Entrepreneurship Zone: 17 February 2021: 10 African venture and startup predictions for 2021

Wed Feb 17 09:59:18 CAT 2021

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Entrepreneurship Zone: 17 February  2021: 10 African venture and startup predictions for 2021

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The Covid-19 pandemic has upended the African continent, and at the same time accelerated major innovative breakthroughs, including in talent marketplace businesses, pay-as-you-go platforms, and decentralised finance (DeFi). There is reason, therefore, to be hopeful in 2021. What follows is a top 1o list of predictions – some more speculative than others – on Africa’s growing startup and venture sector for the year ahead.

1. Early investing explodes. With nearly 10 trillion dollars of stimulus money entering the US economy and trillions more around the world, investors will be looking anywhere for yield, including in frontier markets and early stage investing. Investing will also be driven by a growing group of “super angels,” fresh from the tech initial public offerings (IPO) craze in 2020, who form their own solo general partners, crypto funds, rolling funds, and angel syndicates – all of whom have dramatically different risk appetites. Adding to this is a series of strategic exits in Africa – Paystack to Stripe; DPO Group to the United Arab Emirates’ Network International; Sendwave App to WorldRemit – which have started to define what the continent’s exit multiples are, helping institutional and accredited investors cover the continent with more interest.

2. Healthcare advances, but not the way you think. In November, Google’s DeepMind announced it had solved a 50-year problem: mapping the shape of proteins, which allows vaccines to be created and trialled faster than ever before. In 2021, scientists will begin to develop a new generation of vaccines using DeepMind’s AlphaFold technology. This will have implications for dozens of neglected tropical diseases across the African continent. The Gates Foundation and the Chan Zuckerberg Initiative will push grant financing to get these clinical trial and distribution organisations off the ground through startups like LifestoresNG.

3. SpaceX’s Starlink redefines everything. Despite the oft-repeated story of Africa’s digital revolution, the continent remains largely unconnected and captive to a few dozen internet service providers and a number of mobile operators that provide 4G coverage. (Internet connection rates range from less than 10% in Somalia to around 60% in South Africa.) They chronically underdeliver, offering limited bandwidth at high costs. Starlink lets African companies truly “go remote”. Getting around captured regulators and setting up a distribution, installation, and support network won’t be easy, but if anyone can do it, it’s probably Elon Musk. Almost overnight, Starlink will change how over a billion people connect to the world.

4. Software eats the last mile. “Logistics marketplace” startups such as Kobo360, Lori Systems, the app Trella, and the new Salesforce-backed Angaza have transformed how manufacturers send money and how consumers afford items by giving consumers layaway and pay-as-you-go financing options. Expect greater merging between logistics and pay-as-you-go platforms in 2021 as the continent looks to make real the promises on the African Continental Free Trade Area (AfCFTA) Agreement.

5. Global investors are attracted by DeFi bull run. Throughout the 2000s, journalists endlessly cited “seven out of 10 of the fastest-growing economies in the world are in Africa.” In the 2020s, they will cite “three out of 10 of the biggest users of crypto are in Africa”. The widespread adoption of crypto, and its parent, DeFi, is driving investment in the region by global investors with deep pockets – from Asian entrepreneurs looking to grow exports into Africa to Western “crypto evangelists” that are calling for the end of centralised finance. Interestingly, the single greatest driver of DeFi on the continent is retail use by small traders transacting with East Asia. Even though Africa constitutes a small portion of global volume on aggregate, its retail (i.e., consumer) use is a larger share of activity than any other region.

6. African states build out defence industries. African states have long aspired to build a defence industry, but export controls and limited capacity have prevented them from doing so. The inevitable shift to additive manufacturing by companies like RelativitySpace is bringing down the cost of designing and developing dual-use technologies, like drones, rockets, advanced robotics, and artificially intelligent sensor systems. The commodification of these technologies now makes the industry fundable by venture and private equity funds (not just the state). Space is even easier to get to: you can now send cargo to low Earth orbit for $2,600/kg! As countries like Turkey, China and Russia look for export markets for their national defence contractors, new collaborations will be struck with local partners in Egypt, Angola, South Africa, Ethiopia, and Nigeria. Watch companies like Dragonfly Aerospace and Aerobotics.

