Series V

Musing About Marketplaces

The…market for marketplace businesses across Africa is wide and shiny, but is often not deep enough to sustain startups at scale. There is a big disconnect between top line, quantitative signals like population [growth] and other, more qualitative signals like access to infrastructure, consumer purchasing power, etc.

Why does this matter? Because these marketplaces are often started to create efficiencies in markets that *already* exist (“X is bypassing middlemen by connecting farmers to consumers!”), they only make a percentage of the economic activity they enable. This model lends itself to scale, but as we saw in the last paragraph, scale is as scale does, and scale may not be found.

Another side effect of an underdeveloped consumer market is that it is difficult and expensive (eBay and Amazon raised less money pre-IPO than Jumia and Konga) to educate users. Given that most marketplaces will live or die based on the quantity / quality of their demand side, marketplace startups in Africa face the uphill task of providing a better experience than the alternatives. (Consumers don’t want ‘cooked meals over the internet’; they want ‘cooked meals, period’) Here’s Bill Gurley making a similar case:

“A true marketplace needs natural pull on both the consumer and supplier side of the market. Aggregating suppliers is a necessary, but insufficient step on its own. You must also organically aggregate demand. With each step, it should get easier to acquire the incremental consumer AS WELL AS the incremental supplier. Highly liquid marketplaces naturally “tip” towards becoming a clearinghouse where neither the consumer nor the supplier would favor an alternative. That only happens if your momentum is increasing, and both consumers and suppliers are sensing an increasing importance of your place in the world. Much easier said than done.”

Yet another side-effect of the market being informal is the high risk of platform leakage (disintermediation). Founders building marketplaces need to think hard about inserting themselves into the payment flow, otherwise they will quickly see their suppliers connect directly to consumers, and their businesses turned into free lead generation services for the supply side. For example, Uber does the work of identifying demand (the desire to go from point A to B) and charges the supplier 20% of the value of the ride for making the connection. A driver might have the rider cancel the trip then drop the fare by 15%. In this case, the driver is earning 5% more, the consumer is paying 15% less, and Uber… 🙂

One way to mitigate against might be to embrace integration. Example: Amazon handling logistics, Alibaba building Alipay, etc.

Ultimately, this is about being thoughtful about what jobs a product / marketplace is doing for its users, and reasoning from first principles towards a solution that accounts for local / cultural behaviors. As with all his work, Professor Clay Christensen’s Push-Pull framework is instructive:

“Why do so many multinationals run up against long-standing obstacles to success in developing markets, whereas other MNCs and local entrepreneurs succeed? We believe the answer lies in the difference between “push” and “pull” investment.

Push strategies are driven by the priorities of their originators and generate solutions that are imposed on markets and consumers. Pull strategies respond to needs represented in the struggles of everyday consumers.”


Inside VP

  • Kola and Osarumen are carrying out mentor duties in Nairobi at the Google Launchpad accelerator.
Kola A.
Osarumen Osamuyi mentoring
Oo Nwoye with ThriveAgric (VP C2) (VP Portfolio Company)
  • Kola will be facilitating a masterclass on ICT this Saturday at the Recall for Men conference.

Portfolio Propaganda

  • Data collection startup, Mobile Forms (VP C1) on the problems they are solving, their solution and strategy for the future. [Link]
  • Paystack just introduced bulk transfers on the Dashboard. It is now possible to send instant transfers to multiple bank accounts at the same time right from your dashboard. [Link]

Links from the Internets

  • Thou shalt not minivate or feature shock or do these other things that cause new products to fail. [Link]
  • On creating the ideal customer profile. [Link]
  • The trust equation + when trust fails.[Link]
  • Is the complete lack of a driver — partner schedule the most elegant feature of uber? + other relevant findings. [Link]
  • Are you thinking what Jason is thinking? [Link]

Have a great day!

Thanks for reading. Did you like this post? Have Series V delivered to your inbox every Thursday. Subscribe here.

Series V

Who cares about market sizing? Part 2

“When a great team meets a lousy market, market wins. When a lousy team meets a great market, market wins. When a great team meets a great market, something special happens”- Andy Rachleff

Last week, we started a conversation about how important the current size of a market is (you can read that edition here), and why it is/might not be an important question to ask entrepreneurs.

This week, the other half of the team will make their case for market size estimates.

The argument for

Per the Pareto principle, we can assume that 80% of most VCs’ returns will come from 20% of their investments i.e. if a VC makes 10 investments, most of the financial upside will come from only 2 of them. This is popularly called the Babe Ruth effect, and as Peter Thiel notes:

“Actual [venture capital] returns are incredibly skewed. The more a VC understands this skew pattern, the better the VC. Bad VCs tend to think the dashed line is flat, i.e. that all companies are created equal, and some just fail, spin wheels, or grow. In reality, you get a power law distribution.”

