I received many notes from the community to comment on the B2C foodtech delivery company which collapsed in Kenya, after raising  US$1 million: “Kune is a foodtech based in Nairobi that produces $2/$3 kunelicious meals for individuals & corporates”. The company collapsed last week.

(Sure, why is he piling on people who just lost a company? My feed is a school and when I write, I do hope some people here learn. I hope the founders do not read this piece though – and do not share it with them. We need to respect them at this time.)

As I wrote in Harvard a few years ago, B2C business with a delivery component in sub-Saharan Africa is hopeless except in South Africa. The problem is not making a nice ecommerce website or nice foodtech app, the real deal is the logistics. Simply, a food delivery startup in Kenya cannot improve its marginal cost because as it grows, the distribution cost (a key component of marginal cost) will not go towards near-zero as you expect in great aggregators. In other words, it cannot compound its leverages over time!

Yes, it is very hard to run an aggregation business when supply is bounded and cannot be negotiated/commoditized for the cost element to become a non-factor. The supply here is the delivery system with the drivers as the main components. Even if you control demand – having many users ready to order food – unless you can reduce the cost of those deliveries down to near-zero, profitability will become hard. This is the reason why companies like Uber may not be profitable in their ride-sharing business unit for years; they influence and control demand, but they have no absolute control over supply which affects their margins; Uber drivers are not infinite and have push effects on the business.

Contrast with great aggregators like Google and Facebook where supply (contents generated by users) is nearly infinite and also free (Google caches your website, Facebook gets your baby photos, etc, free). With that, they just focus on discovery experience for users, thereby positioning  themselves for super gross margins since the raw materials are nearly free. Kune is like Jumia which continues to struggle without the ability to curtail costs efficiently; Jumia’s adjusted earnings before interest, taxes, depreciation and amortization (EBITDA) loss was $53 million in Q1 2022, a 70% year-over-year increase.

Uber, Kune, and Jumia are united by one thing: poor marginal cost. From Kalahari to Mocality to Efiritin to OLX (most bankrupt), when a digital business cannot improve marginal cost, it dies or will struggle to make profit over time! That is the reality which can only change when companies fix that distribution cost by going hybrid like Konga has done; Copia Kenya is another example which fixed that paralysis.

It is key to understand that B2C delivery firms in most parts of Africa are not digital businesses even though they have apps and websites. These are meatspace companies whose marginal costs are dominated by what happens in the physical world, during that delivery process.

My recommendation remains: do not run such companies. You will face a double whammy – a marginal cost problem on delivery and an unbounded competition from open markets (ecommerce) and bukkas (foodtech) which make it hard to adjust prices to compensate for those delivery costs.

The KUNE team will rise; it is nothing but an experience.

More on COPIA Business Model

Many questions on Copia business model. Many want to understand how Kenya’s Copia has also fixed the marginal cost paralysis I noted. It is very simple: when you can grow revenue and users without increasing distribution cost, good things happen.

Copia’s networks of agents enable it to attain near-zero marginal cost even as it scales revenue. That is the reason  I have noted that it runs the best ecommerce business model in Africa. When you plot its data, it will look like this plot below or the RHD (right hand side) .  Most other ecommerce firms look like industrial age marginal cost (LHD) .

If you run an ecommerce or foodtech delivery business and the plot looks like the LHD plot, you are not actually running a “digital” firm. The digital nativity does not come by nomenclature, it comes from the marginal cost positioning which makes it possible to have great scalable advantage in the market.

Comment on LinkedIn Feed

Comment 1: On Copia, one tiny detail and its influence is missing, the grants that they receive which is not a loan, check such https://www.gatesfoundation.org/about/committed-grants/2014/10/opp1114460. I think it would be ideal to evaluate based on what the actual cost and profitability of a business is, without the support from grants. In essence, can a business sustain all aspects of its operations purely from the sales that they generate?

