Outliers #20

Happy new year folks! We hope that everyone has enjoyed a relaxing holiday break. We at TEN13 are refreshed and excited as ever for 2023 and beyond ⚡️

2023's first Outliers gives readers a unique insight into Stew's recent travels to Lagos, Nigeria. We also look at interesting trends in inflation across emerging markets versus developed markets, as well as reviewing the continued evolution of funding options for early stage founders.

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Dealmakers

The most interesting global Seed to Series A deals from outside the US this week:

1. Virgio - US$37m - India - Fast-Fashion
   Disrupting consumer fashion in India by streamlining design, manufacturing and purchasing processes in “real-time”.
2. Eduvanz - US$12.6m - India - Edtech / Fintech
   Smart unsecured NBFC loan platform offering finance and other solutions for students in India.
3. Plugo - US$9m - Singapore - E-Commerce
   Plugo allows you to customise your online store, including personalised website templates, payment and courier integration, SEO, and marketing tools.
4. Kuona - US$6m - Mexico - B2B SAAS
   An intelligent platform that automatically optimises product prices, promotions and inventories for CPG companies.
5. HD - US$6M - Thailand - Healtech
   Healthcare and surgery marketplace in SEA, powering over 1,500+ healthcare providers including some of the biggest hospitals.

A VC's Insight

Our experience in Lagos, Nigeria 🇳🇬

Stew here with comments on my recent trip to Lagos, Nigeria. Whilst I grew up in Zimbabwe, I spent the majority of time in Southern Africa. This was my first trip to Lagos and primarily focussed my time on visiting portfolio companies (we have four that have a large Nigerian presence - Chipper Cash, Kippa, Payhippo, and Imalipay), plus an exploratory mission to learn more about Nigeria and the venture and startup ecosystem within.

My key takeaway as an investment firm remains that Nigeria (and Africa) is ripe for investment, all of the emerging opportunity seems real and there is strong ambition from the ecosystem to get out and solve core problems. The major challenge is understanding local nuance and challenges, thus is always helpful to get your feet on the ground.

Lagos, Nigeria is often referred to as the "Big Apple of Africa", and after spending time in the city, it's easy to see why. The energy and buzz of the city are palpable, and there is a feeling of constant activity and movement. One of the things that really stood out to me during my visit was the level of hustle and entrepreneurship present in the local community. Everywhere I went, it seemed like people were working hard to build businesses and create opportunities for themselves whether it was people selling water and snacks in the middle of traffic, informal market stalls, delivery and commuter drivers, etc.

Even just posting about my trip on LinkedIn, I was flooded with inbound requests to connect with local entrepreneurs and business people. It was clear that there is a strong culture of entrepreneurship in Lagos, and there is a sense of movement and progress.

Founder hustle is real:

L to R (clockwise): OurPass (Samuel Eze), Imalipay (Sanmi Akinmusire), VendEase (Tunde Kara), Kippa (Kennedy Ekezie)

During my time in Lagos, I was able to meet with the founders of about 20 companies and was struck by the level of entrepreneurship and drive that was present. I was truly impressed by the calibre of talent at the founder level. These individuals were highly ambitious and had a clear vision for building big businesses. It was inspiring to see the energy and drive that they brought to their work. One of the things that stood out to me was that these founders were on par with those I have met in Western markets in terms of their skills and abilities (but often seemed even hungrier). However, they often have had to deal with harsher capital-raising conditions and a more challenging macro environment. Despite these challenges, the founders I met in Lagos were undaunted, and I have no doubt that they will continue to drive the local tech and startup scene forward.

Talent returning:

One positive trend was the number of talented individuals who have returned to the country to build startups and scaleups after gaining experience abroad. Many founders have worked at successful companies (either on the continent or internationally) and may have studied abroad - they’re bringing their knowledge and experience back to the local ecosystem, plus they have ambition about building for the African region. This is proving to be incredibly beneficial for the growth and development of the tech and startup scene in Lagos, as these individuals are able to draw on their international experience to inform their approaches and decision-making. Additionally, many of these founders maintain dual bases, splitting their time between Nigeria and other countries such as the United States or the United Kingdom. This allows them to tap into networks and resources in both locations and helps to bring a global perspective to the local ecosystem.

Countering this, one of the challenges was the shallow pool of tech and startup talent in the local ecosystem past founders, and general leadership. While there are certainly a number of talented individuals working in the tech and startup space - the majority of teams were new to startup class and had yet to develop deep startup and growth experience. One of our investments, Entry Level, is helping to upskill talent via cohort-based learning to help solve for this.

This theme seemed especially true for companies that are scaling rapidly and looking to add experienced team members to their ranks (albeit I met some great people at scale-up / large tech cos that had returned from international roles). As a result, many startups in Nigeria had larger teams than Western counterparts for their stage, but the output (and cost) per person can be lower than what you would see in more established ecosystems. This is not to say that there aren't highly skilled and experienced people working in the Lagos tech and startup scene, but rather that the pool of experienced (done it before) talent is still maturing and will likely come as further growth ‘poster’ companies emerge.

Founder Openness:

From top left - clockwise: Imalipay, Payhippo, Termii, Kippa

During my visit, I had the opportunity to meet with a number of founders at their offices, where I was able to meet their teams, participate in Q&A sessions, and share knowledge. These interactions were extremely valuable, as they allowed me to get a deeper understanding of the businesses and the challenges they faced. The portfolio investment companies and prospective founders I met with were incredibly welcoming and seemed genuinely interested in opening their doors and engaging me with their teams - there was a level of openness, being proud to showcase their team and what they were building. This level of willingness to engage is not always present in every ecosystem, and it was refreshing to see it in action in Lagos.

