Is GDP relevant? The next 10 years and new Raba companies!

The first quarter of 2021 has been nothing short of extraordinary for the African tech ecosystem.  This is reflected both in operating results and capital flows.  Many of our portfolio companies have accelerated growth this quarter.  We look forward to sharing more on our company's results in our upcoming partnership call in May.  Invites coming your way soon.  

On the capital side, we’ve seen unprecedented investor interest in early and growth-stage opportunities on the continent.  Flutterwave closed a $170M series C round, and we’ve had a number of global technology investors reach out in recent months to explore opportunities to become more directly involved in Africa.  Several companies in the Raba portfolio are imminently closing growth rounds of over $50M.  As these companies move closer to the public markets, large public liquidity events will drive more interest and growth into the African tech ecosystem. 

In this Raba update, we share our thinking on why we believe Africa will be the most exciting tech ecosystem to invest in over the next ten years.  As one of the lead investors in Flutterwave’s recent round put it, “we are excited to support the team as they build the last available payments infrastructure frontier in the world.”

Portfolio update

Two terrific companies have joined the Raba partnership. 

Ramani | Raba led a $1.3M seed round in Ramani, alongside investors including Village Global, Musha Ventures (thank you to Aadil for introducing us to the company) and YCombinator.  Ramani is a software platform that drives sales visibility and leverages supply chain data to efficiently and profitably provide working capital to businesses.  The team is on a mission to build a unique African hybrid of Salesforce and Square, starting in East Africa, where businesses serve over 450 million consumers and over half of the population is under 19 years old.  This is an exciting growth market projected to surpass 570 million consumers by 2030, with over 200 million living in cities.  The company is led by Iain Usiri, who was born and raised in Tanzania, and joined Salesforce as a software engineer after receiving his CS degree from Stanford.  Our reference checks confirmed Iain’s strong leadership and decisiveness, as well as his  commitment to solving SMB customers’ pain point of being underserved by banks and existing software. 

COVA | Raba led a $400K pre-seed round in COVA, a digital repository for financial assets.  Globally, there is a significant (and growing) base of companies and individuals that own digital assets such as crypto, NFTs and equity in private companies.  In the US alone, over 25 million people own crypto.  Luno, a Cape Town-born crypto platform, recently reported over 4.7 million users in Africa (the total number of crypto owners in Africa is much much higher).  COVA is building a consumer and B2B product that brings together assets (crypto, NFTs, traditional assets) into a single dashboard that updates in real time via API integrations with partners like Plaid in the US and Stitch in Africa.  The dashboard view enables a better understanding of your assets, how they’re performing, how to optimize, and, importantly, how to secure and pass on assets as a bequest.  COVA is led by Yomi Ojo, a founder whom we’ve been impressed with over the last four years, and who is one of the strongest executors we’ve met.  We were keen to work with him in his last business and found the opportunity four years later when he approached us to lead his pre-seed in COVA.   

Existing Raba company updates

Stitch raised an additional $2M in seed capital, bringing its total seed round to $6M.  Stitch added prominent investors, including leadership of global technology companies like Coinbase, Truelayer and others. 

Clouldine closed a seed round and has made several strategic hires, including a senior hire from an industry leading drone company.  Cloudline is Raba’s first build company, where we take an active founding investor role in building a business with a visionary founder and team.  The company has an exciting pipeline of commercial opportunities, and we are excited to share more over the coming months.  

Is GDP wrong and the decade of the creator...

Let’s start with this.  We believe African economic markets are much much larger than conventional metrics suggest.  

But Why?

There are many reasons, but the biggest driver is the informal sector, which makes up more than half of all economic activity. By its very nature, the informal sector falls outside of the regulated economy; participants pay little to no tax and rely on cash, making the sector largely invisible to GDP.   An illustration of this is Nigeria’s “rebasing” of GDP eight years ago, revaluing 2013 GDP from $270B to $510B, an 89% increase!

What actually happened? In the rebasing exercise, the base year of comparison was moved from 1990 to 2010.  This corrected for sectors like telecommunications, retail and movies, which were previously not captured or underreported. The telecom sector alone increased from 2% to 7% of GDP.  Nigeria hasn’t rebased GDP since, but here are a few interesting stats: 

Since 2010, Nigeria:

  • Grew by more than 50 million people (the US grew by 20M, the EU grew by 6M).
  • Had over 50 million people move to cities; Lagos alone has over 20 million people.
  • Added over 100 million new mobile phone subscriptions.
  • Has a population with a median age of 18.1 years old.

Clearly a lot of growth.  But on a per capita basis, GDP is slightly down since 2010.