How does this affect how we deploy capital? It means that we are often biased in favor of bets that have an uncapped upside; bets that could potentially return many multiples of the capital invested. The market does need to grow big(ger) at some point, to support the companies serving it, and the most straightforward way to make that assessment is the size and growth rate today.

Of course, these estimates can be flawed (and big paradigm shifts do turn the math on its head), but they are quantitative in ways the other proxies our colleagues suggested are not. That is, while we acknowledge that a market being large is not always proof that a particular entrepreneur will make meat of it, you cannot fit “Is this solution 10 times better than the alternative?” into a spreadsheet.

Secondly, market creation is often expensive and investing as our colleagues would have us, might lead us to back horseless carriages, not cars, or early approximations of what the future looks like, not the future itself. It’s okay to be early. Just don’t die.

Bonus: who wants to see what a smartwatch designed in 1983 looks like? Link.

In reality, the right approach is probably a mix of both. Venture Capital is both an art and a science, and we are as excited by the journey, as we are with the destination.

Victoria ascerta.

Portfolio News

ThriveAgric is looking for a Business developer with FMCG sales experience and a web and mobile developer with AI experience.
Leave a response if you are one/know someone.


Thanks for reading!

Series V

Customer-driven innovation

The thing with disruption is, it is so inherently different that consumers are completely unfamiliar with it. The reason they are so unfamiliar is that customers are not usually drivers of innovation and disruption in markets. Plus, customers like the familiar so long the price does not exceed expectations and worth. Therefore, succeeding in the marketplace especially with products that are innovative or disruptive to customers familiarity usually means convincing the customer to “adopt”. This adopting process is one that requires understanding, not just of customer behavior but of the market itself.

Customer behaviors ideally should change in concurrence with product, service or process innovation. Companies need to master managing customers’ behaviors if the uptake of an innovation is to be met in line with company goals.

The best way to achieve customer-driven innovation is to truly understand your customer’s needs and see where and how your company, your competition, and your entire industry is or isn’t meeting them; understanding how consumers interact with the existing solution and then building something that plugs into the loopholes.

Virtually all companies today have a powerful tool at their disposal, though most don’t bother to use it: it’s the ability to gather, store and analyze the massive volumes of data generated by your customers as they interact with you, your systems, your services and your products.

Connecting to customers does not mean merely asking the customer what they want. Why? Because Customers tend to frame their answers based on what already exists. On what they know. They will always ask for better products and services. So, if customers respond to you based on what they do and are familiar with, how do you innovate? By extreme listening (genuinely striving to process and to learn from what you’re hearing, and then acting on that knowledge).

If you understand the customer problem, you dramatically improve your odds of successful innovation.

Think of it this way, if you’re not talking with your customers, how do you know what problem you’re trying to solve?

Portfolio News

  1. Wesabi (VP C1) has launched a home maintenance plan that gets you repairs and home maintenance services all year round for as low as ₦30,000. Get it here + They are also offering a 10% discount on their wesabi plan.
  2. Thrive Agric (VP C2) was nominated at the Africa CEO Forum in Abidjan, Ivory Coast for the award of the most promising company in Africa in 2018. Link
  3. Reliance HMO launches the first health plan for businesses in Nigeria you can buy and use in 10 minutes! Get started
  4. Paystack has Introduced Paystack Starter Businesses. Basically, unregistered businesses can now accept online payments with Paystack, without needing a Corporate Bank Account or company registration document. Link

Have a great day!

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Series V

EdTech in Africa, for Africa

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With an influx of new learning models available and the introduction of mobile phones and tablets as academic tools, traditional educational methods are bound to evolve in the next decade. Educators around the world are now incorporating technology into their delivery strategies. It is a rapidly developing sector with enormous potential because on a continent where 30 million children miss out on primary school education yet there is 73% mobile phone penetration, there is little question that the fusing of technology with education in Africa has the potential to expand the educational horizons of millions.

One of the major strengths of EdTech is that it can be tailored to meet the different needs of learners. It can be used to amplify and enrich teaching and learning in the classroom. It also enables the exploration of fresh approaches to enhance learning, such as learning through gamification like Teseem (VP C1) does.

New technologies like AI, machine learning, and educational software aren’t just changing the field for students, they are overturning the role of educators, creating shifts in approaches to teaching and learning, and remodeling the classroom.

With the possibilities it offers for independent learning, EdTech has specific relevance for Africa, where it is becoming one of the biggest and most important developing educational markets. Using education technology in teaching and learning is a way of thinking differently and increasing opportunity.

In getting EdTech right for Africa, it is critical to ask: what should learning look like today and how can technology create more efficient institutions?

Understanding the realities and complexities of education in Africa, it is imperative that the edtech community interrogate the problems they aim to address, center the solution to the local context, and look towards outcomes as a measure of impact.

