In conversation with Iyinoluwa Aboyeji of Future Africa

Transcript

Matt Malone Hello, E.

Iyinoluwa Aboyeji Hi, Matt

Matt Malone Thanks for taking a few minutes to sit down with me and talk about your background and investment strategy. We got a lot of folks in the Opto network that are really interested in different venture strategies, and when you're coming to us from Africa today, correct?

Iyinoluwa Aboyeji Well, as of right now, I'm in Barbados, but I live in Lagos, Nigeria.

Matt Malone Wonderful. Well, you know, we hear a lot about different venture strategies here in the U.S.. You are a venture investor that's focused on Africa. Maybe you could just tell us a little bit of your your background, you know, how you came to become a venture investor. And then we can get into a little bit about more about what you do at your firm.

Iyinoluwa Aboyeji Absolutely. So, my background: I was born in Lagos and grew up there, but I had the really good fortune of going to the University of Waterloo in Canada for a portion of my university education. There, I managed to spend four amazing years, during which I came in contact with a friend of mine, Pierre Arys. Pierre introduced me to technology, and thanks to him, I was able to meet Joe Lonsdale. Following this, I spent a short stint in Silicon Valley, learning how everything worked. After that experience, I ultimately decided to return to my country to try and replicate what I had learned. A year into my sojourn, after being involved with a number of new startups, I got really lucky. I managed to collaborate with an incredible entrepreneur, Jeremy Johnson. Jeremy, one of the co-founders of 2U, was not only a great friend but also a pivotal figure in my career. Together, we built a company called Andela. Andela was a very important company in Africa. It essentially set the foundations for technology talent in the region. We helped to build a lot of the technology talent that emerged from Africa during that period. This experience laid the groundwork for my next venture, a startup called Flutterwave. You could say that my journey involved spending the first couple of years building something like Stanford and then creating a Paypal equivalent. After leaving Flutterwave, I decided to start a venture firm, which I have been running since. This venture firm invests super early in companies that are turning Africa's biggest challenges into global business opportunities. Over the last seven years, we've invested in about a hundred companies. We've had the exceptional pleasure of being a part of three of the continent's seven unicorns, playing a significant role in building out the ecosystem from the ground up and solving really important problems in the ecosystem.

Matt Malone So one of the things you mentioned in terms of your story is you spent some time in Silicon Valley. I heard you mention the importance of having a good mentor and the importance of cultivating talent, which are two things we hear a lot of people in the venture community talk about. What were some of the other lessons you took from Silicon Valley and brought to Africa? And then what are some of the things that maybe, you know, we take for granted here or that that maybe don't work in Africa, in Africa, that you that that are done here in the United States?

Iyinoluwa Aboyeji Absolutely. I would say, you know, the things that I learned from Silicon Valley was that, you know, it’s really, really important to help other people and build communities, even if you don't directly benefit from it. I think that culture of paying forward and being the most helpful investor isn't on the card table. And those are things that I learned from Silicon Valley, and they've really helped a lot because what happens when you do that is that you really honing your skills at adding value to companies. And so when the best companies are thinking about who to work with or who to talk to, they inevitably come to you, but surprisingly also more broadly, the ecosystem of players, whether it's government, whether it's large corporates, whether it's other LPs, whether it’s other VCs when they have an exceptional deal they’ll come to you. So sort of I learned from Silicon Valley the value of being a human router. You know, it really, really does improve a lot of your investment outcomes; it improves your quality of life. It makes you a useful person. And I’ll say the other thing I learned from Silicon Valley is how powerful it is to work with mission in mind. It's really important that you can set your mind on a huge outcome and essentially design your business to mirror it, even if the outcome seems extremely impossible. But that has been something I picked up from Silicon Valley and truly helped with supporting businesses that are kind of going towards moon-type outcomes and in fact, you know, just being able to build companies that really, really have a mission of significance in shifting outcomes for a large proportion of the population. That is the level of ambition in Silicon Valley that I definitely took away. I'll say the one thing that didn't quite translate well is, and I would argue it's not really a function of like, Silicon Valley's not doing this, but it's really a function of the timing. So one of the big errors when I started in the ecosystem was this idea that, you know, Silicon Valley, the differences in a company in Africa, what's just location. The reality is actually about like you know, Africa is nearly 50 years behind Silicon Valley so you have to think like that when you invest. So it even shows up in like what we invest in, right? So, you know, in Silicon Valley, everybody is raving about the AI. Everybody's raving about like, a lot of futuristic stuff, but there's a lot of like, basic fundamental stuff that hasn't yet been invested in, hasn't yet been solved. So without those things being solved, it's really difficult for you to invest in the next generation. So, for example, like while you're thinking about AI, we’re thinking about humans in the loop, how do you build talent that is default AI compliant, for lack of a better word. The ability to build with that kind of talent really defines how Africa participates in the AI revolution into the future. So those are the kind of like slight differences. I always like to joke with my team that investing in Africa in 2022 is like investing in Silicon Valley in 1972. So you just like we read a lot of economic history trying to understand what Don Valentine would have done rather than thinking about what, you know, somebody in Sequoia today would have done. Matt Malone Yeah. Yeah. I mean, there must be a lot of parallels. I mean, do you think that that gives you a bit of a roadmap? Are you trying to create parallel systems in Africa? There must be different ways people do things, and I don't know, does it help you accelerate innovation there? Because you're starting at a baseline and you can kind of see where other people have made mistakes?

