The African Flow: A Rising Tide that Lifts All Boats | September 2023

September 2023

It has been a productive several months for us. Our primary focus has been helping our founders transition to a dramatically changed environment, where the bar for capital has gone up and execution and economics take center stage. We’ve made good progress on this front. The time we’ve spent with founders has compounded our learnings and made us better business partners.

Similarly, we’ve refined our approach to initial engagements with founders. The questions we ask, and what we listen for, have evolved. During times of stress, you learn more about the business and the founder and the signals you might have missed earlier. While we continue to develop our frameworks, it’s important to not be too rigid given our focus on early stage companies, approaching them with an open mind.

Our success is driven by our ability to partner with the best companies at the earliest stage. We are relatively less focused on the particulars of funding rounds and interim valuations. While we have only so much influence on any one business being successful, we have complete control over whether we are a great partner. And our track record of being a great partner is our differential advantage when it comes to winning the trust of founders. We are continually collecting data on our performance. One indication that we’re on the right track is the fact that so many of our founders across the continent have chosen to invest their own capital in Raba. A second is the feedback we receive from our polling of founders.

We shared this slide in our update call in July, highlighting some of the founders' feedback. We will continue to report these metrics going forward. In 2021/22, our NPS was 75; in 2022/23, it was 61. There is room for improvement.

With our primary focus on operations, we have still made four new investments as well as a follow-on, notably a meaningful increase in our ownership in Stitch.

Company updates

Stitch raised a $25M round led by Ribbit Capital. The company continues to grow and sign marquee enterprise customers.  They recently launched their card product with a large enterprise customer – exciting because the card market is significantly larger than account-to-account, where Stitch started.  The company builds and ships enterprise-ready products with speed and efficiency, a great indication of their ability to scale and become a core fintech infrastructure player for the continent and beyond.

Ribbit Capital is a close friend of the partnership and a leading fintech-focused firm with fantastic, high-caliber people. You earn the partners you deserve, and this financing is a testament to that. We leveraged our relationship with the founders to meaningfully grow our ownership of what we believe is one of the strongest technology and product teams in Africa.

BVNK launched in South East Asia, applied for a MPI (major payments institution) license and built out its local executive team, including hires from CurrencyCloud and Airwallex. The company continues to see strong demand for its digital assets payments infrastructure. USD settlement has been a product and regulatory focus area over the last year, and the company opened its first US office and will soon launch the capability for customers to accept and settle USD. We anticipate significant growth in the quarters ahead.

Flutterwave launched the Send App, a remittance app that has over 1 million downloads to date (previously known as $end). Send allows users to send remittances from countries including the US, Canada and the UK to markets across Africa. Egypt is a particularly strong market for cross-border remittances, and Flutterwave is one of few companies with a local payments license. Learn more here.

Axis Pay has gone live with its first payroll customers. The company is targeting the 8 million small businesses that represent 80% of the Egyptian economy. The entire technology stack has been built in-house, and Axis is fully licensed by the Central Bank of Egypt to issue wallets and fully licensed to act as a payments facilitator for mobile money. The company is well-positioned to be both a solutions provider to SMBs and an infrastructure provider to Egyptian fintechs.

New companies

Capi Pay raised a $1.5M seed round from Raba and others. Capi Pay is a B2B payments platform focused on Francophone Africa, and is currently at YCombinator. Capi Pay is headed by the former COO/CFO and CRO of Taptap Send, a successful remittance company.

Revivo raised a $635,000 pre-seed round led by Raba. Revivo is building an electronics parts, repair/refurbishment, and insurance marketplace for Kenya and East Africa, where there are over 430 million phones and millions of other electronics in use. The company was founded by Sarah Johnson, a former product manager at BBOXX who has been building in East Africa for the past seven years, and developed the concept for Revivo during her time at Stanford GSB.

TrustCrow raised a $500,000 pre-seed round led by Raba. TrustCrow is an online escrow and payments platform for the real estate and construction sectors founded by Joe Orji, a real estate investor and developer with 20 years of experience in the US and Nigeria. Joe is a serial entrepreneur who has built and exited several real estate focused enterprises.