7. GPT3 creates the new call centre. OpenAI’s natural language platform, GPT3, isn’t just a simple tool for generating fun tweets; it will create a new industry in frontier markets. The new call centre will be a “GPT3 centre” – except rather than fielding calls from irate customers, these places will be content generation production facilities. Marketing professionals, content managers, and search engine optimisers in the West who are paid six-figure salaries to manage how companies engage with key audiences will be outsourced to content generation centres in Nigeria, Kenya, and South Africa that pair affordable graduates from African universities with GPT3 – carefully curating, editing, and managing the artificial intelligence platform. In the longer term, Netflix, Disney, and GetSpectrum – which combined have spent nearly $50 billion on content creation this year – will contract with these centres to develop higher-value content like scripts and screenplays.

8. Plaid for Africa emerges. Plaid is a US-based startup that enables financial services apps, like Venmo, to speak with online banks, like Bank of America. As consumers increasingly use financial services apps in Africa, software that connects new fintech with old fintech will be key. What Paystack was to Stripe, Nigerian startup Mono HQ will be to Plaid in 2021. Fintech is by far the fastest-growing sector in African venture capitalism; the combination of slow-moving banks, ignorant regulators, and savvy consumers is a blessing for innovators. Until now, the focus for many entrepreneurs has been on leapfrogging the old institutions: neobanks (internet-only financial institutions), quasi-credit/lending platforms, or crypto exchanges. A more immediate opportunity is simply creating a single application programming interface (API) – a set of protocols – that the old and new institutions can talk through. Borrowing directly from Plaid, Mono has a head start on creating an open financial data system on the continent.

9. E-commerce explosion attracts strategic buyers. Stripe’s acquisition of Paystack during the pandemic points to a rapidly maturing financial services and e-commerce market. In 2020, online commerce in Africa grew 75% faster than the global average (even if that was from a low base). Since fintech companies need small and mid-size enterprises (SMEs) to adopt their platform, they will want to seed the e-commerce ecosystem wherever it’s growing. Companies like Jumia, accused of fraud and shorted by Wall Street research firm Citron, proved to the market in 2020 that they can reduce operating costs and seed the broader continental e-commerce ecosystem. Fintech/e-commerce mergers could be a 2021 theme for Africa’s increasingly interconnected consumers.

10. Rise in remote work focuses attention on outsource developers like Andela. Turning the page on what has been a challenging past 18 months with layoffs and office closures, Andela’s developer training academies will benefit from a world where staffing and development need not be “on prem”. Building on its acquisition of Skillbridge, Toptal – the world leader in connecting businesses with software engineers – could see Andela as an interesting opportunity to expand its talent marketplace business in the world’s fastest growing market.-Howwemadeitinafrica

Invest Wisely!

Bulls n Bears 

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DISCLAIMER: This report has been prepared by Bulls ‘n Bears, a division of Faith Capital (Pvt) Ltd for general information purposes only and does not constitute an offer to sell or the solicitation of an offer to buy or subscribe for any securities. The information contained in this report has been compiled from sources believed to be reliable, but no representation or warranty is made or guarantee given as to its accuracy or completeness. All opinions expressed and recommendations made are subject to change without notice. Securities or financial instruments mentioned herein may not be suitable for all investors. Securities of emerging and mid-size growth companies typically involve a higher degree of risk and more volatility than the securities of more established companies. Neither Faith Capital nor any other member of Bulls ‘n Bears nor any other person, accepts any liability whatsoever for any loss howsoever arising from any use of this report or its contents or otherwise arising in connection therewith. Recipients of this report shall be solely responsible for making their own independent investigation into the business, financial condition and future prospects of any companies referred to in this report. Other  Indices quoted herein are for guideline purposes only and sourced from third parties.

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