Tailwinds for the population’s core needs:

One of the interesting areas was that there was a lot of opportunity for technology to improve basic areas such as goods and services that are mature in other markets:

• Automotive and insurance: For example, there are 10 million+ vehicles on the road in Nigeria although insurance adoption is below 1% for coverage, and sourcing qualified mechanics and parts is a major problem. As such, there are companies looking to fill the gap with models like D2C automotive insurance (ETAP) and marketplaces for mechanics for spare parts and servicing (Mecho).
• Real estate: Many countries have well-established digital marketplaces for renting and selling real estate. One major nuance to the Lagos rental market was that a deposit of a year’s rent upfront was usually required, making the rental market much less accessible. One such company solving for this was Spleet which provides a marketplace for listings of real estate plus a lending (BNPL) offering to pay the deposit for renters including credit checks to improve the rental experience for both sides.
• Financial infrastructure: There was a lot of activity in fintech, across B2B (emerging) and B2C (cards, trading, crypto) etc, plus core financial infrastructure. This makes sense given 85% of the Nigerian economy is cash-based and therefore, any shift to online will bring a flux of transactions online - hence companies like Kippa and TeamApt (digitising informal economy), or Payhippo (B2B lending) are proving out the exciting trends of financial access and services for B2B vs. incumbent offerings.
• Wholesale B2B marketplaces: There was an emergence of tech-enabled wholesale marketplaces for food distribution to restaurants (VendEase) and allowing for the buying and selling of chemicals (Matta). Core marketplaces are forming to service large industries, especially ones that are core to day-to-day consumption.

My takeaway was that there will be more successful companies coming out of the region that will focus on technology and tech-enabled solutions for the large, growing population and the fundamental areas that service them, such as food, transport, financial products and access, and healthcare etc.

I saw a lot less of the attitude of ‘build in Nigeria for the world’ (global SaaS). Rather, the sentiment seemed more focused on taking on models that have worked in other markets and adapted to the local market with strong talented founders - this is one of our core theses when investing in emerging markets.

Macro challenges

There is a draw to Lagos, a level of hustle and optimism that keeps things ticking over yet despite this, there were also clear challenges ahead that most companies were continuing to manage:

• The foreign currency and inflation treadmill: The official bank rate in Nigeria is the Central Bank of Nigeria's (CBN) exchange rate. This rate is used for all official government transactions. The current CBN rate is ~450 Naira to 1 US Dollar (today / early Jan 2023). The black market or ‘street’ rate is the rate used by foreign currency traders who buy and sell foreign currency outside of the official banking system. The current ‘street’ rate was approx. 700 Naira to 1 US Dollar when I was there in December 2022. The challenge is that when a startup earns in local currency (Naira), trying to post strong growth numbers in revenue when converted to USD, and trying to keep up with inflation at a rate of 21%+ - it means that posting strong USD revenues to benchmark the business and show strong USD growth (for investors etc) can prove challenging.
• Local challenges: Aspects such as ‘Lagos traffic’ mean you can get stuck for hours trying to get across the bridge (10km trip) in the mornings, or bank cards not working, fuel queues for vehicles, dealing with cash vs. digital adoption and changing foreign currency, generators or solar required for electricity consistency and internet stability etc. These are part of day-to-day to life in Lagos and par for the course, yet it does mean that a portion of time is generally taken up by more of these tasks. It can hinder efficiency and often requires more staff in the team.
• Policy and political instability: Elections in ~Feb 2023 was a consistent topic of discussion and general policy from the Central Bank of Nigeria (CBN). When I was there, the CBN introduced a policy to improve digital financial adoption into the formal banking system by limiting cash withdrawals, and when the informal cash market is approx 85% of the economy, this is a material change to operations for many business and the informal economy and required consistent review for the businesses on the ground.
• Slim pickings on technology exits: Like most emerging startup ecosystems, exits have been slim for the ecosystem with only two material transactions noted for technology companies being acquired, Paystack by Stripe for ~US$200m and Sendwave acquired by WorldRemit for US$500m.Despite there being a handful of emergent unicorns (Flutterwave, Chipper Cash etc), it still feels early before any wave of large inbound acquirer interest. There will likely be a few more years’ of building before there are major wins, as talent and core capabilities evolve in country and businesses have time to build sustainable and large companies.

My key takeaway as an investment firm remains that Nigeria (and Africa) are ripe for investment, all of the emerging opportunity seems real and there is strong ambition from the ecosystem to get out and solve core problems. The challenge lies in the local nuance, thus it is required to build a deep network and leverage that network to get access to exciting companies solving real problems to avoid the moniker of ‘tourist investor’. It takes time and effort to become active in a new geography, hence why we have started to both invest and spend time on the ground to understand this exciting market.

Retweet

It’s great to see emerging managers and solo capitalists / GPs, like Packy McCormick, still raising capital.

2023 is likely to continue to be a tricky fundraising environment. More than ever, we feel that a wide range of investor and funding options for Founders, such as ‘solo capitalists’, syndicated investment groups & value-add angels (alongside the more traditional VC construct) will be critical in supporting the ecosystem.

Macro lens

The graphic above shows Consumer Price Inflation trends for both Developed Markets and Emerging Markets.

This is particularly interesting as, according to Pinebridge, Emerging Market inflation has historically exceeded that of developed market economies, but that relationship has begun to break down. There are some fascinating potential reasons outlined for this flip - more here.

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Your authors this week

Stew Glynn - Co-Founder and Managing Partner at TEN13. Follow on Linkedinor Twitter for more.

Seamus Crawford - A lengthy career on both sides of the table, working in early stage startups in the UK and investments in Hong Kong. Seamus has a particular interest in India and the wave of sub-continental innovation.

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