My Response: Gates Foundation gave them $275,119 but the last fund Copia raised was $50 million. Copia has raised $$millions and is not run on any grant money. I think it is doing a favour picking those grants so that the grantors can use its statistics to look good in their annual report. But no mistake, Copia rakes real money in 2019 – $26m https://qz.com/africa/1757623/kenyas-copia-global-raises-26-million-in-series-b-funding/ . In Jan 2022 – $50 million https://disrupt-africa.com/2022/01/20/kenyas-copia-global-raises-50m-series-c-to-ramp-up-african-expansion/ . Check their data, it is the fastest growing ecommerce firms in Africa and it raises tons of cash.

Do Not Waste Time Starting B2C Ecommerce Business in Nigeria

Days after the news that TikTok’s Chinese employees have access to the data of U.S. users, a fresh move to stop the high-flying short-form video app has started.

On Tuesday, a leader of the U.S. Federal Communications Commission, Brendan Carr, shared a letter dated June 24, where he asked both Apple and Google to remove TikTok from their app stores over concerns that China is using it harvest private data of Americans.

“TikTok is not what it appears to be on the surface. It is not just an app for sharing funny videos or meme. That’s the sheep’s clothing,” he said in the letter. “At its core, TikTok functions as a sophisticated surveillance tool that harvests extensive amounts of personal and sensitive data.”

TikTok is not just another video app.
That’s the sheep’s clothing.

It harvests swaths of sensitive data that new reports show are being accessed in Beijing.

I’ve called on @Apple & @Google to remove TikTok from their app stores for its pattern of surreptitious data practices. pic.twitter.com/Le01fBpNjn

— Brendan Carr (@BrendanCarrFCC) June 28, 2022

TikTok’s unending troubles in the U.S. stems from its ownership by Chinese company ByteDance. The app came under intense scrutiny under former president Donald Trump, who wanted it banned in the U.S. to prevent national security breach.

Carr’s letter, which he shared via Twitter to Apple CEO Tim Cook and Alphabet CEO Sundar Pichai, referenced a recent BuzzFeed report that TikTok’s engineers in China accessed U.S. data between September 2021 and January 2022. The letter also pointed to reports that TikTok is non-compliant with Google and Apple stores policies, asking the CEOs to remove the app or provide statement to him latest July 8.

Carr who was nominated by Trump in 2018 to a five-year term with the FCC, demanded that the statements should explain “the basis for your company’s conclusion that the surreptitious access of private and sensitive U.S. user data by persons located in Beijing, coupled with TikTok’s pattern of misleading representations and conduct, does not run afoul of any of your app store policies.”

TikTok’s U.S. ordeal, which seemed to have been laid to rest after Trump’s executive order to ban it failed, is once again resuscitated by the BuzzFeed report. Trump’s successor, President Joe Biden rescinded most of the orders targeting the operation of Chinese apps in the United States.

Though Washington is yet to react to the development, the move by the FCC signals a fresh government’s interest in TikTok’s U.S. operation that may escalate to wider scrutiny once again.

TikTok said in response to BuzzFeed report that given how the app is scrutinized, it is working to remove every doubt that U.S. consumers’ data is accessed by the Chinese government.

“We know we’re among the most scrutinized platforms from a security standpoint, and we aim to remove any doubt about the security of US user data. That’s why we hire experts in their fields, continually work to validate our security standards, and bring in reputable, independent third parties to test our defenses,” it said.

TikTok said part of the steps it’s taking to protect users’ data is to reroute all of U.S. user traffic to Oracle Cloud Infrastructure.

“We’ve now reached a significant milestone in that work: we’ve changed the default storage location of US user data. Today, 100% of US user traffic is being routed to Oracle Cloud Infrastructure. We still use our US and Singapore data centers for backup, but as we continue our work we expect to delete US users’ private data from our own data centers and fully pivot to Oracle cloud servers located in the US,” it said.

Both Cook and Pichai are yet to respond to Carr’s demands.

We have a new course in Tekedia Institute. The faculty is my undergraduate classmate in Federal University of Technology Owerri (FUTO), Engr Dr Chisom Ezeocha; a Project Delivery Manager at Shell.

Dr Ezeocha has managed global technical teams around the world. He served as the Head of Offshore Field Engineering for 6 years in Brunei Shell Petroleum. That is the zenith of technical engineering management since you are managing assets worth $$billions. In other words, no excuses because every hour counts for the bottomline!

