Thread by @ido_sum

Well... It's been a while. Crazy busy + a world economic crisis , felt like it’s a good time to go back to think. Here are some #AfricaTech #reflections given the many 'we're all gonna day' recent hype from all over. Might be long, so bare with me… 👇🧵

1/ Everyone shared views. From @ycombinator (too generic and unexciting to me), to @sequoia (worth the 52 pgs…). Lot’s of reading later, one point is clear > it’s all super US centric. The center of the world for many, but what does it entail for us? for tech in #Africa?

@ycombinator @sequoia 2/ Starting from the end, we’re not all gonna die. Tech + startups & innovation will make it through as a sector, and like in every other financial crisis in history, economy will recover. Those who manage this period well, can become much more meaningful (see '00 and '08).

@ycombinator @sequoia 3/ It will be a time of great new companies started (like in ’02-’03 and ’09-’10). Less capital + more stress = less fluff + more focus on what counts. Focus is positive, and will be worth the short term pain. With that ‘the pain’ implications for #AfricaTech may turn different…

@ycombinator @sequoia 4/ To me, we need to focus on 3 main points.

i) Implications for the #AfricaTech funding landscape short+long term (important and a bit obvious)

ii) Implications on business models

iii) Changing environment creating special opportunities

@ycombinator @sequoia 5/ Starting from the top. Capital is no longer ‘Free’. US Interest rates are shooting up, and Fed stopped’ printing money’. Coupled, this means that many asset allocators now have better alternatives to deploy on the risk return curve, which were not there for a long while.

@ycombinator @sequoia 6/ Large investors took big balance sheet hits, and are now much more conservative. Those who expanded to Africa as an ‘exploration’ may stop doing so for some time, and valuations taking a hit as there is a crunch from public and IPO markets.

@ycombinator @sequoia 7/ This will also translate to less new funds raised in the short term (ratio of VC to other asset classes needs to be adopted to lower public market portfolio of large allocators, so less new managers and smaller / slower funds’ top-ups).

@ycombinator @sequoia 8/ Another interesting question is what will happen to small funds dependet on HNWI (will they respect capital calls in such times?) + angels/early stage funds struggling more with early secondary exits (no big funds will buy our small funds in early rounds in such cash crunch)

@ycombinator @sequoia 9/ Uncertainly and fear mean global existing funds are pushed to focus on core as well. With 85% of capital in 2021/2022 coming from global funds, this might become more challenging. We need more local funds that ‘do this for a living’ and understand local realities.

@ycombinator @sequoia 10/ With that, it’s important to note a few things: Money did NOT flow to the avg #African #consumers. True, a small layer of population enjoyed the stock+crypto markets hype creating a feeling this is an actual massive market in Africa, but it wasn’t before and isn’t now.

@ycombinator @sequoia 11/ Which leads to the more important point #2: Business model implications. For those targeting basic needs of SMEs and consumers (not just young high earners, but consumers at large), there are little to no changes to the consumption habits.

@ycombinator @sequoia 12/ Interest rates in Africa went up by (relatively) much less. Nigeria is at 13%, up from 11.5% last year, but was at 14% 3-4 years back. Same for other key markets.
Relative inflation also didn’t change much. It’s high, as was last year and before, and generally is on par.

@ycombinator @sequoia 13/ Demand should be somewhat stable, as does cost of local debt/credit, but there are so big BUTS. For those relying on USD debt, there can be significant impact on GM%. Same for those importing or having high OPEX/CAPEX in USD (yes. Cloud services and software included…).

@ycombinator @sequoia 14/ Many African businesses suffer lack of infrastructure. Some build or integrate vertically (more CAPEX, more complexity but many time more value long term by owning those resources), and some partner with other start up. For the latter – make sure your partners are stable.

@ycombinator @sequoia 15/ @sequoia says simplicity scales. True – but on average our business models are much more complex (and much less sexy…) – keep it in mind. Check closely your reliance and redundancy plan, if any of those small / young startups partners may not make the net 18 months.

@ycombinator @sequoia 16/ Large partners / clients (corporates), may take advantage and delay pay. Can also be true to SMEs. Cash cycles are a huge issue for majority of #AfricaTech. Tighten collections processes, and get a live grasp of its dynamics, so you can react on time.

@ycombinator @sequoia 17/ Follow local currency trends. Some countries may suffer meaningful devaluation. In simple terms, 20-30% devaluation with 2x growth is suddenly ~1.4x. A much tougher uphill battle. Think through adjustments to your growth plan and expansion plan if possible and relevant/

@ycombinator @sequoia 18/ Lastly, business model. Some products (wheat, veg oil, fuel etc.) saw price increase. What does this mean to YOUR clients spend decisions? Can you help with their pain and have margin elsewhere? Can you find local subs or produce such if possible (might have long term value).

@ycombinator @sequoia 19/ With that, there are also some BIG OPPORTUNITIES. M&A should become much more prevalent. Across Africa, and maybe even outside (Like MFS last week). Talent, globally, may have less options elsewhere, worth looking for experienced people leaving LargeCos that shrunk teams.

@ycombinator @sequoia 20/ Team is even more key. Make sure you don’t only build a world class one, but more importantly, founders+managers should find the best way to be honest with their teams. don't stress alone, be open. Create a true partnership. Make sure everyone are in it together all the way.

@ycombinator @sequoia 21/ Long indeed. To conclude, I am very far from thinking ‘we’re all gonna die’. Quite the opposite. Those who play this hand right, may end up in a much better place. Humbleness and focus will win. And above all, its NOT one size fits all. #African reality is different.

@ycombinator @sequoia 22/ We must listen to all advice out there, but make all the needed adjustment to our market and reality, and decide what to take in (if any) and what it means for #AfricaTech.

@ycombinator @sequoia END/ Not all markets are the same, and while a lot of fluff will go away, solving massive real world problems profitably, will always win long term.

*Please add thoughts and reflections so I can improve my thinking, and feel free to share/RT*

#AfricaVC #AfricaTech

@ycombinator @sequoia PS - for the @sequoia deck referenced: fortune.com/2022/05/25/seq…