Iyinoluwa Aboyeji Absolutely. I mean, the beautiful thing about investing today is that Silicon Valley and Silicon Valley history gives you a sense of how the story ends, so there are very obvious mistakes you can avoid making. And there are very interesting paths you can take because perhaps culture or psychology behavior are very different here than they are. I'll give you a practical example, right? We kind of moved from an era of like one-time software sales to an era of SaaS, and that’s as credit improved. You know, Africa has evolved slightly differently by virtue of like transactional revenue, right? Which is an entirely new kind of revenue that most people didn't used to think about. So basically, having timed access to any kind of resource, right? So a metered access to any kind of resource. That kind of revenue model shift, typically, is why like it's very difficult to build like a big SaaS company in Africa, but if you wanted to build a huge technology company in Africa and you built it around timed access and built it around outcomes or upside sharing, profit sharing some might call it, you would find out you would actually be able to build a huge, a huge business. And those are just some of the subtle philosophical sort of differences between building a huge tech company in Silicon Valley and building a tech company in Africa. But generally speaking, you already know how all the story ends. All the stuff about talent is true, all the stuff about investors being super invested in a small group of companies they build up to be very valuable is true, all the stuff about being a great ecosystem player and piecing together different pieces is true. All the stuff about money changing people is true. So I read quite a bit of Silicon Valley history just to understand what not to do and then try out new experiments and make new mistakes.

Matt Malone Yeah. And so you mentioned maybe digging into some of the sectors you're more excited about and where you see people building. I mean, you mentioned, you know, so much focus on AI here, maybe a little bit less of a focus on AI right now in Africa. But what are the areas? Is it, you know, what sectors are you guys focused on and excited about? Where do you see acceleration happening there?

Iyinoluwa Aboyeji Yeah, it's really funny, but it's not really that there's no AI, for example, it's just that the form that AI will take here is like completely different. So I'll give you a few examples. But at a fundamental level, what we're seeing is that if you're building businesses that are able to supplement government capacity, if you're building in areas where it completely lacks it, for example, a business like Andela, that trains talent that would ordinarily be the duty of the state through universities, or because the state lacks the capacity to run meritocratic institutions, academic institution, then you need an Andela, right? And then, so you think about companies that can basically replace state capacity with technology and with data access or outcome based on income or income sharing, as some people might call it, that's a huge hit. The other thing is even distributed infrastructure, right? How can you build businesses that actually replace government's function of providing infrastructure? Think about it for metered water to metered electricity to housing, right? There's so many different infrastructure elements, but you're not necessarily doing the fiscal work building it, but you're using software to those things utilities far more efficient than they typically would be. Then there's talent, investing in talent, which is a huge deal, like we're just talking about AI the vast majority of human in the loop. Humans that are going to be the humans in the loop with AI will most likely come from Africa because that's where the cost makes sense. And then perhaps there’s ways to like enrich their learning the barriers to productivity are lower with A.I. and so on and so forth. So how are you creating tons of, you know, humans in the loop and managing them on scale? That's another big thing. There's so many other things. I mean, fintech is the one everybody cares about. And that's critical because fintech sort of gives everybody the ability to access different services on demand. And that's a big part also of how people live and work here. But what I’ll say just on the whole, you know, the opportunities are incredibly vast. It's almost feels like you're building a brand new society and you can build it from the ground up by thinking about how technology plays a role. Matt Malone Gotcha. I mean, you mentioned fintech and payments. I'm curious what your view is on crypto world. I mean, this is another hot topic. We talked a little bit about AI. I hear, you know, crypto is all the rage. One of the things that the crypto bulls always used to talk about a few years ago is how this was a way to, you know, in areas where you know, maybe monetary systems were less reliable, it was an easier way for people to transfer money to hold value to take away power from centralized governments that may not be managing their fiscal situation well. Now we're seeing crypto rally again. I'm wondering what you think about, you know, crypto and if you're doing any investing there.

