Experiments, not employment

What VC is for, what it isn’t, and why our exits are weird.

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Quick hits

• Congratulations to Kredete on its $22 million raise to advance cross-border remittances, via credit building for immigrants, and Stablecoins.

• Two failed on-stage demos aside, it may be the 4th time lucky for the wearable computing category, as Meta announced the latest iteration of its Meta Ray-Ban smart glasses.

• Larry Ellison became the richest man on earth, and Americans may have to download a new version of the TikTok app controlled by him

• MoneyGram is launching a Stablecoin remittance product with its first rollout in Colombia

• PayU(A member of the Naspers/Prosus group) has exited the Kenyan market

• Donald Trump’s new executive order has fixed the price of H1-B visas at $100k

• The new iPhones go on sale this week, starting at $799 or £799(did you know most iPhones in Nigeria are sourced from the UK? Let us know in the comments what the Naira price in the market is if and when you’ve gotten them)

A few weeks ago, I wrote about VCs in Nigeria and trends in the startup ecosystem, exploring where the next big wave might emerge. One reader responded with detailed feedback and rebuttal that deserves to be shared publicly to advance the conversation.

Writing online is fascinating—people can ignore your work, leave one-line comments, call it terrible, or respond to 5,000 words with 2,000 words of their own analysis. When someone takes the latter approach, it's worth amplifying.

This is a repurposing of the feedback I received on these posts on VCs here and here, from a reader. I promise, I am not doing this to meet my content quota for the month

Now to the article

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What are we actually asking VCs to do?

*⚠️🚨Editor’s note: lots of disclaimers and hypotheticals ahead. Please read accordingly and apply the relevant legal caveats. This is to advance the conversation and elevate public consciousness on this topic.*

For all its criticism, the VC model of business creation isn't supposed to deliver the best outcomes. We’re largely demanding from VC companies what they cannot deliver in response to our increasingly services-led economy.

These companies exist to do more with less. And that includes labour. A Dangote Cement can employ 20k (quite low for a company of that size), but a Kuda shouldn't. They should be able to deliver more value with less. That’s the core thesis.

Using LinkedIn as proxy data, Moniepoint group seems to be leading the startup ecosystem on the job creation front with over 4K members and counting across their various brands, and they’re able to deliver value without the whole land acquisition, mining, building plant, et al that a Dangote Cement would have to grapple with.

Question? What happens to the virtual dollar card market once Naira cards start operating globally? While multicurrency accounts are valuable for freelancers and a cohort of first-time internet earners, a larger share of their users are people who just need a dollar card/account for payments. The business case weakens with more Naira cards coming back online. It is therefore difficult to see the bull case here in any scenario, whether it involves stablecoin or anything else.

Sadly, we do not have VCs with an actual thesis; rather, an ecosystem of accidental VCs. So now that the Paystack-esque exits are not flowing, we keep hearing “where are the exits”, “we need profit”, and “we need a new model for VC that adapts to the African context”.

Ventures Platform and Future Africa claim “market creation” is their thesis. I’m sure there are others, too. But when one looks at their portfolio, we begin to wonder if they do believe Professor Christensen’s ideas as they claim.

The push for “go global” doesn't align with market creation, because the existence of a company like Moove implies that we don't believe there’s a market to create locally, and companies must move from Nigeria to Europe/Asia to make it.

Honestly, Moove and Andela shouldn't be called Nigerian unicorns. Andela didn't achieve a billion-dollar valuation based on value created within Nigeria. It was global expansion that delivered that value. We don't have to hate the players, just the game they're playing.

I believe in going global, but the perceived small-mindedness of this chase leads people to think they can skip the local market (similar to our Afrobeats artists). You can't claim to invest in market creation, cite unicorns as proof that it works locally, then reveal these companies only became valuable by reducing emerging market exposure.

I believe we’re downplaying Opay’s super app fail. They eventually scaled back everything and focused on payments. Did multiple revenue streams truly work or a single focus?

The unbundling banking argument about delivering cultural rather than structural impact may be masked by timing, similar to GTB targeting younger demographics early, then growing with that same audience as they grew older and richer.

We all need to stop comparing Moniepoint and Opay on agent banking. There's one clear winner: Moniepoint's Blue POS network. Opay's success lies with retail customers, Uber drivers, and artisans. They were never competitive in agency banking.

Chipper Cash’s failure feels a little more like an African failure. Their thesis was that Africans could send money across the continent within their app, without worrying about currency issues.

But when intra-Africa trade barely exists, you chase various other ancillary business models and products such as dollar cards, stocks, crypto, Twitter Payouts, and Stablecoins. Heck, they even tried the identity verification business, only to end up with minimal value added across all these verticals.

If I were to turn time back, I’d say ChipperCash should’ve focused on business travellers, especially those who move around Africa a lot. The mass market was a dead end.

PayDay’s flop still amazes me. Went from Twitter darling and a potential MoniePoint acquisition, to being acquired for scraps by a crypto company that allegedly owed salaries.

