UD #02: Banks are shook and they should be

I’m taking a break from the series I started last edition exploring three funds that have done the most to deploy technology-enabled business models across emerging markets. Today’s newsletter explores recent African fintech funding news. The series will continue in the next edition.

Valar Morghulis.

The amount of capital flowing into an ecosystem tends to get most of the headlines. I’ve argued, that just as important is the source of the capital. As an ecosystem matures, you want three sources of capital to emerge:

1. Local angel investors that understand the nature of tech investing and venture returns. These are angels that are able to de-risk start-up creation and give founders guidance based on their actual experience. Alex Danco writes with enviable clarity about good angels in this article.

2. Dedicated pools of capital focused on just that market and able to take multiple significant bets. These are funds like TLcom, Partech Africa, Cathay Africinvest, Sawari Ventures, and Novastar. With their current funds, these firms have committed to deploying >$500M into Seed-Series B deals in Africa over a 5-10 year period. If they are able to back companies that achieve scale, the multiplier effect on this effect will be immense.

3. Global funds with impressive track records and experience in multiple markets. Funds that act as a bellwether for the growth of markets they enter and are able to attract even more capital. When SoftBank announced its $5B fund focused on Latin America, it did two things: a.) made it clear that the best companies in LATAM, with the most impressive traction, will have access to the capital they need to scale. b.) it put the ecosystem on the map and attracted other investors. Another example is Y-Combinator, which has invested ~$5M into the African ecosystem over the past ~5 years. This capital has had a very different signaling effect to $5M deployed by [insert local VC] over the same period.

This lens, of the source of capital, was what I used to look at two recent fundraising announcements from the Nigerian tech ecosystem - Flutterwave & Kuda Bank.

A lot of the focus on Flutterwave's round was around the amount raised and the valuation - both of which are notable. An underappreciated fact was who the company raised money from. The round was co-led by Tiger Global with participation from a host of ...