Dr. Ezeocha developed a novel team management methodology which he refined during his doctoral program. He has taught that model already in our Institute. Recently, we reached again to him – to educate us on how he manages complex big dollar projects.

In his usual amazing brilliance, on simplifying complex things (we were roommates), he dropped a few words: great project managers are like orchestra conductors. And that was it – the course is titled “Project Engineer/Manager as Orchestra Conductor”. Plan to attend it!

This week is coming out super-amazing. One of Tekedia Capital portfolio startups has raised $$millions. Official press release is coming. This company has moved to OurPerform V2 in our tracking. The team has been excellent on operational execution.

This firm promises to become a significant part of Africa’s digital economy. So proud of all Tekedia Capital Syndicate members for joining us in taking risks in these amazing young men and women, as they create companies of the future to fix frictions in African markets.

Learn how we discover them and explore if you can join us – the next investment cycle is coming. Join here.

FirstCheck Africa, a Nigeria-based female-focused venture capital firm, has secured a $2 million commitment from TLcom Capital, an Africa-focused Venture capital firm, the company has announced.

In addition, FirstCheck also announced that Eloho Omame, one of its founders, has joined TLcom Capital as a Partner, adding to her existing day-to-day role as Co-Managing Partner at FirstCheck Africa.

FirstCheck said the commitment, which adds to its $10 million debut, takes its single pool of capital to $12 million – and it will be invested in backing high-growth, technology-driven startups led by females.

With the available capital, FirstCheck Africa said it will invest up to $250k as high conviction first checks into early-stage rounds for female-led startups.

“We remain sector-agnostic and focused on technology-enabled companies that are solving important problems in large markets. Our strategy is to invest in female-led companies with category-leadership potential while throwing the weight of FirstCheck Africa’s networks and platform behind the founders that will be the next generation of entrepreneurial role models for Africa,” the firm said.

Female-led startups struggle to get financial backing in the African tech ecosystem, a gap that motivated Eloho Omame, founding Managing Director of Endeavor Nigeria and Odunayo Eweniyi, COO and co-founder of PiggyVest, to launch FirstCheck in 2021. In the last 18 months, FirstCheck Africa has invested in 10 female-led startups in four countries, boosting its portfolio that started with personal commitments of $25,000 investment each in six female-led companies.

The venture capital firm said its portfolio companies have been accepted into three global accelerators (including Y Combinator), and a number have raised sizeable follow-on rounds, with FirstCheck Africa as the first or second institutional investor on their cap tables.

It said its Africa’s mission is to advance equity, capital and leadership for a generation of women in Africa through technology and entrepreneurship.

“We will continue to focus on making it easier for ambitious African women to raise early-stage venture capital by writing checks, being female-led companies’ earliest believers and building our platform to attract resources to accelerate their efforts,” the firm said.

Female-focused startups have seen an uptick in investment recently due to the strategy of venture capital firms like FirstCheck. The company said there’s been a significant jump from three years ago, when just 5 female-led companies in Africa raised $1mn or more in early-stage rounds.

“Last year, the number was 33, and so far this year, we count 19, including 6 companies this month, of which FirstCheck Africa is an investor in 3. We’re quickly becoming the preferred early-stage investor for female founders building venture-scale companies, and we are proud to be building an investment firm with their needs in mind,” it said.

Though the gap is gradually being bridged, there is still a lot more to do. The African tech ecosystem is still saturated with early-stage female-led companies in need of capital. This, FirstCheck said it’s working to change with its mission-oriented early-stage, female-focused fund.

“We’re a small fund with big ambitions, and we’ve designed our portfolio strategy with our founders’ needs in mind. Access to capital is a primary and complex challenge for female-led companies. As a mission-oriented early-stage, female-focused fund, it’s critical for like FirstCheck Africa to invest meaningful capital to give the young companies in our portfolio sufficient runway to focus on traction and pursue disciplined fundraises when the time comes.

“We’ve constructed our debut fund’s portfolio to make targeted investments at pre-seed, keep the capacity to make follow-on investments when the most promising of those companies are ready for seed capital, and retain the flexibility to invest in some companies at the seed stage, where a female-led company might have already raised an institutional round,” the firm said.