The hottest fintech market you aren't paying attention to

For our Wednesday show this week, Natasha and Alex and Danny had colleague Tage Kene-Okafor on the show to chat about the burgeoning African startup scene. Tage has become TechCrunch's key correspondent in the area, chronicling the continents expanding venture capital totals, public company performance, and startup ecosystem. Given that we've paid attention to just how much money African startups are raising, we wanted to have Tage on to give us a better, deeper understanding of the continent's technology activity. Here's what we got into: The power of Y Combinator in Africa: Is the well-known American accelerator a kingmaker in Africa? Or are we merely seeing more of its activity thanks to our own information biases? Fintech as core focus: As in many markets, fintech investment and startup activity stand out in Africa. We wanted to better understand why that's the case in Africa, and what startups are building in the realm of financial technology. African ecommerce: The continent's ecommerce market is perhaps best known through the lens of Jumia, a public tech company that works in the sale of goods online, and their delivery. How quickly is ecommerce growing in Africa, and which startups could be the next breakouts? We asked Tage. Equity is back on Friday with our weekly news roundup! Equity drops every Monday at 7:00 a.m. PDT, Wednesday, and Friday Credits: Equity is produced by Theresa Loconsolo with editing by Kell. Bryce Durbin is our Illustrator. We'd also like to thank the audience development team and Henry Pickavet, who manages TechCrunch audio products. Learn more about your ad choices. Visit megaphone.fm/adchoices

• 0:09Speaker 00

  Hello and welcome back to Equity Tech Rentsch's Venture Capital Focus Podcast where we unpack the numbers behind the headlines. My name is Alex and I'm here with a whole crop of excellent people. I have Danny Crichton, Danny, your birthday just happened. Happy birthday and how are you?

• 0:23Speaker 01

  I'm older, theoretically wiser, but just hungover. I think is really what happened.

• 0:27Speaker 00

  Yeah, I wasn't going to say that, but we heard a little bit about your exploits and we're not surprised. We also had Natasha Moskowitz here. Natasha, hello.

• 0:34Speaker 02

  I'm kind of feeling the same way as Danny, but I didn't have a birthday.

• 0:39Speaker 00

  Am I the only not hungover person on the show today? Listen, this is our Wednesday episode. We are talking about Africa, especially African startups, looking at e-commerce and fintech in particular. Before we introduce our special guest, Natasha, can you run us through a couple of the numbers to help set the stage for what's going on in Africa?

• 0:56Speaker 02

  It's not hard to make an argument on why we should all be paying attention to Africa. But if you need some numbers, the investments that were raised in the first half of 2021 were more than 1 billion, according to some reports. And that's about double the amount raised in the same time period last year. Last year, of course, was a down year due to COVID, but we have seen a lot of money go into the continent. Obviously due to a bunch of things we're going to talk about today, but just know big exits, funding rounds and high valuations are pretty commonplace there these days.

• 1:24Speaker 00

  Our special guest today is Tej, one of the finest tech reporters of all time. Tej is on the ground for us in Africa. Please say hello, tell people how long you've been here and what you're working on.

• 1:33Speaker 03

  So this is Tej Kano Kafu, Africa reporter for Tech Rentsch. I write about startups and venture capital. I used to write on the same bit for Tech Point Africa, a Lagos-based tech publication. So I'm based in Lagos, by the way, Lagos is in Nigeria. Yeah. So nice to meet you guys and nice to be here.

• 1:50Speaker 00

  Today, we're going to talk about a couple of different things regarding Africa writ large. We're going to talk about Y Combinator and its influence in startups on the continent. We're going to talk about fintech in the African context and why we're seeing so much money go into fintech-focused startups in Africa. And then we're going to talk about e-commerce through the lens of Jumia, a public tech company from Africa that Tej and I have been tracking for some time.

• 2:11Speaker 02

  Let's start by talking about Y Combinator. We all know the accelerator very well in the US. And as we've been seeing through a lot of your reporting, Tej, they are making a splash in Africa. Tell us a little bit about how much attention you're paying to them and what their impact has been in the local early-stage ecosystem.

• 2:28Speaker 03

  The influence of Y Combinator in Africa is gigantic. They made their first investment in 2009. Not much was heard about them since then till 2016, when they made another investment in Baystock. The fintech we knew got acquired by Stripe. So they're like the biggest stage four early startups in Africa, right, to get global attention.