The following is an interesting bit of MTN (South African telco) history shared by a close friend of Raba, Miles Morland, who is a legendary Africa-focused investor and founded not one but two exceptionally well regarded investment groups, Blakeney and DPI.

In February 2001, Nigeria sold four mobile telecom licenses, one of which was to South African MTN.  At the time, there were 300,000 phone lines in the country.  Based on IMF income statistics, the total addressable market in Nigeria would only ever get to 15 million subscribers and that led to MTN bidding and acquiring a license for $285 million.  To put that in perspective, in 2020, MTN Nigeria generated over $3 billion in revenue at 50% EBITDA margins (better than Facebook margins!), and their data subscriber base grew by more than 29% in 2020 (an increase of 7.4 million subscribers).

So what does this mean?  It means that measures of GDP may be way off.  This misperception gap provides incredible opportunities for investors.  We believe the combination of creators, digital payments, and discovery platforms will open up incredible economic gains across Africa for the decade to come.  

The creator economy, digital art, NFT, what’s that??

Today, in Lagos, artists like Osinachi, a self-taught 29-year-old digital artist sells digital pieces created in a day for tens of thousands of dollars.  Below is a screenshot of a recent work sold for $47,061.  Digital art represents one form of an NFT (non-fungible token), which is something that is unique and can’t be replaced.  Digital art transactions are recorded in a digital ledger (the blockchain) that presents a transparent history of provenance (who owned the art, when was it first printed, etc.).  An important feature of this digital model is that the artist will continue to participate in the economics of any future secondary transactions (generally at 10 to 20% of the value). This fundamentally transforms a longstanding paradigm in the creative economy, in which creators see only a small fraction of the profits from their work, while distributors take the lion’s share.  

This example is meant to show the incredible power of the creator economy, which will be one of the important drivers for African’s future.  Globally, over 50 million people make a living in the creator economy and this number will swell over the coming decade.  These types of fully digital transactions deliver on the promise of internet scale platforms.  We are also seeing collectives drive investment and support for projects at an unprecedented scale.  Ideas are being willed into existence by the masses, whether it’s through a Reddit forum that fueled a collective investment in Gamestop or a meme-inspired crypto coin called Dogecoin (which is up over 57X in 2021 alone).  Today, someone sitting in Lagos could have the same access to the power of these platforms as someone sitting in San Francisco. This has profound implications for creators, investors and founders.  

Incredible opportunities for creators, in Africa and globally

The 2020 African Youth Survey — based on 4,200 face-to-face interviews of 18- to 24-year-olds — found that over 82% of respondents believed their life would be better in the coming years. and 4 out of 5 indicated they would follow an entrepreneurial path. This part from the survey nails the point: “in a sharp change from the past, most of the youth interviewed no longer looked to government jobs for careers and security but were much keener to go into business on their own behalf.”  When you marry the flattening of opportunities brought about by the new digital economy, with the collective energy, talent, and belief in their future that young Africans have, incredible things can, and will, happen.

So, where does this go? 

The creator and the availability of microservices (platforms for discovery, distribution and payment) and creator tools (phones, internet connections, free software) will drive large transfers of value to emerging markets.  It’s precisely the lack of “normal” jobs that will power this opportunity.  Young people will not wait for industrialization (which was the path to prosperity in other regions).  This creator movement will be digital-led and will launch a movement into much more creative and gratifying careers.  Creators and founders like Osinachi or Iyin Aboyeji (founder of Flutterwave and Andela) are providing visible examples of young African builders who define the zeitgeist of an era.  This movement will be among the most powerful force multipliers for people in emerging economies and Africa in particular over the coming decade.  At Raba, we’re deeply inspired by the boundless economic opportunities that this technology creates.  Wasn’t this the original promise of the internet — true democratization of information and opportunity?

Other stuff & news... 

Amazon.com is expanding and setting up its African headquarters in Cape Town.  While we don’t know the actual number of new jobs (easily in the thousands), we are very excited by this development.  Twitter also recently announced its first African presence in Ghana. 

We’ve learned about other large tech players focused on setting up a physical presence in the African continent and believe Cape Town will continue to be an attractive city for companies to build from.  More to come here, stay tuned... Founder dinner at Kloof Street House (one of the Raba team’s go-to spots)

While taking necessary precautions, we are continuing to find ways to meet in-person and build our community in Cape Town.  We recently hosted a founders dinner with the goal of fostering relationships in our community, especially after an extended period of isolation.  We plan to host more of these events, COVID permitting.  

Photo below from our dinner which included the founders from Aerobotics, Carry1st, Cloudline, CRSP design, FairMoney, Stitch, Klang Games, Lori, and Sweep South.  

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