Eliot Pence – an International Affairs Fellow at the Council on Foreign Relations – outlines 10 predictions for African venture investment in the year ahead.
1. Software breathes new life into emerging markets healthcare
Old, expensive, exquisite diagnostic systems get a makeover with AI-powered backends. Well-funded US-based companies like Exo will have emerging market lookalikes that provide 100x capability and 1/10th the price. One already exists – Neopenda – that helps chronically understaffed hospitals monitor 100s of newborns’ vitals at once. Bigger, more transformative breakthroughs are on the horizon. ULF MRIs leverage AI to make MRIs dramatically less expensive.
With less than 400 MRIs for 400 million people in West Africa, the integration of these new devices will be transformative … if people use them. Aggregating demand for preventative healthcare in Africa has been a chronic challenge – most people just go to the hospital when they’re sick. MDaaS Global, which was focused on medical devices, is now changing that by rolling out a One Medical-like service for preventive and personalised health called SentinelX.
The combination of these two trends – AI-powered devices with more preventative, customer-centric service models – will transform healthcare into a much larger consumer opportunity for investors and inventors.
2. Quick commerce gets a frontier makeover
Quick commerce has devoured capital at an astounding pace in developed markets (see Gopuff for example), leading many to think there will be a reckoning in 2022. That may be true, but in places like Africa, it’s just getting going.
Even in Africa’s most developed economies e-commerce penetration is low: South Africa is at 3% (China, in comparison, is 25% penetration). As quick commerce takes hold, the models emerging from places like South Asia and Africa will look different because the realities are so different: 85% of consumer spend is on low-margin basic goods (like flour and fuel), trust in commerce is low and home addresses don’t exist all that much. Winners will have already built out trusted brands or popular businesses in either the transport space, like Pakistan’s Airlift, or have interesting unit economics based on one product, like fuel through KOKO Networks, in Kenya.
3. Opportunity more equally distributed
What the internet did for freelancing work from 2000-2020, Covid did in one year for remote work. Now, every job in technology is remote-first, which means African start-ups are now competing with every start-up. Companies like Alex Bouaziz’s Deel (which recently raised $425 million) will push African start-up wages higher, by allowing Africa’s most talented to earn a US wage in Lagos.
The ultimate beneficiaries, though, may be the smart countries that realise the benefit first and help companies like Deel set up smart labour employment laws and benefit incentives.
4. DAO for the people (and ports)
A decentralised autonomous organisation, or DAO, of young African crypto enthusiasts buys a British museum as a way to get back at the country for taking their art and artifacts. A better idea, though, would be to create a DAO to buy something that actually generates revenue, and not a soccer or NBA team. What about a toll road or port? Bollore, which is rumored to be selling its African assets, could be a good target.
Controlling what comes in and out of a country’s port is how many an African business baron has been born. As the continent-wide free-trade agreement (AfCFTA) gets implemented, a decentralised community of aligned investors might just transform how operational governance is done and increase intra-African trade from its abysmally low rates (<10% as compared to asia’s ~45%).
5. African M&A flourishes
Nearly every internet business in the developed markets of North America and Europe will see growth slowing, making them look to emerging markets for user acquisition. At the same time, the venture money rushing into founders across emerging markets has set high expectations. User acquisition will be on the minds of both developed and developing executive teams. As one of the least M&A’d continents (according to BCG, Africa’s slice of the global M&A market is about 2% of the $3.1 trillion global M&A market), African start-ups and companies will look cheap to acquirers. Expect many more acquisitions and mergers in 2022.
6. Creative boom
Africa’s influence on global cultural trends is well established – from Nollywood and Chimamanda to BurnaBoy and Jerusalema, Africa has never been more “in”. As Aubrey Hruby notes, Africa’s creative economy, at $4 billion, is a small (but rapidly growing) piece of the world’s $2 trillion global entertainment market.
The crypto economy offers a possible onramp to better compensate creatives, though. Sound.xyz, an Andreessen Horowitz-backed start-up, offers a suite of web3-native music and economic tools, starting with listening parties for new releases. And OGs in the NFT space, like Dapper Labs are increasingly looking to extend their reach through innovative partnerships. Maybe their next will be with Barack Obama and other investors in Africa’s new basketball league to release #TopShotAfrica?
7. Block, Inc (formerly Square) acquires Yoco
Now that Jack Dorsey is less focused on Twitter he can start to think through how to not just deepen Block’s fintech stack, but expand around the world. Cash App might have been the best acquisition of the past decade, but his well known affinity for Africa could give him a project to work on, while he looks for a place to live on the continent.
Yoco, the point-of-sale start-up that spread across Southern Africa over the past five years, will be top of that list to acquire. Here’s to Yoco and Jack!
8. The ultimate leapfrog
Leapfrogging the landline to mobile dramatically changed African lives and economies, but the next leapfrog – transforming how we produce protein – could be even more consequential for countries looking at ways to feed their growing populations. Engineered enzymatic forms of production, like biofacturing where products and protein emerge from fermentation facilities being done by companies like Solugen and The Production Board, combined with advanced fabrication technologies are making local production cheaper, cleaner and faster. Even though Africa has 60% of the world’s arable land, scaling protein production might happen in labs and fermentation facilities as much as fields.
9. The A16Zification of African venture
African funds start to Andreesenify themselves by becoming bigger, more value-added funds. As Africa’s venture landscape starts to grow, its local funds will find increasing pressure at the series A and B stages. To compete they will need to take on Africa’s emerging angel networks and some of the world’s most well-resourced and connected funds like Tiger Global that proved their willingness to go super early this year (it went into a $3 million seed round in Zambia).
While some of Africa’s most well-respected funds – like CRE Venture Capital, TLcom, Lateral Frontiers and Ventures Platform – will continue to get into whatever round they want, getting pro-rata rights for others won’t be as easy as it has been. The winner will ultimately be the most shrewd entrepreneurs with the best story and network.
10. US-Africa relations ice age
The Biden administration’s focus on great power politics will distract it from what many had hoped would be a rekindling of the relationship following the avowedly racist approach deployed by the Trump administration. A test of the Biden administration’s commitment to the relationship will be in its new policy, anticipated early in early 2022, and an Africa Summit in late 2022.
On an optimistic note, the administration does have one of the most forward-thinking people spearheading the drafting of a new policy in Judd Devermont. The question may well be not whether the policy is “right,” but whether it’s set up for success in how it’s resourced, staffed and implemented.