Flow of funds

I was asked recently about the flow of funds to African technology companies, specifically where investment capital comes from. We’ve shared data with you about the subset of African firms backed by development finance capital. Our research suggests there are 30 Africa-focused firms with ample capital (an aggregate of $2.4B and growing) for early and later stage companies to continue to grow.

There are many different flows happening to and from Africa. The subset we are interested in are listed below. The combination of these flows is driving a powerful multiplier effect that will shape countries in the coming decade.

Trade: China and India (and others, including the GCC) are important partners to African economies. In 2022, China-Africa trade reached $280B and India-Africa trade reached $90B. China-Africa trade grew 23X since 2000. For comparison, China-US trade in 2007 was the same size as China-Africa trade now. These trading partnerships have the scale and growth to drive significant long-term impact on African economies, particularly given the changing relationship of the US and Europe with China.

Relationships and information: Founders from US/Europe/Latam/Asia are angel investing in African early stage companies. The relationships that form and the sharing of best practices are catalysts for change in Africa, and most (if not all) of our companies leverage this advantage.

Education: If you have an internet connection, you can access content like Coursera and study for a degree with a university on the other side of the world, wherever you are, at any stage of life. Africa was the fastest growing region for Coursera in 2022. Nigeria alone grew 98% to over 675K learners focused on STEM (science technology engineering and math).

People: Over $380B in remittances were sent to Africa over the last 5 years. According to the World Bank, the “unofficial” market is estimated to be about the same size. The diaspora powering these remittances is driven by the over 150M Africans living abroad.

A particularly interesting flow of funds is export trade — a country’s revenue from selling to customers in other countries. China and India have been the fastest growing significant African trade partners over the past two decades, growing from $24B in 2000 to $370B in 2022. With this growth have come concerns about the level of debt raised to finance infrastructure such as trains, rail lines and ports. Countries such as Nigeria and Kenya are likely to spend more carefully and increase taxes (recent articles highlighting tax prioritization in Nigeria here and Kenya here). The resolution of these imbalances will be messy, but we expect that a combination of concessions, improved tax collections and more trade between large economies and the continent will lead to sustainable economic relationships and more growth.

The GCC is another region that is growing its influence and trade with Africa, investing over $100B (mostly in Egypt and North Africa) over the last decade. These investments are going into telecom, airports and seaports, agriculture and energy. This piece goes into some of that detail.

What’s the attraction? People + Growth

There are many well cited statistics about Africa’s population growth and relative youth. Understanding how that data translates into the shape and scale of economies of the future is complicated. Simple extrapolations are not very useful. Business incomes and per capita incomes in Africa are among the lowest in the world. How will African countries deal with population hyper-growth? How will African economies close the gap in personal productivity and per capita wealth?

The answer will come through a combination of investment, trade, technology and relationships; the latter two are great equalizers and the former two will continue to grow. Investment and trade will come from both private and public sectors with participation from all major regions globally. Here are details on Europe’s Global Gateway program, a €300B investment program with 50% (€150B) earmarked for investment in Africa. Competition will play a role – countries and institutions that offer a high value proposition of integrated investment in people, industry and trade will win. Below is a quote from Ursula von der Leyen, President of the European Commission.

“We will support smart investments in quality infrastructure, respecting the highest social and environmental standards, in line with the EU’s values and standards. The Global Gateway strategy is a template for how Europe can build more resilient connections with the world.”

We want to emphasize here that half of the European Global Gateway program investment mandate is slated for Africa. Is this the EU’s answer to China’s Belt and Road Initiative?

In mid August, Meg Whitman (current US Ambassador to Kenya and former CEO of HP and eBay) gave a presentation on why US investors and leaders should look to Africa, making the case for why now, with statistics on investment, trade and growth in the region. See this video of her talk (thank you Bob for flagging). When Meg was the CEO of HP, she said she spent 1% of her time thinking about Africa. I suspect this would hold if you sampled CEOs of the Fortune 500 (outside of Visa and Mastercard, who are very active). Will this meaningfully change, and in a relevant time period? We believe so. In late 2022, President Biden organized the US/Africa CEO forum in Washington DC to catalyze relationships and investment. Visa’s CEO announced a $1B investment and new offices to be opened in the continent. This was followed up by Treasury Secretary Janet Yellen visiting South Africa, Senegal and Zambia in early 2023, followed by Vice President Kamala Harris in March.

