Patterns, Numbers and Investing in Technology Startups

Patterns drive how investors take risks on tech startups. As I noted during Tekedia Capital OPEN presentation yesterday, we’re yet to see a “successful” gaming company out of Nigeria, and because of that construct, we have no appetite to invest in gaming, unless the founders can demonstrate a business model that taps one oasis and double play strategy as I have articulated in Harvard Business Review.

As we watch gaming, we’re also careful on B2C ecommerce due to marginal cost inefficiency and inability to attain a virtuous circle of leverageable and compounding assets during expansion in places with largely inadequate logistics and national postal services. So, we have not been bold enough to take risk on any B2C ecommerce; we like the B2C model pioneered by Kenya’s Copia and the hybrid model of the new Konga. Of course, the Copia model requires uncommon trust in communities while Konga needs bigger cheque books to execute; those things are not in abundance in all places.

As those happen, we have also been skeptical when businesses are built on transient frictions (yes, customer problems which are not durable or permanent  and can disappear quickly). Many wasted money on pandemic-driven opportunities even though the pandemic, thank goodness, will vanish over time – and when it actually did, those business models collapsed. 

One African startup was growing rapidly, powered mainly by people in sub-Saharan Africa not having the means to pay for items in many stores in Europe and America. That company became a connector and an intermediary, solving that payment problem. I did not like the business even though it raised tens of millions of dollars and scaled. My concern was clear: one day, someone will fix that payment problem, and magically, that business model would be disintermediated.  And that was what happened: when payment improved with virtual dollar cards across Africa, customers cut-off that company and bought directly from those stores. That company has since gone bankrupt.

And the latest is training African techies to feed into American big techs. A great idea. But most times, even the destination will struggle with carry-capacity. From Brazil to India, Nigeria to Vietnam, and beyond, everyone was training techies to supply Europe and the US. Many businesses were built on that model with absolute focus on the global market without any consideration of the development of their local markets. But now that the US is laying off thousands, some of these firms will have challenges. Yes, for Google to fire 12,000 workers, it must have reduced some of those external contractors.

Patterns. Patterns. And those are the numbers when Pythagoras said that “everything is numbers” as explained in my presentation.

Comment on Feed

Comment 1: Following patterns is conventional, but for anything profound to emerge, one will also need to be unconventional. We deny some sectors funds, because no one has ‘proven’ that sustainable value capturing is possible there, but without that much needed funding, how do we test what is possible on the other side?

If we keep sending more to only established sectors, they will become over saturated and then start eroding value, while some neglected ones that could turn out bigger never get a look in. More prodding and probing are needed beyond what is already known…

My Response: Accepted as accused since business is not charity. Until it becomes charity, your point will not fly. The conclusion is that nations need smart leaders who can invest in those sectors people run away to make them attractive. If you fix NIPOST in Nigeria, everyone will see opportunities in ecommerce. But without that. I think it is a waste of time. If the government fixes electricity, light manufacturing becomes attractive since the startup will not need to budget for a generator.

I do not think it is really about not being conventional. The issue is that  funds do not like scoring own-goals where you put money in areas no one cares to follow-up with more funds.

“Following patterns is conventional, but for anything profound to emerge, one will also need to be unconventional. ” Policymakers have huge roles to make such happen by providing catalytic infrastructures and enablers.

Comment 1R: Ndubuisi, plenty stars will still have to align, if some sectors will ever go beyond gestation stage; without funding, dreams quickly become nightmares.

Comment 2: You have a point but the problem is that gaming was never a business. It’s simply first and foremost entertainment fueled by its players. Investors treat everything like business, looking for margins, market share, and returns.

It’s taken me over 6 years to understand how to convert gaming into a business with actual customers we can service and not just players, and that’s only because I have experience in telecommunications, tech, and music all which I can combine to see the business of it all. It really ain’t that easy, hence why no one has done it yet.

P.S I only saw the business of music in gaming because it was a pain point of mine performing in cities across Belarus and Russia, having my music played in streaming apps but not making back the money I was investing into it. That’s where the business comes in, the enjoyable elements within the game monetised by the creators to service other creators, e.g musicians, fashion entrepreneurs, inventors, advertisers, and other businesses. Gaming is easily the most profitable business on earth if implemented properly.

My Response: “You have a point but the problem is that gaming was never a business” – indeed. Investors like to invest in businesses because they have fiduciary responsibilities. When that is not possible, they cannot write that cheque.

Comment 3: Sometimes predicting the future when it comes to investing boils down to being very good at guessing and placing the right bet on the right horse.

In 2008, I was in a Credit Risk Management class, and one take away from that class that I cannot forget is what the trainer called “Credit Intuition” .

You have dotted all the “T”s and crossed all the “I”s and everything is in order. But before you recommend a credit for approval, you try to listen to what your gut has to say.

I believe great investors who always make the right investment calls relay on something other than facts and great pitches that are always optimistic about being successful.

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