👀 Is This Africa's Next Big Opportunity?

RoboCop? Well, it was only a matter of time… yes, a Slovenian startup just created the AI-powered PaintCam home security system with facial recognition and a built-in paintball launcher (plus max cringe video ad) — you know, so it can open fire on strangers.

In this Open Letter:

• Macro trend: Preparing for Africa’s looming VC boom.
• Takealot’s township takeover, Netflix subscriber jump & lekker local AI.
• Number science: More strategic pricing as an SA startup.
• What should SA do about taxis? The results are in.
• Free business tools? Share The Open Letter and get yours.

TRENDING NOW

Preparing For an African Funding Boom

2023 was a tough year for venture capital (VC) globally. 

Interest rate hikes and rising conflicts last year meant we went from $531.4 billion flowing to 52k VC deals in 2022 to just $344bn across 38k deals in 2023 – a sheer 43% drop.

So, naturally, Africa also saw a dip. Though not as sharply – our VC investment rates dropped by 32% only, from $5bn in 2022 to just $3.4bn in 2023. 

In fact, we’d venture to say there’s reason to be very optimistic about a future surge in African VC – sure, we’re a long way off from generating the US’s $149.9bn and India’s $11.4bn, but, remember, 10 years ago, VC funding didn’t even exist in Africa. 

In fact, if you take a longer view: Since 2020, the amount of funding raised by African startups increased by 76% – more than any other region in the world. 

So, what if last year’s downturn was just a speed bump towards further growth in Africa? 

It’s just the beginning

The African startup space is heating up, fuelled by stories such as:

• M-Pesa that launched in 2007 and went on to become a preferred payment method in Kenya.
• Global payments giant Stripe’s 2020 purchase of Nigerian fintech Paystack for $200m+
• Or even Nigerian e-commerce player Jumia’s 2019 listing on the New York Stock Exchange.

As global investors look for more savvy ventures to fund, now might be the best time to get into the African startup space – be it as a founder, investor or ecosystem player.

Good news for founders, but also for the ecosystem

The upside of increased funding is the whole industry stands to benefit. And some locals are getting in on the action early. 

Launch Africa, co-founded by South African Janade Du Plessis, is an early-stage VC firm with over 140 deals under its belt (9 in 2023 alone). Not bad for the early-stage investment space, which is dominated by foreign investors like Techstars and YC. 

They do pre-seed stage deals, typically between $200k and $300k across the continent. Some of their South African investments include Skrmiish, Carscan, Peach Payments, Happy Pay and Strove.

But just getting the ecosystem and its players ready for this rising tide is a major opportunity in itself…

‍Enabling founders for the game

Joining the VC space early in their careers, South Africans Luke Mostert and Karl Nchite saw firsthand just how isolated newcomers are in Africa – both in the startup and VC space.

And, as the demand for both founders and talent grew, CatalyzU was born. It equips, connects and even places startup talent across 18 different African countries by using the most powerful learning tool available: You learn from those who have done it in Africa before – and done it well.

And they have some top-tier programming:

• Their first (launched mid-2023) was a Venture Capital Fellowship featuring lecturers from top VC firms like Norrsken22 and Founders Factory Africa – equipping 88 participants with the skills to navigate the African VC landscape.
  
• And they just launched their “How to Startup” Fellowship in partnership with leading pan-African firm, Future Africa. This is a 7-week program that helps founders, aspiring founders, startup employees, and even corporate innovators to validate ideas, craft MVPs, navigate legal and financial principles, and strategically raise capital.

What they are doing well is bringing in the big guns to share their know-how. From Flutterware & Andela co-founder Iyinoluwa Aboyeji to DukaConnect co-founder and Future Africa, managing partner Mia von Koschitzky-Kimani to share some nuanced on-the-ground experience on building in Africa.

What’s more, the fellowship is just the start. All the graduates will join the CatalyzU alumni community where one will get direct access to over 60 African VCs.

With interest rates largely expected to drop in 2025, we expect some money to become available and large sums of that will hit the VC market. The ready founders will likely be in line for good growth funding. Founders get ready… and, as always, we’re watching this space.

PS. The “How To Startup” Fellowship kicks off in 3 weeks, so there’s still time to submit your application. Go check it out.

IN SHORT

💰Funding Ramp. Local AI-driven software solutions company, Spatialedge, has landed R60 million in funding from the Hlayisani Growth Fund to ramp up its R&D efforts and beef up its existing suite of AI-powered products.