Iyinoluwa Aboyeji Yeah, I mean we've invested traditionally in crypto, but what we are generally learning about this part of the world is that for many countries, crypto is a passport to access the global financial system, right? So that's why the most used cryptocurrencies in this part of the world are USDC, you know, USDT, right? Stable coins, because for many people traditionally the way they could access the global financial system was through their banks, and the banks weren’t always giving them a fair deal and oftentimes would collude with the government to you know, print more money, drive inflation, and ultimately make them poorer on the whole. But with crypto, they have the ability to actually now save their money in global currencies and be somewhat insulated from the impact. Furthermore, they're able to even earn income globally, right? From wherever they are in the world. And these are examples of things that weren’t possible before crypto. And I think that it will continue to be the case here. Crypto will be a fundamental fabric of the financial infrastructure. But more broadly, I think it's less about crypto itself and what crypto enables. When you think about all the different kinds of assets that one is able to access and digitally represent or represent digitally, that's when the magic of crypto starts to show up. And unfortunately, I don't think that the crypto bulls have gotten interested in that kind of fundamental innovation yet, but I think that over time a bunch of the companies and talent that is built from Africa will look at those problems and try and build something interesting around those. Matt Malone Let's switch gears a little bit. I mean, and the other thing it would be interesting to talk about is just the competitive landscape in Africa. I mean, in the US, we've seen, you know, a ton of capital flow to the venture community. There's a lot of dry powder left in venture. You know, we've definitely seen a reset in valuations, valuations got a little frothy in 2021 and we're seeing a reset. Investors are maybe a little wary. You know, some people think it's time to sort of buy the dip, if you will, even though it's not a a public asset. But valuations are low. Others are still wary thinking valuations may be coming down further. What are the dynamics you're seeing in Africa? What terms of capital availability, competition for deals, valuation? Is it tracking the the this market or is it different?

Iyinoluwa Aboyeji We have a lot of differences, as we often do, where it took a while to get to us, but eventually, it has, and it's been a great thing for the ecosystem because it's actually brought back some level of rationality to the market and it's actually reduced the number of tourists in the ecosystem. So we have this dynamic over the last two years of zero interest rates where we had American capital looking for a way to plug capital anywhere, essentially, you had the flood of money come to Africa, sometimes trying to essentially crown winners with capital. Of course, quite a number of these companies went to zero, especially because they were trying to compete with local capital and obviously failed. So you have quite a number of big failures and, quite frankly, some of them frauds that happened because local investors were sinking, not carried along. And big capital, big cheap capital from America, kind of flooded the market and tried to crown winners. But now, you know, there are a number of businesses that have solid fundamentals that are better priced but are looking for investors with true local platforms that can support them and know how to operate within these markets. There's also because of the pullback in venture around the world opportunities for some of these companies that are cash rich to actually expand into markets that they previously thought were untouchable. Right. With lower-cost models, especially models that kind of graft talent and infrastructure along with software. And we're seeing quite a bit of startups kind of step up and expand to the US, expand to Europe, and not just expand to Africa. I mean, one of my favorite examples of a startup that has managed extremely well in spite of the market environment is a business called Moove. We backed to Moove in the wake of the pandemic, and it was sort of a counter-intuitive bet, we were going to help people who make their living driving on Uber to be able to own the cars that they drive. I dont know if you remember a company called Fair.com from way back in the day that went bust but it was a similar company to that. And a lot of investors in the US believe that it was impossible to run that kind of business profitably, but these guys gave actually managed to actually run it really, really well, and turn it into an asset allocator of mobility fintech companies. It’s decently run, you know, has real revenues, is eking out a profit very shortly, has managed to be backed by Mubadala lots and lots of really cool stuff that it managed to do. And this business started in Lagos, Nigeria, but now it's expanded all over the world to over 13 cities. So that's an example of the kind of high-quality assets that you're seeing from Africa. And I really believe that especially because of the talent dividend that Africa has and the fact that the world is so open now, especially post-COVID, you're going to see a lot of interest in African companies scale globally, and that tends to be in US and Southeast Asian markets. And because of the lower cost base on the talent side, they may actually be able to give it a fair shot, very similar to what Freshworks was able to do from India. Matt Malone Yeah, that's really interesting. So, you know, if you're seeing African companies scale globally with a lower cost structure, that should generally mean more profitable companies. So maybe more people in the US should be thinking about how they get exposure to Africa. I mean, one of the one of the things we hear from clients here, I mean, I think our clients are generally very interested in venture. When we talk about international, it's very U.S. focused, I'd say generally, but when we talk about international, people worry about currency risk, people worry about areas with political instability or other sort of disruptive aspects. Are there additional risks that people should be worried about when investing in Africa or concerned about? And what are you doing, if there are, what are you doing at your firm to try to control those risks?

