(by Aarzoo Sharma)
Last week, we hosted Charlie Graham Brown, Partner and Chief Investment Officer at Seedstars, and Ido Sum, Partner at TLCom Capital for a panel discussion on ‘VC in Emerging Markets’. In addition to exploring Charlie and Ido’s paths to VC, we spoke about their funds and about innovation in Emerging Markets (Africa in particular). Detailed below are the key takeaways from the discussion.
- On innovation in Africa: “Most innovations in the coming decade from Africa are likely to come from the use of technology to solve existing problems as opposed to pure technological innovation.”According to the team at TLCom Capital, opportunities lie in accessing large underserved markets, discovering and engaging the African consumer, and fixing broken verticals/ infrastructures. Some key tech-enabled themes investors should watch out for are:
- Infrastructure & transport - developing logistics platforms for market access and enabling intra-continent expansion - addressing international markets is a crucial piece for startups seeking VC funding in Africa as individual markets tend to be small from a VC returns perspective.
- Manufacturing - boosting manufacturing efficiency for increased affordability and engaging the African consumer - the African Consumer is much less understood than consumers in other emerging markets, in part due to the limited availability of data points (such as done by google or Facebook on a global scale).
- Financial services - there are massive opportunities in challenger banks, retail fintech, and SME financing/ payment infrastructure. A large chunk of the innovation coming out of Africa today is undeniably in financial services, and the investment team at Seedstars sees it as the strongest sector for seed-stage investments today. Check out our coverage of Stripe’s acquisition of Paystack published late last year.
- Retail - 90% of retail in Africa today is still informal, and there is tremendous value creation potential within the aggregation of retail demand - there is a caveat here, however, since consumer spending is small in Africa (and was further impacted by the pandemic) and this hampers the growth of B2C startups. Consequently, the majority of investments are in B2B startups, which are easier to monetize and to service (business spend is said to double every 15-20 years, and is expected to reach $8.2 trillion in 2050).
- Agriculture - there is tremendous potential in the automation of fresh supply chains and in boosting small farmer yield and market access.
- On exit routes for investors: There are more investors in Africa now who invest larger tickets (such as Partech), and there are also more direct investments from DFIs and trade buyers. In terms of exits, the local stock markets are still not developed enough, and as a result, trade buys from strategic buyers are probably a more viable local exit option in the short term for investors. The team at TLCom Capital expects to see a great deal of consolidation into Chinese and Indian players in sectors such as logistics and EdTech.