💻 Climbing Subs. Streaming giant Netflix has seen a 16% increase in subscribers in Q1 of 2024. Apparently, this will be the last time it reports on subs as moving forward its focus will be on revenue and operating margin as its primary financial metrics.

🤖 Banking AI. FNB is dipping its toes into the AI pool by building a vector database to support generative artificial intelligence (AI) models. It also has plans to introduce GenAI-based agents to help answer various customer queries in future.

🏍️ Takealot Township Takeover. Fresh from our piece on how to do e-commerce to townships, local e-comm, Takealot, has planned to create 20’000 jobs in 20 Gauteng Townships via its Takealot Township Economy Initiative by 2028.

🏆 World Champs (again). We South Africans spend 56.8% of our waking hours glued to our screens each day. At 9 hours and 24 minutes, it’s more than anybody else in the world.

🥑 Bitcoin Halving. The much anticipated Bitcoin halving was completed recently and total miner revenue is currently about triple the pre-halving level. This could well be due to the Runes protocol which allows users to mint and etch tokens on the chain. Experts expect these transactions to make up 15% of fees earned by miners eventually.

BUILDER’S CORNER

How to Price Strategically in Startup

Taking a product to market requires precise pricing – enough to be sustainable and make a profit but also attractive/worthwhile for your consumer. Which means one thing: They get clear and apparent value from it.

SA founders from like Day 1…

Now many factors will affect your price – business model, how you unlock efficiency, what your market can and will put toward unlocking that value etc.

How you present it, is a pretty exciting field of study all on its own.

Here are some pricing strategies and psychology/neuroscience insights to inspire you…

Startup Pricing Strategies

1. Low entry for market penetration

Ah, the good old undercut: Come in at a lower price point than established competitors, offering the same or better value at a lower cost, to capture as much market share as possible. (And then raising prices later, meaning you sometimes run intentionally at a loss for a while.)

Works well: 

• When you have the marketing budget (funding)
• When you use tech to create efficiencies they can’t compete with, like Rain.

Surprisingly good for:

• Community-powered product-led growth projects like we described in this builder’s corner, i.e. Slack, which went viral cheaply and then raised prices once they had massive adoption.

2. Premium pricing

The exact opposite: Intentionally charging more to create the impression your product’s better. Super-tricky in the startup space but valuable if your product introduces an entirely new take on existing products – dressing up the veldskoen, for example.

Works well:

• When backed by superior tech/processes
• When you have luxury, high lifetime values per sale

Surprisingly good for:

• When your freemium offering so clearly showcases your product’s superiority adoption is a no-brainer (products like Hubspot and Semrush really are that good once you start using them.)

3. Maximised pricing

Similar, except this time you do extensive market research and peg your price at the maximum your market is willing to pay for it.

Works well:

• When it's a super niche space with little competition
• When you’re trying to establish yourself as a premium brand

4. Price skimming

You start at a high/competitive rate and then gradually lower the price over time – you know, like King Price.

Works well: 

• When you can use the pricing as “the reason” to buy from you (marketing)
• When you’re the first mover with this strategy in the space.

Bonus: Some Pricing Psychology For You

1. Charm pricing: Instead of R100, say R99.99 to capture a cognitive shopper’s attention (those comparing prices between brands). 

2. Prestige pricing: Instead of R99.99, say R100 to capture an emotive shopper’s attention (courses, self-development etc. where the consumer wants “the best”).

3. Greed pricing: Buy one get one free, get 25% off next purchase etc. – the freebie-on-purchase model tends to override logic and gamifies the experience.

4. Comparative pricing: Put two options next to each other at different prices – it shifts the purchase question from “Should I buy this” to “Which one do you want?” (easily the most effective and common on this list).

Got a startup hack or insights to share? Hit reply and we might feature you here, too.

Today’s Builder’s Corner was written by Elvorne Palmer from The Open Letter, who is an expert in SEO, content and audience development.

Connect with him on Linkedin here.

YOUR VOICE

We asked what SA should do about the minibus taxi industry, and most of us want to revive public transport…

🟨⬜️⬜️⬜️⬜️⬜️ 🪦 Let it die and let’s get something else. (12%)

🟨🟨⬜️⬜️⬜️⬜️ ✊ We need to save it! (16%)

🟩🟩🟩🟩🟩🟩 🚌 Just get public transport working. (38%)

🟨🟨🟨⬜️⬜️⬜️ 🗯 IDC and selfishly I’d say please no more taxis on the road. (18%)

🟨🟨⬜️⬜️⬜️⬜️ ⚖️ It needs greater regulation – how much Tax is SA missing out on? (16%)

Your 2 cents…