Our hypothesis is that African countries stand to benefit from growing interest in both natural resources (like essential metals for electric vehicles) and fast-growing markets. It is human nature to respond to accelerating interest and competition, and FOMO relating to Africa is likely to drive further interest from the US, Europe and Asia. Today (September 9th) is a historic day as the African Union joins the G20. This is a significant development for Africa, as it will give the continent a greater voice on the global stage. However, the unanswered question is, how will African leaders and policy makers leverage this interest to the benefit of their people? Will we see a younger, more politically active cohort that are now connected via technology demanding more from their governments? There is some evidence of this, including recent appointments by Nigerian President Bola Tinubu, specifically Bosun Tijani as the minister of communications, innovation and digital economy. Bosun has been part of the Nigerian venture ecosystem (founder of CCHub) for as long as we can remember. We expect to see more of these changes in the years to come.

Founders helping founders

Today, my WhatsApp is a stream of conversations with founders, co-investors, and many of you, our partners. We are constantly building networks to share learnings and relationships, and build better companies. Globally, we’ve observed founders cross-investing in each other’s businesses. This has catalyzed connectivity between ecosystems. A founder in South Africa will speak to a founder in Brazil and ask detailed business questions, test assumptions, compare code stacks, discuss sequencing of potential hires. This process enables founders to take advantage of the collective thinking and building that has already happened. This is one of the most important and least appreciated competitive advantages of the most enterprising startups. We’ve seen these relationships fundamentally alter the trajectory of many of our companies.

If you are a consumer fintech founder and can’t get an introduction to the founder of Nubank, there are other approaches. You can access an incredibly detailed blueprint by reading their S-1 and quarterly transcripts and listening to over 25 interviews with Nubank’s founder/CEO, CRO, head of product, early investors, and competitors via podcasts. The information is out there; you just have to go get it.

Venture funds as network nodes

We have led, co-led, and participated in financings with global investors making their first forays into Africa. The non-obvious benefit of this network expansion is that it gives founders advantages that will show up in operating results years from now. In the venture ecosystem, being backed by a well regarded firm is like joining a club, with all of the prestige and relationships that generate more interest in your company.

These advantages extend beyond the founder to permeate the organization, from sales to customer success to engineering. Below are a couple of specific examples of how Stitch leveraged its network to learn, iterate, and build smarter.

Example 1: The Head of Sales at Stitch had a weekly call with Plaid’s first Business Development Head. The GTM (go-to-market) conversations covered product positioning, pricing, target customers – all actionable insights. According to Stitch CEO, their emphasis on the value of enterprise customers saved them significant time and resources as they adjusted their product priorities to serve that more rewarding market.

Example 2: The Head of Customer Success at Stitch had weekly calls with Plaid’s first engineer and Head of Growth. The conversations informed strategy, and the ethos of building a hyper focused customer-centric culture. This focus led to stronger adoption of products, where at a certain ARR threshold, customers graduate and purchase at least one more product. This drives growth and longer-duration relationships with customers through stickiness due to cross-product adoption.

The diagram below shows Stitch’s nexus of founder/operator relationships globally.


Putting it all together

The flows of capital, information, relationships and networks will continue to grow and compound. Building important companies is inherently difficult; there will be difficult challenges, and capital markets will ebb and flow. In a highly complex system, it is difficult to predict the near term. But we are confident in the long-term and that we are on the right side of history.

The single biggest driver of growth in our ecosystem is the continued development of talent that is connected to global operators and leading firms. Talent nodes are forming, a dynamic reminiscent of the "PayPal Mafia." Our goal is to build a "Raba Mafia," where leading founders, operators and investors in Africa and globally seek us out as a partner. This is our "flow."


We will host our Raba + Stitch summit from February 29 to March 2, 2024, in Cape Town. Please note that the event capacity is limited to our partners and founders. We will be sending out invitations soon.