• 2:47Speaker 02

  You're talking about how YC has, I guess it sounds like more recently, become a gatekeeper in the local ecosystem. Are you finding them entering in a way that competitors or early-stage VCs are finding collaborative, competitive? What are other people saying about YC?

• 3:03Speaker 03

  Local investors in Africa, I'll say Nigeria, they're kind of torn between two sides. Some people see YC as doing too much gatekeeping. Some see YC as playing the lot's work. It's a very funny conversation we have here in Nigeria. VCs, when you invest in a startup, they position them to get into YC, right? Because of exit opportunities. So that's an interesting bit of the conversation. Why some think that YC isn't doing enough on-ground research to actually make strategic investments? So they think, I mean, like when YC invests in a startup, there's much hype about the startup, even though they're doing nothing. But I don't think that's been the case, right? Because almost all the startups YC's investing in Africa are actually solving real problems. You know, they're actually doing quite well in their own right.

• 3:47Speaker 03

  In general, I think YC has a very strategic role in terms of putting African startups in the eyes of global VCs and global investors. Invested in about 60 African startups right now and, you know, full-on investments too when you get out of YC.

• 4:01Speaker 01

  I think when you look at some of the macro numbers, Alex and Tej, you looked at some of the VC data. You know, it seems to me that a lot of VCs, Tiger Global, other growth farms, are willing to come in at the late stages because they're established companies. A lot of the risk is gone, established formulas. But there's a complete lack of funding at the seed stage. There's almost no one or very few folks who want to do angel investing in seed. A lot of these countries. And so to me, it seems like Y C is just the group that is willing to write the most checks at that state. There's no one who's willing to do the quantity and frequency like they are.

• 4:31Speaker 03

  Yeah, I agree with that, right? Because if you look at Flotaway, so they're an African payments company. So they're unicorn right now. Tiger Global invested in them in March. Before they got into Y C, I don't think they had a lot of funding from local investors. But after Y C, they got investments from Mastercard, Visa, Tencent and the likes, right?

• 4:50Speaker 02

  I want to make one last point on the early stage and then we can move on to fintech. I was reading an article by The Guardian and it was talking about how a lot of Silicon Valley right now is interested in Africa, but continues to back white foreign founders instead of locals, people who are natives. Tej, I was wondering if you were seeing that that play out or if that's accurate when you look at the numbers? And just even the founders you're spending a lot of your days talking to.

• 5:15Speaker 03

  So I read that, I think that was last year. The founder that was interviewed, Jesse Wright, he's a two-time Y C founder. So for him to actually experience that kind of thing despite being in Y C twice, it's kind of alarming. In a way, I agree with what the reporter reported in Kuwait. In Kenya, for instance, right, only 6% of startups in 2019 founded by locals received investments of $1 million or more. In Nigeria, that I think that's about 50%. But I think the narrative is kind of changing slowly in terms of how investors invest in local founders rather than experts. But I think there's a lot of work to be done for the international investors standard. What they need to do is to actually have teams on ground. I think that's what international investors need to do in Africa or in Nigeria to close the gap between local founders in Africa

• 6:00Speaker 03

  and the expert founders in Africa.

• 6:02Speaker 00

  Before we move over to fintech and I let Danny take over for a little bit. Tej, you know, one thing I've been hearing a lot about on the Nigerian front is kind of some tensions between the government and the local technology scene. There's been some war of the words with Twitter, for example. What's the current climate in Africa regarding kind of government relations with technology companies today?

• 6:21Speaker 03

  The thing about government relations is they don't try to bring startups into the table like founders, you know, to discuss these matters. So it comes out of nowhere. So you're just running your business, right? Trying to make a living, trying to help or better people's lives. Then all of a sudden, you see a regulation that's almost, you know, terminating your business. The government has to do better in Nigeria and in Africa in general. So the relationship between government and founders or tech startups is not a strong one.

• 6:47Speaker 01

  You know, pivoting from that, I mean, two of the categories that are really popular right now in Africa in investment is fintech and e-commerce. I think we'll start with fintech because that has certainly gotten the most amount of funding relatively speaking. So in 2020 fintech represented about 25% of all VC dollars going into Africa, according to Partech. And in the most recent YC batch winter 2021, there are 10 companies that were in Africa, six of which were fintech. So an enormous amount of focus on one sliver of the tech world. And Tej, I'm curious, you know, what are some of the factors that have contributed to fintech's predominance in this market?