Interestingly, your original post does not mention MoniePoint under business banking. Here is my theory: business banking platforms that went after online SMEs all struggled because this cohort of customers was largely made up of passive entrepreneurs, lacking steady cash flow and small compared to the size of SMEs that have an offline presence.

Brass, Prospa, Glade, and Ourpass all convinced themselves that there’s money to be made from these mostly digital-first business owners.

Moniepoint went after offline businesses, who are the ones truly excluded by existing business banking. Business banking wasn't the issue; having a strong understanding of the target market and their business viability was the issue.

Gambling emphasises the “agent” theory of distribution and scaling in Nigeria. Nairabet and Bet9ja’s growth is an agent-led success. Kiosks sprang up everywhere around 2010-2015, embedding betting culture in ways Baba Ijebu could never match. But, like everything else, mobile changed the game. The kiosks didn't increase much more, as people took their betting online, with a large number of apps to choose from.

I am not convinced that we have sacrificed job creation. We need to expand on this topic and compare it with other markets. Have their VC-funded companies created more jobs than other sectors? Should we advocate for startups to deliver more jobs (i.e hire more people) when their existence is premised on doing more with less?

The M&A emphasis is more about market maturity and global alignment. Acquisitions are the more common exits in the US versus IPOs. The problem is that due to the YC-centric nature of the VCs we have, Nigerian companies were not building for local acquisitions from day 1.

Cowrywise should’ve been acquired by Meristem or one of the other asset managers a long time ago. The same can be said of Risevest and Chaka. They shouldn't have swallowed so much capital that acquiring them became too expensive for all stakeholders within the value chain. This is a VC failure. Their job is not just to invest, but also to engineer sustainable and timely exits.

Lemfi would not have thought of acquiring Pilar if their shared investor hadn't nudged them in that direction. A move similar to the Omni retail acquisition of Traction Apps. Similarly, why is Bumpa still operating independently? At what value can it engineer an exit? It is a solid product screaming out loud to be a complement to a much larger entity.

Seed and pre-Series A acquisitions are common worldwide. In that regard, Flutterwave represents a collective ecosystem failure. At a $3 billion valuation in this market, they have no significant acquisition, despite the number of businesses existing due to a repurposing of their APIs, and ex-employees who are founders. Becoming that large with no valuable seed-stage startups in their pocket is pathetic.

Moniepoint, as a unicorn, fares comparably better in that regard. Moniebook is a result of their acquisition of Grocel - embedding what would’ve been a standalone struggling startup, into a larger company with extensive distribution. The same can be said of their Kenyan expansion.

PiggyVest has had multiple acquisitions with nothing to show. Theirs may be a sad M&A tale. As there has been no change to the overall product roadmap despite the number of absorbed startups in their portfolio. Ten years later, it's still "save with PiggyVest."

We don't need IPOs yet. As Jason Njoku has written repeatedly, we need lots of smaller ticket acquisitions between $500K and $5million as these are the signals which validate local market value, and shorten the product roadmap for the larger companies.

The fact that no bank directly acquired any fintech is a market failure. VCs, with all their claims of having local context, were funding startups to dump them on foreign investors (Ope Awo’s pump and dump statement comes to mind here). As these foreign investors vanished, they were forced to prove their value. Clearly showing that there was not much value in some of these venture-funded ideas to begin with.

I am convinced that startups exist to be experiments. The ideal scenario should be “this hasn't existed before, and we want to see if it can work”. They can't always be “the right things” for the country. Separating experimenters from wave chasers is where the work is.

The latter category will always exist, and they are best ignored. But the experiments that do work will always create a multiplier effect in the scale of value they provide - and that is what our overpaid VCs should be scouting for.

NIP by NIBSS is one of such good experiments. Today, people just bank and pay online like it is second nature. People tried something, made it work, iterated, and today, what it means to pay is completely different from what it was 20 years ago.

VC-backed solutions can create more value than we currently get. We need better investors equipped with market insights because they invest in their own research and can spot real market-creating opportunities ahead.

What we have instead are Nigerians who have been in their businesses for so long, isolated from the market because they sit in air-conditioned cars and offices, disconnected from the on-the-ground reality.

This is why many missed Moniepoint (sidebar: Jim Ovia didn't). If they had walked through Ile Ife, spoken to market women in Sabo, their perspective on what needs building and where opportunities lie would differ dramatically.

For all the "foreign investors don't understand Africa" rhetoric, our own people don't understand Africa either. They understand Lagos and Abuja, and still rely on foreign investment patterns to decide on local investments from Marketplaces to Stablecoins; nothing has changed.

Ope Awo's quote is an honest, self-fulfilling prophecy. Startups outside Lagos barely get funding because investors don't understand what happens outside Lagos or the consumer behaviour patterns across Nigeria.

When your real thesis is dumping on foreign investors for 10x returns, you fund what they're funding so you can pitch acquisitions to them.

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You can find more of Tolu’s writing here

See you next week!