Y Combinator’s Michael Seibel: How African Founders Can Build Global Tech Companies
Summary
TLDRThe speaker discusses the challenges and strategies for investing in software companies, particularly in Africa, where borders and regulations can limit growth. They explore funding enterprises insulated from global competition, like banking, and those providing essential, region-specific services. The conversation delves into the unique nature of African markets, the role of banks, and the shift from consumer to enterprise focus in fintech. The speaker emphasizes the importance of understanding local needs and navigating the physical infrastructure challenges inherent in African markets.
Takeaways
- 🌐 Borders can limit software companies, but the speaker is considering two strategies: investing in regulated industries like banking, which are insulated from global competition, and finding software companies that can cross borders effectively.
- 🏦 The speaker has recently funded an enterprise software company in central Africa that sells banking software, highlighting the gap in the market for locally relevant features.
- 💡 The speaker is interested in companies that solve real-world problems rather than invented ones, and are capable of crossing borders to expand their reach.
- 📍 Being on the ground is crucial for certain businesses, such as auto parts distribution, which cannot be effectively managed from the cloud.
- 🔍 The speaker is looking for areas insulated from global competition, focusing on solving tangible issues in the local context.
- 🔄 The speaker envisions a future with more consolidation in the industry, where companies that have established themselves in specific regions can be consolidated by larger entities.
- 🚀 The speaker acknowledges that understanding and navigating the map of different regions and markets is a competitive advantage for founders.
- 🛑 The speaker advises against copying the US model in other markets, especially when it involves physical elements, and emphasizes the importance of understanding local markets.
- 🤔 The speaker discusses the nature of African markets, many of which are analog, and the challenges of investing in companies that need to solve physical problems versus the traditional software business model.
- 🏛 The speaker has shifted from a consumer fintech focus to enterprise, realizing that banks are not going away and may need to work with them rather than against them.
- 💼 The speaker has found that business use cases, such as payroll processing in regions without bank branches, are more compelling for banks than consumer-focused solutions.
Q & A
How does the speaker view the challenges faced by software companies due to geographical borders?
-The speaker sees the challenges from two perspectives: funding companies regulated by governments to be insulated from global competition, and finding ways to fund software companies that can overcome these borders, such as those selling enterprise software to specific industries in regions like central Africa.
What is an example of a company the speaker has funded that operates in a cross-border context?
-The speaker has funded an enterprise software company that sells to banks in central Africa, which are typically served by French banking software but lack relevant features for their region.
Why does the speaker believe that being on the ground matters for certain businesses?
-The speaker believes that being on the ground is crucial for businesses like auto parts distribution, which require physical presence to hand over parts to customers and cannot be effectively managed from the cloud.
What is the speaker's strategy for identifying areas that are insulated from global competition?
-The speaker looks for areas that solve real-world problems, are not just invented for the sake of innovation, and can cross borders, such as companies that serve specific needs of local markets that global competitors overlook.
How does the speaker view the role of banks in the fintech ecosystem?
-The speaker initially believed banks would be disrupted, but has come to understand that banks are not going anywhere and play a different, yet crucial, role in the ecosystem, often serving as a customer base for fintech solutions.
What is the speaker's approach to investing in companies that solve physical problems in African markets?
-The speaker pivots from consumer to enterprise fintech, focusing on business use cases that solve real problems for large institutions, such as payroll processing in regions without bank branches.
What is the speaker's view on the potential for consolidation in the African fintech space in the next 10 years?
-The speaker foresees a significant consolidation, where companies that have successfully navigated and established themselves in specific regions could be acquired by consolidators looking to expand their reach.
How does the speaker address the issue of market saturation in countries like Nigeria?
-The speaker suggests that instead of trying to dominate the top 10 to 25 markets in Nigeria, it might be more strategic to focus on a few key cities and then expand to international markets.
What is the speaker's advice to founders who want to replicate successful US models in African markets?