• 7:20Speaker 03

  I don't know if you guys know M-Pesa. It's a Kenyan mobile money platform. Yeah, that's where fintech kicked off in Africa. So mobile money was developed to bypass like traditional banking. Telcos created like systems where people could send money to each other without having a bank account. So thoughts of Africans on banks on the continent, financial players see opportunities, you know, to get these guys on bank and also facilitate payments between Africans and the banks too.

• 7:46Speaker 00

  So fintech is a pretty big category though, Tej. So there's lots of different kind of elements of fintech. Payments, of course, is a key part of it. Are there certain parts of fintech in Africa that are seeing lots of investment lately, things that we should keep an eye on? Or is it more kind of like staying in the payments side of the fintech equation?

• 8:03Speaker 03

  Okay, financial services, they are like a hierarchy and payments is like the lowest hanging fruit. It has been like the success story for over 10 years. We are seeing innovation and fundraising in credit, giving people loans, giving businesses loans, giving individual loans. Easy to lend money, right? But it's kind of difficult to pay back. So credit is a very tricky business here in Africa. These companies have to actually build credit histories for individuals they're giving loans to, because the traditional way of getting someone's credit history is kind of non-existent. So these companies have to do that. And then there are savings. Insurance, insurance is kind of taken off a bit, but like the insurance penetration in Africa is low. So these insurance startups have to actually be from scratch, not like

• 8:48Speaker 03

  the payment guys that have to build upon existing banking infrastructure. And over the last two years, we've been seeing a lot of activity in API fintech startups, you know, like Platform Africa kind of startups. Yeah. So these are like the newcomers of the fintech space in Africa.

• 9:03Speaker 00

  Tej, one last thing we wanted to talk about today was e-commerce because you and I both know Jumia pretty well. It's a public company focused on kind of e-commerce logistics and so forth in Africa. But as you and I have covered, whenever we look at their earnings, still pretty unprofitable and e-commerce, while growing, is still a little bit nascent or newish in Africa. So I'm curious, what's the current landscape there for startups building in the e-commerce space? Is Shopify there? Is there a local equivalent? What do you see on the ground?

• 9:30Speaker 03

  So talking about like Jumia losses over the years, it boils down to how they started first in 2012, the competition with Congo, right? So these guys, when they started, you know, raised a lot of VC money. They were the first group of tech startups in Nigeria and Africa to raise bottlenecks of cash. So it was kind of strange at the time, you know, seeing companies raise $20 million. It was a race to the finish line between Jumia and Congo, and they had to spend a lot of money to build the e-commerce infrastructure in Nigeria. Jumia's history of losses has dissipated since 2012, when they IPOed in 2019. They said it was going to change, right? But I don't think it's going to change anytime soon. There are like few e-commerce platforms here and, you know, they've not

• 10:12Speaker 03

  really raised significant venture capital to keep up with Jumia, right? Or to challenge Jumia. So Jumia is pretty much the only thing. There's still like a lot of infrastructure that needs to be built and also trust, right? People don't pay online, right? You know, they still do a lot of cash, you know, 90% of transactions still happens with cash on the continent.

• 10:33Speaker 00

  Tej, just to wrap us up, one last question for you on, on the different countries in Africa, because it's an enormous place, super diverse, lots of different scenes, lots of different economies. What countries should listeners have their eyes on? Aside from Nigeria, South Africa and Kenya, where should we be looking for kind of the, the next generation of technology startups in Africa?

• 10:54Speaker 03

  So first of all, there is Egypt. Egypt is a crazy place right now in terms of venture capital. The likes of Swivel and Kari kind of opened the floodgates and they have local investors, you know, bigger than the local investors you see in South Africa, Kenya and Nigeria.

• 11:08Speaker 00

  Well, Tej, thanks for coming on the show. We really appreciate it. We're going to have you back sporadically as we learn more about Africa and the overall startup scene. But I just want to say, you know, as a long-term TechRench reader and occasional TechRench employee, your work in the last eight, nine months has been fantastic and has really broadened my own view around the world. So I just want to say, I don't know, man, thanks. I really appreciate all that you do.

• 11:29Speaker 02

  Plus one to that.

• 11:30Speaker 03

  Thank you.

• 11:31Speaker 00

  All right, this is Equity. We are back Friday morning with our news roundup. This has been our Wednesday show, talking about all things Africa, especially with fintech and e-commerce vibe. Equity is out, bye.