in Africa. We find that focusing on ‘critical infrastructure’ through technology (commerce, human capital and asset backed verticals) ensures that we don’t lose focus to businesses where company fortunes are dependent on the hopes of an ever faster emerging African consumer while they figure out unit economics.

Mobile Money 2.0

This comprehensive overview of where Mobile Money is headed by Wiza Jalakasi is worthy of a full read.

“There is nowhere else in the world that moves more money on mobile phones than Sub-Saharan Africa. The region is currently responsible for an astonishing 45.6% of mobile money activity in the world — an estimate of at least $26.8 billion in transaction value in 2018 alone”

As we turn to the next chapter, he explores what mobile money 2.0 will mean for the continent.

Key takeaways:

  • Digital banks represent the first iterations on mobile money 1.0 by providing UX improvement, predominantly built for smartphone users since ‘a sophisticated user has needs that are beyond having a place to receive, store and send money.’
  • Handset manufacturers have brought the first generation of ‘smart feature phones’ to market at a price point of $25 or less powered by Android and IOS challenger mobile operating system KaiOS which has achieved rapid success in India
  • It is expected that the next iteration of mobile Money in Africa would have the following characteristics:
    1/ A refined, graphical user interface and intuitive experience
    2/ Mechanisms to liquidate value stored or transfer to other forms of digital value
    3/ Utility beyond peer-to-peer and merchant transactions

Portfolio News:

What else caught our attention:

As the global search for growth turn to frontier markets, can African Technology compete with Sillicon Valley giants?

Ndubuisi Ekekwe explores the winners and losers in African Tech in the age of dominant US tech incumbents on behalf of Harvard Business Review:

“Sure, Africa has promising startups, but those are in areas … where there is no direct competition with the global tech giants.”

Advice for succeeding despite the global domination of Facebook and Google includes:

  • Create sectors with offline components.
  • Relocate some technology functions to the U.S.
  • Build on existing infrastructure.

ICYMI

Samakab Hashi who leads Lateral East Africa published this detailed State of Logistics in Africa report in partnership with Briter Bridges as feautured in The Africa Report.

“The innovation lies in the development of digital platforms that match supply to demand, whether it be courier apps that deliver groceries or platforms that coordinate freight delivery.”

As always we welcome thoughts and feedback — get in touch

// Rob at Lateral HQ in NYC

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