-The speaker advises against copying the US model directly, as what works in the US may not work in African markets due to different market dynamics and consumer behaviors.
How does the speaker perceive the nature of African markets in terms of technology adoption?
-The speaker notes that many African markets are analog, with technologies like mobile money built on top of a physical infrastructure, requiring a different approach to solving problems compared to purely digital solutions.
What is the speaker's perspective on the role of banks in the African financial landscape?
-The speaker sees African banks as primarily mobilizing deposits from large enterprises and governments and deploying them in treasury bills and federal debt, rather than focusing on consumer lending or technology innovation.
Outlines
🌐 Cross-Border Software Solutions and Banking Challenges
The speaker discusses the challenges faced by software companies due to geographical limitations and government regulations, particularly in the banking sector. They explore two strategies for funding: one is investing in companies that are regulated and thus insulated from global competition, and the other is funding software companies that can overcome these barriers, such as an enterprise software company in central Africa that caters to the banking sector's unique regional needs. The speaker emphasizes the importance of understanding and navigating these challenges to successfully cross borders and the potential for consolidation in the future. They also touch on the importance of being present on the ground and solving real-world problems, rather than inventing them, in the context of African markets, which are often analog and require a physical presence for certain services.
🏦 African Banking Models and Fintech Collaboration
This paragraph delves into the business model of African banks, which primarily involves mobilizing deposits from large enterprises, governments, and wealthy individuals and investing these in government securities. The speaker explains that these banks are not interested in consumer lending or building consumer-facing technology, which creates a gap for fintech companies to fill. The speaker discusses the potential for fintech companies to work with banks, leveraging their existing customer base and infrastructure. They also highlight the importance of understanding the banks' needs and tailoring fintech solutions to meet those needs. The speaker shares insights on how fintech companies can navigate the African market by focusing on business use cases rather than consumer ones, such as payroll processing for regions without bank branches or card issuing for employees, and the potential for fintech to compete in enterprise software against Western companies by addressing unique African challenges.
Mindmap
Keywords
💡Borders
💡Global competition
💡Enterprise software
💡Cross-border
💡On the ground
💡Consolidation
💡Navigating the map
💡Fintex
💡Product Market Fit
💡Marginal cost
💡Agent networks
Highlights
Software companies are limited by borders, affecting their growth and competition.
Investment strategies focus on companies regulated by governments, such as in banking, for insulation from global competition.
Funding software companies that sell to banks in regions lacking relevant banking software is a new approach.
The challenge of crossing borders is central to the investment strategy in software companies.
On-ground presence is crucial for certain businesses, such as auto parts distribution, which can't be managed from the cloud.
The importance of solving real-world problems rather than inventing new ones for cross-border business success.
The potential for consolidation in the future as companies establish strong regional presence.
The competitive advantage of founders who can navigate the complexities of different regional markets.
The advice against copying the US model in Nigeria, emphasizing the need for a different approach to market expansion.
The significance of understanding the first 10 cities that matter for a business, particularly in terms of in-country presence.
The nature of African markets being largely analog, with physical infrastructure underlying digital services like mobile money.
The shift in investment focus from consumer to enterprise fintech due to the resilience of banks and their role in the ecosystem.
The realization that banks are not going away and may need to be worked with rather than disrupted.
African banks' business model revolves around mobilizing deposits and investing in government papers rather than consumer lending.
The potential for fintech companies to work with banks by addressing their needs and solving problems they can't.
The counterintuitive approach of competing in enterprise software against Western companies by solving unique African problems.
The interesting navigation of business use cases, such as payroll processing in regions without bank branches, for enterprise software.
The strategic pivot of fintech companies from serving consumers directly to serving banks, which have established customer bases.
