#AfricaTech #Reflections and the importance (plus issues) with how some think about #TAM (Total Addressable Market) in our ecosystem. Here we go πŸ‘‡πŸ§΅:
1/ We(#VCs) care a lot about TAM. If it’s not big enough, it makes our ability to imagine a large enough exit problematic. What is large enough exit? One where our share at exit (say 5-12% post dilution in future rounds) is a fund returner. On $150m fund – you can do the math.
2/ Africa has many β€˜large problem’ or β€˜large verticals’. #Agri, #Health, #Education, #Logistics, #Agri and many more. There are also horizontal ones such as access to payments, and B2B ones. While data is thin, many get the part of how big is the overall market somewhat right.
3/ Yet, too many founders I meet fail in the (as important, if not more) important second step >> What are the implications of your business model to participate and capture a meaningful part, and which part it maybe (and how do you size it).
4/ What do I mean? Take the health market. Huge consumer spend, but super fragmented. Insurance penetration 1-3% - so big issue with who pays, and how you secure β€˜re-occurrence’ and predictability of revenuies over time.
5/ Most medications given at clinics and pharmacies, without prescription, and usually with no real diagnosis (treating the symptoms, not the cause).
6/ There is margin on the medications. There is margin in the financing of it to pharmacies. There is margin in the data aggregation. And so on and so on.
As making money on pharma wholesale is the simplest, many start from there.
7/ But this gives you access to a fairly small part of the total spend on health, and also if it doesn’t end in better service to patients, there can only be very few winners (not a defensible positioning), winning on execution and mostly on scale.
8/ Want to win the patient relationship for data and controlling more of the value chain? that's more complex. Who owns these relationships? Can you bring clear value prop to the patient that he/she feels in their pocket and in their health?
9/ If you focus on serving HMOs – again your TAM is very small. If you take over the HMO, more complex, and if you target the real TAM – you must focus on the 97% uninsured. Where’s the margin and defendable model there?
10/ Somewhat similar with logistics. Market is very large. Cost of logistics in absolute and relative terms is among the highest globally, due to many inefficiencies. So – any tech platform should remove those and win – right?
11/ Yet, the problem is much more complex. Some inefficiencies are a result of infrastructure (roads / ports / trucks) – which tech will not fix (initially). Others are financing. Some are the layers of intermediation and ownership of logistics assets.
12/ Some are inability to match supply and demand. So its not just the TAM of logistics – its understanding the money flow, which participant takes what margin, and where your tech platform / solution / aggregation can win by being much better and capture the value.
13/ So – how can one go about it? If data isn’t out there (which is usually the case), take a top to bottom approach to get the TAM indication, but than move into a bottom up approach. Analyse the cash flows and cycles in the value chain between the layers of participants.
14/ Talk to a few in each layer defining their problems and estimate what margins they take + what can be replaced / solved by tech vs. what can’t. if you can find a (very large) niche in which less are playing, or solve for the real pain point and not just top line, much better.
15/ Help us understand your thinking by sharing the assumptions. Good investors will be able to challenge, help you test them, and hopefully ask questions to help you focus on what’s really important. Weaker investors will just want to see the initial large TAM…
16 / #TAM is key, but its not sufficient to quote a large one. Having the depth of what's bneneath and what you can capture (and how) is many times the secret sauce to diffrentiate and build a defensable strategy.
End / #Africa lacks data and clarity on value chains structrue and size of each layer - so this one (finding what really needs to and can be solved) is on us. Giagatic upside to those who will get it right.

#AfricaTech #AfricaVC

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More from @ido_sum

Jun 10
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… πŸ‘‡πŸ§΅
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).
Read 25 tweets
May 19
Well... a bit over hyped for what it is:

Someone at #YC woke up and felt inspired to share the obvious (but in 10 points - so its feels special). Jokes aside, what's NOT there is much more important than what is. Bare with me... πŸ§΅πŸ‘‡
1/ Dear friends who pushed (pre) seed to a cap of $30-$50m with no DD till a month ago, reality is happy to have you joined.
What still strikes weird - is the whole thing is still 99% only about fund raising and valuations and how to manage both...
2/ what it's not about is the only thing that will matter. #CreateValue. In a world with 6-10% inflation, with public markets melting away and money becoming expensive - customers become much much #smarter spenders.
Read 11 tweets
Mar 17
#AfricaTech #Reflections: So boards and DD aren't 'cool' anymore I hear. Both are wasting #founders time, and entrepreneurship is all about 'move fast and break things'. So - some #oldschool stuff here - or as they say, yes... *BUT*... (thread πŸ§΅πŸ‘‡)
1/ Two different topics - but very related. So starting from DD, and will develop thoughts from there.
We are still in the 'money falling from the sky' era to an extent. Public markets are in the deep red, multiples are so south that IPOs and SPACs are almost irrelevant.
2/ Many of the larger funds, sitting on billions in cash, understood returns will not come from pre-IPO rounds. As cash raised recently, and model requires quick cycles and showing uprounds, best turn to early, and why not do so in 'exotic'/less crowded geographies...
Read 22 tweets
Jan 30
#ESOP > time to demystify, and talk openly about the opportunities and implications for both founders and employees (to be clear – this isn’t tax advice or legal advice > just trying to make some sense of it for the many questions I recently got…)
Long #Thread, here we goβ€¦πŸ‘‡
1/ To start with, ESOP (Stock Options), can come in many shapes & forms. It serves 2 main things: (i) for founders, one of the best ways to attract+retain top talent;(ii) for employees - a potnetial for material upside making #AfricaTech, one of the most attractive options around
2/ Before focusing more on what’s important to know & consider as an employee (much hairier topic in my view) let me share this: #founders need to think through/plan for ESOP right from the start. Maybe not at pre-seed, but I’d argue that latest right after, and preferably before
Read 28 tweets
Jan 29
#Saturday #Africatech #reflections: @Google just invested $1b in Airtel 18months after investing $4.5b in @reliancejio - but why? and whay does it mean for #AfricaTech?
1/ doing my weekend catch-up, came across this by @TheKenWeb: the-ken.com/the-nutgraf/wh…

Which made me think a but more about the role of Telcos, channels and how we might differ from some developped markets conventional wisdom...
2/ While I think @TehKen made some very valid points, to me, one thing overlooked in our developing markets is channel and (and consumer data/reach profiles) ownership.
Read 15 tweets
Jan 21
#AfricaTech #Reflections: Where we might go from here?
2021 gave us many reasons to celebrate. More startups. More money. More deals. More global and local investors. Feels like the stage is set. But is it? And even if yes, what can we expect?
Few pre-weekend thoughts - long πŸ§΅πŸ‘‡
1/ Reading this great piece from @fcollective – was a good reminder of value creation and the fact it is measured over time and not just on the first fundraising rounds.
2/ A giant drop in public markets tech multiples across the board + eye-watering pre-seed & seed valuations – are a reason to stop & think.
Is this a sustainable track and the best way to embark in '22 onwards?
Or are there frameworks to help #AfricaTech grow healthier & better?
Read 22 tweets

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