To successfully do the above, EdTech startups should:

  1. Build with mobile in mind: Africa boasts nearly 700M mobile subscribers, equivalent to 60% of the continent’s population; 300K of whom utilize the mobile internet. Mobile learning makes equitable access to education possible, reaching the masses, the excluded, and the marginalized.
  2. Localize their solution: There exists an inadequacy of platforms which support local languages, particularly for younger audiences. While evidence on the benefits of mother-tongue instruction is strong, half of all children in low and middle-income countries are not taught in a language they speak. Contextualizing your solution to focus on local languages, while not a must, certainly differentiates your value proposition.
  3. Get educators involved: Whether instructor-led feedback or teacher empowerment through the promotion of professional development and digital literacy, educators are critical to ensuring buy-in and continued success. Engage and empower them.
  4. Find opportunity in the delivery of data management and assessment tools: Through data, institutions are empowered to promote better decision making, to realize and implement personalized learning, and to monitor key learning indicators on what works in education and how to scale such efforts.

EdTech, while burgeoning and accounting for only 5% of total impact investments in Sub-Saharan Africa, has great potential for impact. In the next decade, we will see education platforms that allow learners to create their own personalized path, enabling them to think critically and creatively.

Technology has democratized access to information as well as reduce the cost of knowledge. Education will no longer be about getting knowledge but about validation and acquisition of specific skills. So, the demand for a new type of education platform — quality and mode of delivery — will drive change, as well as the reduced cost of building such platforms.

We are deeply interested in education because it promotes critical thinking and as a result influences society. We encourage founders with Education ideas to apply.

What we are reading:

  1. Venture Deals by Brad Feld — The team decided on this book for March and April and by the end of this month, we will share our thoughts and learnings in a blog post and our Twitter.
  2. How to prove your market is “Big enough” to VCs — Link
  3. The Middle-Class Conundrum in Africa — Link
  4. Realities, attributes, and coping tips for any company, startup to bigco, performance review system — Link
  5. How Warby Parker disrupted the eyewear industry — Link

Have a great day!

Series V

Who cares about market sizing? Part 1

We often ask entrepreneurs to “talk to us about the size of this opportunity”, and we often get the same answers: “There are [x] people in [insert geographic construct], and the market for our product is [y] gazillion USD, according to [insert big name consultancy firm]. If we can capture [z]% of the market, our revenues would be [insert as many zeroes as one can get away with].”

This is useful, no doubt, but one half of our team thinks it is incomplete, and the debate has split the firm in two. (Help!) The team in charge of this newsletter is biased in one direction, so we will make our case here, and let our colleagues take two paragraphs to make theirs next week. You’ll be the judge. This is fair and just.

The argument against

Big firms like Sequoia Capital target large markets, but hear us out: market size estimates are lazy. They might be good signals that a problem exists, but the market size number (“200 billion USD per year!” “500 trillion EUR per year!”) contains little information about how *important* the problem is to paying customers; it doesn’t say much about how well any one founder’s solution addresses the problem; and it does not tell a compelling story about whether/why it will grow over time. Market size does not equal market demand. That millions of Nigerians have clothes that get dirty does not mean they will use your ‘laundry app’ instead of hiring a washerman.

The second side to this is that large estimates often signal that a market is mainstream and that its ‘huge potential’ has become common knowledge.

Andy Rachleff has a good framework for thinking about this. Consider the above 2×2 matrix. All the bets we take on founders will either turn out to be right or wrong. Obviously, we won’t make any money if we’re wrong. But if we’re right, and everybody else agrees, the returns are … meh. Competition in such crowded markets quickly becomes a bullfight; a question of who can raise the most money; a matter of mutually-assured destruction.

This view is especially important in emerging markets, where population figures are deceptively large, and little is said of purchasing power or demand intensity. Better questions to ask are: what are the offline indicators that suggest that this problem is an important one? Is this solution 10 times better than the closest alternative? Will the intensity/volume of demand grow over time? How quickly? Why? Is there a moat this founder can build around her solution to prevent better-funded competition from steamrolling her? Is the market deep enough to sustain this venture at scale? Market quality > market size.

What do you think? Reply this email to let us know, or tweet at us (@vplatformhub) to get featured in next week’s newsletter.


  • Build a product that people want. Adeyinka Adewale, Co-founder at — Link
  • Fireside chat with Benchmark’s Bill Gurley — Link
  • History of WWW and a Caution About Prematurely Judging Modern Fintech — Link
  • Swinging for the fences: How do top accelerators impact the trajectories of new ventures? — Link
  • An Often Forgotten Characteristic About Your Startup’s Ideal Customer Profile — Link

Have a great day!

Thanks for reading. Did you like this post? Have Series V delivered to your inbox every Thursday. Subscribe here.