Recipe for Ecosystem Building and Africa goes “Ga-Ga” for Mobility
From our May 2019 newsletter issue. You can subscribe here.
Thoughts & Themes
- Recipe to Build a Technology Ecosystem: Last week the Global Startup Ecosystem Report ranked Lagos as one of the top 30 challenger communities in the world. Former venture capitalist Eytan Messika put together a brilliant slide on Israel’s innovation secrets and how it became the most successful start-up nation. If we dissect Eytan’s slide there are multiple variables at play including: i) concentration of talented founders and engineers; ii) quality scientific and educational structure; iii) network of mentors and serial entrepreneurs; iv) smart capital; and v) appropriate infrastructure, government support and local regulations. At Lateral we are beginning to see the intersectionality of several of these variables in Nairobi and Lagos, two of our core markets. While many complain that there isn’t sufficient capital we believe it is wishful thinking that a few unicorns and several tens of millions of dollars are enough to build a technology ecosystem. This year we saw the VC funding landscape exceed $1billion, an Africa startup IPO and a VC backed startup buy a PE backed growth-stage company. While significant deficiencies still exist in building mentor networks, managerial training and government engagement the advancements to date are a step function change from where we were in 2015.
- Africa is going “ga-ga” for mobility plays: Mobility is attracting several international players. This month SafeBoda in Uganda raised an undisclosed sum from investors including GoJek’s VC Arm and Opera, the Norwegian developer of internet browsers, has launched a bike sharing startup called Oride. Last week Nigeria’s Gokada closed a $5.3m round led by Rise Capital. We have been skeptical and therefore happy to sit on the sidelines for now as local and international players compete for a slice of the $9+ billion two-wheel mobility market in Africa. The playbook to date has been simple: a land grab for traction, then layer on services including credit, mobile wallets, insurance, driver education, etc. Big questions remain around regulatory risk, asset financing costs and the “race to the bottom” pricing war that ensues in the desire to acquire customers. While we have passed on “ride-sharing” we are bullish on the disintermediation of ownership and recently completed an investment in Workstyle, a developer and operator of co-working spaces in Africa. More details in the portfolio section.
What Caught our Attention
“You can’t build a long-term future on short term thinking” Billie Cox
- Highly recommend reading the FP’s analysis of how China is set to dominate the next industrial revolution. No new phone, tablet, car, or device can be made without certain minerals and metals that are buried in a surprisingly small number of countries. Further, as trade tensions increase between the U.S. and China, there is a risk of China cutting off U.S. and European manufacturers from the essential components necessary to build new technology infrastructure. It is not well known but China controls about 80% of global rare-earth minerals- essential building blocks in just about everything. Political economist have coined a new term called “weaponized interdependence” to highlight the growing threat.
- On May 10th the U.S. Securities and Exchange commission approved the formation of a Long Term Stock Exchange. The new exchange will reward investments and business models that focus on long term thinking. While an important endeavor and counter to the quarter-by-quarter reporting machine that is the NYSE and S&P questions remain around the availability of liquidity in this new market and proposals to reshape how voting rights are structured. On the former concern institutional investors remain luke-warm to the idea. One of the key governance differences will be tenured shareholder rights where votes will be proportionally weighted by the length of time shares are held.
- Africa’s new free trade agreement came into effect last month. The magnitude of this agreement can not be overstated- this will be the world’s largest trade area since the establishment of the WTO. Intra-regional trade is surprisingly low, accounting for only 16% of overall trade on the continent. The agreement is predicted to increase that by 50% by removing barriers on the flow of goods, services and people across a market with a combined GDP of $3.4 trillion. While we are optimistic on the implications of the agreement towards industrial policy and our portfolio, it is disappointing that Nigeria, the largest economy in SSA, has decided to not participate. Only 1 of 2 countries alongside Benin to bow out.
- The global co-working market has expanded over 700% since 2011. Currently over 5% of all commercial space is characterized as “flexible”. JLL predicts that number will double in the next 3 years and that by 2030 nearly 30% of all commercial spaces will be co-working. In Africa, co-working penetration as a percentage of commercial space is less than 1% despite the exponential uptick in small businesses. herefore, we are proud to announce our investment in Workstyle Africa.
- Medsaf recently unveiled the execution of a strategic partnership with AXA Mansard in Nigeria. Axa Mansard will extend its support to Medsaf’s mission of creating a reliable market for medicine while Axa looks to expand its retail offering. The announcement came at the VivaTech summit where CEO, Vivian Nawakah, won the female founder challenge.
- Sparkmeter recently completed a first close of $7m on their Series A. Sparkmeter is working to improve electricity access for the world’s two billion energy-poor with a energy metering system that can be used by on-grid and off-grid utilities. Part of the round will be used to expand their product offering, deepen their outsourced manufacturing and expand two regional offices.