Iyinoluwa Aboyeji Yeah, I mean, we're a firm that exclusively invests in Africa. So as you can imagine, we know these risks well. We understand these risks exceptionally well, and we designed our firm to manage around these issues. So when you talk about risks, we know the countries, sorry, where these risks are almost impossible to manage, quite frankly, as opposed to countries where these risks can be effectively managed. So, for example, when you look at political risk, a country like Nigeria is a democracy, regardless of how much bad news you hear about it. It's an evolving democracy, but it is a democracy all the same. There are challenges, but then how can you mitigate those challenges? Well, you know, for example, we make all our companies incorporate as Delaware Corporations. So for all effects and purposes, they are treated as foreign investors in these countries that they operate in, and because they’re treated as foreign investors, there’s so many tools, and there's so many instruments, there's so many and so much concession that's given to them as a result. So that's how we manage something like political risk, right? It's still at the end of the day a Delaware Company, but it's just operating in these countries. When you think about currency risks, again, this is why we push a number of our companies to actually scale globally. So the currency risks actually work in these companies' favor because their labor costs continually go down while their income increases. And that means that they can continue to increase margin by literally doing nothing but operating in Nigeria and earn an income globally. Even in some cases, we’re able to manage treasury effectively by using margin instruments, to basically ensure that even if the companies are earning in Naira, they're able to export their capital in the right way, properly, globally, and have their profits backed in the US. So these are just like because we've been in the market for so long, because we all understand the players because we have the relationships, we're actually in a much better position. And that's why, you know, whenever what we saw in the last wave of zero interest rate behavior where large global VCs tried to swarm the market with money, that's why those little strategies tend to fail, right? Because those people are not actually, they don't really understand the risks on the ground and have no strategies to mitigate it. And it doesn't really make sense for them to build particular strategies for a very small percentage of their portfolio. However, if people are looking for alpha in this market, they need to kind of focus on managers that actually understand the risks and can work with them to manage these risks. Matt Malone That makes a lot of sense. And maybe we'll maybe we'll close with one last question on founders. Whenever I talk to venture capitalists, they love to talk about how they specialize in finding the right founders and the traits they look for in founders. So if we can go back to where we started, are you looking for the same things that a Silicon Valley investor would be looking for in a founder, or are you looking for different things? What are the key aspects you're looking for in founders that make a successful company?

Iyinoluwa Aboyeji I mean, you know, I think we're looking for the same things, but they're interpreted differently culturally. So, for example, when somebody is looking for acuity or intelligence in a founder or wondering whether that founder went to a credentialed institution and so on and so forth, for me, I'm looking at whether that founder has insights, right, about the business that they're trying to do. And whether they can relate it back to their depth of experience in that business and relationships that demonstrate that people trust them. So for me, for example, I take my references extremely seriously, you know, meanwhile, in Silicon Valley, they kind of go off credentials. Something else that we look for in founders is just the level of pain they are willing to endure to make their vision possible. Right? Because this is a market that is very difficult to operate in. So, you know, having a founder that lacks the tenacity and doesn't, you know, has a track record of giving up very early, you know, doesn't work here. In Silicon Valley, they would celebrate that founder as being adventurous and being easy to fail, you know all that, and here, I would interpret, you know, I would interpret that as a founder who just lacks the tenacity to stick through a very difficult period, you know, depending on the circumstances, of course. So I think it's the same things, but culturally, you would need to treat them differently, you know? Matt Malone Yeah, that makes a lot of sense. Well, anything else we missed that we should know about in terms of Future Africa? Your business, what's happening? What else do we need to know if we're thinking about investing there?

Iyinoluwa Aboyeji Well, I mean, for us, I think one of the things that I always try to impress on global investors is that this is an amazing market to learn, right? Because it's inevitable that this market is going to be the future. I was reading an article on FT the other day, and they were saying that actually, the problem with global growth is that Africa, despite the number of its population growing, is not growing, and the world ultimately will come to depend on Africa for global growth because the rest of the world is aging extremely fast. While the median age in Africa is 18. For us, you know, we wake up every day thinking about how do we make these 18-year-olds productive enough to get global growth going again. And I don't know how long it's going to take us to figure it out, but at the very least, right now, we're returning capital to investors while learning, and I think that's kind of the right mindset, you know, being the kind of firm that, you know, at the very least, over the last ten years, we've been able to ensure that we can return investors their money. But at the same time, we get an incredible front view into how the continent's unicorns are being built, what kind of challenges are worth solving. You know, it definitely gives one a lot of satisfaction to be able to work in a region where it's possible to create both impact and returns. And I think investors around the world need to know that it's possible. Africa is not just good for their philanthropy. Africa is also good for investment. Even better, you can learn from it about how to operate in the world 20, 30, 50 years from now. Matt Malone E, thank you so much. Good to see you again. Future Africa. Appreciate you taking the time this morning and and sharing your insights with the Opto network.

Iyinoluwa Aboyeji My pleasure, my pleasure. Thank you so much.