The Unevenly Distributed round-up gives a perspective on what’s happening in the markets we cover, why it’s happening, and how it’s all connected.
From Africa to the world
How large a company can get depends on the answer to two questions: 1.) How many customers can it acquire? 2.) How much money can it make from each customer? In Africa, the answer to the second question is often: not very much.
For some African companies1, one way to solve for the low consumption of the African market is by selling to a global market. This comes with its own challenges as global markets are typically more competitive. However, in some cases, operating (or launching) a business in Africa comes with certain structural advantages.
Resources as an advantage
54gene (Endeavor company) describes itself as ‘a health technology platform company… building diverse datasets to unlock scientific discoveries as well as improve diagnostic and treatment outcomes within Africa and the global community.’ [emphasis mine]. African genetic information has certain structural advantages when it comes to drug discovery. The diversity of Africa’s population makes its genetic information more valuable for drug discovery. Because it is operating in Africa and able to collect genetic information from Africans, 54gene occupies a valuable strategic position in the global pharmaceuticals industry.
Similarly, Andela’s original thesis was that ‘talent is equally distributed, while opportunity is not’. Therefore, it could acquire talent where it exists (at a low price), train it, and then sell it to markets where opportunity exists and talent is more expensively priced. Its structural advantage was operating in Africa, where it could hire and train developers at a low cost. The thesis, or maybe its execution of the thesis, seems to have hit roadblocks recently, but it was perfectly reasonable and other companies seem to be attempting to execute on the same thesis.
Infrastructure/regulatory deficit as an advantage
It often takes a while for society to adjust itself to cutting-edge technologies. The existing infrastructure and regulation often cannot accommodate new innovations. This is why emerging markets often ‘leapfrog’ more developed markets. It’s the reason why crypto has higher adoption rates and more developed use cases in emerging markets than many developed markets. It’s why Nigeria, India, and Brazil are three of the largest markets by volume of instant bank transfers.
Earlier this week, Zipline announced a $250M round valuing the company at $2.75B. The company uses drones to provide ‘instant logistics services’. It launched in Rwanda because the country’s under-developed healthcare supply chain was a perfect testbed for the product and the country’s airspaces were less crowded and less regulated than those in more developed markets. There’s an interesting YouTube video on how it tested and developed its technology.
Today Zipline supplies 70% of Rwanda’s blood deliveries outside of the country’s capital. It also participated in COVID-19 vaccine deployments in Nigeria and Ghana. However, Zipline’s future growth is likely to come from the USA. After testing and refining the model in Africa, it is now poised to deploy its drones in the USA as a supplement to the existing supply chains in e-commerce and healthcare.
Similarly, Aerobotics (Endeavor company) provides a drone service for monitoring farmland. It launched in South Africa, where I imagine there were fewer existing solutions for monitoring farmlands for pests and crop performance. It raised a $17M Series B this year which it intends to use to scale its technology to other more developed markets.
Silicon Valley’s Christopher Columbuses
In Tiger and the Tree, I wrote about Sequoia’s previous attempt to explore the Latin American market, I also made a prediction:
Sequoia also explored Latin America in 2011. It hired David Velez to lead the office. David was an MBA at Stanford GSB, who had helped General Atlantic start its Latin America business. Over numerous trips to Brazil with Doug Leone, what they saw is familiar to anybody operating in an emerging market at the time, they saw an ecosystem still in the experimentation phase, with copycat businesses and Rocket Internet clones. David Velez decided his time was better spent starting a company than looking to make investments. He left to start NuBank, raising seed capital from Sequoia. Earlier this year, the company raised a round valuing it at $25B.
Today, Sequoia is very active in Latam, counting unicorns such as NuBank and Rappi in its portfolio. It doesn't have an office in LatAm or a dedicated fund but as its activity in the region heats up, you can expect both of those to emerge soon enough.
Earlier this week, Sequoia announced that it now has two partners focused on the region
Sequoia @sequoiaWhat a journey with @velez_david: from Sequoia partner to founder of @nubank, where we partnered at seed, to the world’s most valuable challenger bank. Sequoia helps the daring build legendary companies. We see that opportunity more than ever in LatAm. https://t.co/U8Ejmti6BG
It announced these new roles in a blog post titled the Latin American Startup Opportunity. If you’re familiar with the opportunity in emerging markets, there’s nothing new in the post. What’s interesting is who is making the case. In the same way that Christopher Colombus discovered America in the 15th century, American VCs discovered Latin America in 2021. First, it was a16z making the case for fintech in LatAm, now it is Sequoia making the case for LatAm’s startup opportunity.
Accel doubles down on global investing
In Tiger and the Tree, Sequoia represented a certain archetype. I described its approach like this:
For Sequoia, expanding globally involves a network of independent yet interconnected funds, which combine its global brand and track record with local expertise and connections. While sharing lessons and knowledge from across markets.
Many other VC firms are operating the same [model] executed by Sequoia… Other brand name firms like Accel… have largely autonomous outposts in China, India, and Europe.
