This article was contributed by the Managing Partner at a leading seed-stage venture capital firm in Africa.
Consider this thought experiment: What if the assumptions about investing in African startups were incorrect? What if the most significant opportunities are not in the commonly targeted Big Four markets—Nigeria, Egypt, Kenya, and South Africa?
Many investors in Africa fall into the trap of pattern matching. They see successful startups in Nigeria and other headline markets and assume that’s where the focus should be. However, this approach overlooks the complexity and diversity of African economies. While the Big Four markets are crucial, concentrating solely on them might mean missing out on emerging opportunities.
Avoiding the pattern matching pitfall
Pattern matching can be a useful tool for investors, but it can also lead to missed opportunities. While it helps identify promising startups quickly, it can result in an overemphasis on specific markets and industries, neglecting potential elsewhere. This tunnel vision not only limits investment possibilities but also increases competition and reduces returns.
By solely relying on past successes, investors risk overlooking innovative solutions that deviate from established patterns. In a diverse continent like Africa, this can hinder progress in addressing unique challenges effectively.
Exploring beyond the Big Four markets is crucial to fully capitalize on Africa’s potential. Investors need to balance pattern recognition with openness to new ideas and markets, creating frameworks that encompass underserved regions and collaborating with local experts.
Rethinking market categorization
Instead of focusing on individual countries, a new approach involves categorizing markets as “Lakes” and “Oceans.” Ocean markets like Nigeria and South Africa are vast but highly competitive, while Lake markets such as Senegal and Côte d’Ivoire offer interconnected opportunities with the potential for dominance.
Lake markets provide room for startups to establish themselves as key players and expand across interconnected regions. This strategy contrasts with the Ocean approach of intense competition in crowded markets, highlighting the benefits of dominating smaller but strategic markets.
Navigating new territories
This shift in perspective has influenced investment strategies, encouraging exploration of untapped markets and hidden opportunities. By focusing on dominating Lake markets and expanding strategically, founders have the chance to build transformative businesses beyond the well-known tech hubs.
The future of African tech lies in venturing beyond familiar territories, recognizing potential where others see challenges. Entrepreneurs who embrace this mindset are poised to shape the next chapter of Africa’s tech narrative.
By seeking out overlooked opportunities and embracing diversity, investors can uncover the true potential of African markets. The next big success story in Africa might emerge from unexpected places, signaling a vast and diverse landscape waiting to be explored.
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