Accel recently announced new funds that give us perspective into how it views markets outside of the USA.
Specifically, today Accel is announcing its 15th early-stage U.S. fund at $650 million; its seventh early-stage European and Israeli fund also at $650 million and its sixth global growth stage fund at $1.75 billion. The latter fund is in addition, and designed to complement, a previously unannounced $2.3 billion global “Leaders” fund that is focused on later-stage investing that Accel closed in December
From Accel’s announcement post for its new funds:
Though much has changed in the world with entrepreneurship stretching across the world at an accelerating rate, much has stayed the same at Accel. We long ago designed ourselves as a global partnership to work with the most innovative companies, wherever they may originate — be it a UiPath in Bucharest, Romania, a Crowdstrike in Irvine, California, a Slack in Vancouver, Canada, or a Freshworks in Chennai, India. Today’s exceptional founders are not bound by geography in the pursuit and realization of their visions, and we think the next generation of technology leaders will follow this same pattern — taking local inspiration to the global stage.
From Accel’s announcement post for its global “Leaders” fund:
One constant has been entrepreneurs aspiring to create category defining businesses, regardless of country origin. To everyone’s benefit the opportunity for these entrepreneurs has kept pace with their aspirations over the past decade. Since 2012, the universe of technology companies worth over $10 billion has more than quintupled, and their aggregate market value has grown even faster. And what’s more, the number of $10 billion+ companies founded outside the U.S., and their aggregate value, has risen at an even greater rate than those started in North America.
We’re at a moment where Silicon Valley firms are truly realising that every sector, in every country, will be transformed by mobile and the internet. 95% of internet users and 75% of IT spend is outside of the USA. A lot of that is in emerging markets. In the next decade or two, multi-billion-dollar internet companies will be the norm in most countries, just like there are multi-billion-dollar banks, telcos, and consumer goods companies in most countries.
Andy Warhol, but make it start-up ecosystems.
Andy Warhol famously said ‘‘In the future, everyone will be world-famous for 15 minutes”. This year, global VC is at an all-time high and every ecosystem seems to be having its time in the spotlight.
Africa has had a great start to 2021 (link).
Egypt is having a moment (link).
India is seeing exit activity pick up (link).
Pakistan is having a great year (link).
Mexico is (finally) having its moment. It’s had three unicorns emerge recently, which all happen to be Endeavor companies, so it’s worth reading Endeavor’s retrospective on the growth of the ecosystem (link) (PDF).
Pair the last link with this paper by Alex Knight exploring why Brazil’s received 7x more VC investments per capita than Mexico in 2018, despite their similar socio-demographic and economic characteristics (PDF).
Nigeria is one of the fastest-growing markets for Stripe Atlas (link). We were also the fastest-growing market for GitHub contributions (link). We often appear on these kinds of lists - the silent part is that the growth is almost always from a very low base.
MaxAB (Endeavor company) closes $40M to digitise SME supply chains (link). It’s a similar model to Frubana, which raised $65M earlier this year (link). TradeDepot, Chiper, Sokowatch, and Twiga Foods (All Endeavor companies), operate a similar model. Digitising the SME economy in emerging markets is a massive opportunity.
In some developing countries, it’s easier for foreigners to start companies and raise capital. Like this guy in Kenya, that started a company to solve a problem that locals don’t think actually exists (link). Don’t despair, you too can get yourself a foreigner to help you raise money (link).
Habi, a real estate platform, raised a $100M Series B. It’s apparently the largest round raised by a female CEO in LatAm (link). iBuying is pretty hot right now in LatAm. The founders of Loft, a leading Brazilian iBuying platform, recently appeared on Invest Like The Best (link).
Real Estate is a large industry with extremely painful customer experience. Not for a lack of effort, technology and the internet seem to have had very little impact on the experience in Nigeria. I would appreciate it if one of my readers took this as a call to action to start a company in this space
Nubank founder, David Velez, also recently appeared on Invest Like The Best (link).
Crowdsourced answers to the question of under-discussed ideas in fintech. Anyone in an emerging market would be surprised to see remittances and borderless finance described as ‘under-discussed’ (link)
In the last edition, I wrote about Nigeria’s Mobile Money Moment. This week, TeamApt (Endeavor company) announced an undisclosed round (link). The company shared really impressive numbers, considering it had only raised $5.5M prior to this round.
ALLVP, a leading Mexican VC, launched a co-investment program for angels and operators in its network. (link)
Lauren Cochran, a long time active investor in Africa, talks about the evolution of Africa’s VC ecosystem in the last 5 years (link)
Some of the maths behind frothy valuations, from a MENA perspective (link).
Rally Cap is building a global ETF of early-stage emerging market fintech, and they’re excited their portfolio has expanded to include:
What makes a company an African company? The founder’s nationality? It’s headquarters? Where the management team sits? Where its customers are from? Where its headcount sits? Is Zipline African? Is Jumia African? Is Andela African? Is Flutterwave African? Is Fairmoney African?