Transcripts
it hurts software companies to be
limited by borders and so I think I kind
of think about this problem two
different ways one way is like okay I'm
going to fund companies that are
regulated by governments um because like
they're insulated from Global
competition banking is a big example on
the other side I'm thinking how do I
fund software companies that are immune
to that I most recently funded an
Enterprise software company that sells
to banks these guys are in central
Africa all the banking software from the
local bank comes from France basic
banking stuff but none of the relevant
features for the region and it's crazy
to sell a big Bank software when you're
a twers startup but the 5% bet is that
like we can cross the
borders a lot of what I'm trying to
figure out is how to cross borders and
the second thing I think about a lot is
other areas where you can go cross
border we being on the ground matters
right so like we funded a company that
does auto parts distribution yeah and
it's just like you can't do that from
the cloud like some has to
hand people parts
right and so I'm just looking at all of
these areas where it's insulated from
Global competition it's solving a real
world problem not inventing a problem
and it can move crossborder yeah but man
that pres I mean like that map that's my
problem yeah yeah I'd love to I'd love
to pretend like that map doesn't
matter right I get to do that you know
what I mean like but it does you know
what it just means is that for example
in 10 years I see much bigger
consolidation place right because if
somebody has worked really hard to get
frankophone right and somebody has
worked really hard to get East Africa
right and somebody you can then just
come in as a consolidator and kind of
take St and get creative right yes but
but the reality is also it's also
sometimes a competitive Advantage for
Founders who work how to navigate that
map and they are waves you know it just
means it's a bit slower well what's
interesting is often I find myself to
telling the Nigerian Founders like you
can't
copy the US right like in the US if
you're doing something that has on the
ground physical element you know it
probably makes sense to take over the
top 10 to 25 markets in the US before
you get one international market yeah
does it make sense to take the top 25
cities in Nigeria before before you
moved to your first non- Nigerian City
probably not yeah and so there's a lot
of areas where like people want to copy
the thing that worked here and I'm like
I they look at me like you're saying
some really crazy and I'm just like
yeah I'm saying the thing that works in
America won't work in West Africa like
yeah and you know often times I'm I ask
folks what are the 10 cities that matter
to you like what are your first 10
cities and how many of them are going to
be in country yeah and that's a very
different conversation and I think an
added layer of complexity that I want to
address in in in the context of this
conversation also is the nature of
African markets many of them being
analog right so we talk about mobile
money but mobile money is built on top
of a physical infrastructure of agent
networks and physical cash in cash out
human ATMs and you talked about Auto
Parts um you know this idea also as
Venture investors right traditionally
investing in zero marginal cost software
businesses versus the very offline
nature of African markets how do you
guys think about you know investing in
companies that have to solve problems
that are physical in nature versus the
yeah the I guess deal investment case in
software businesses I would say the way
that
I'm trying to attempt to solve that
problem is pivoting my fintex from
consumer at Enterprise I think the thing
that I wanted to believe was that the
banks would be
disrupted and like that was the very
naive American thing but it was weird
because what all the founders wanted to
believe too right the banks play a
different role I just think the banks
aren't going anywhere yes they're not
going anywh and their role is different
well yeah and so I've been you know for
example we have a a card issuing company
with a deal with MasterCard right and
they were originally trying to serve a
bunch of Fint tags
and eventually I said to them you know
why don't you just try to sell this to a
bank and they're like oh Enterprise
sales blah BL blah and I'm like yeah but
like Nigerian Banks Bank the whole
country like you know like they
actually have the problem and they
actually have a hard time building good
technology like like you don't have to
serve a customer who themselves doesn't
have product Market fit you can serve a
customer who has customers who want this
thing and they just can't provide it and
I I've been surprised that how my mind
is kind of changed on that because it
just seems like the banks aren't going
away I mean we just had crypto infinite
investment in consumer
fintech and mobile phones and the banks
are still there yeah and so it's like
okay like I'm I'm like process imination
maybe we have to work with them yeah
definitely I mean at a macro level
simplistically just so you understand
African banks for for everybody here
African Banks mobilize deposits from Big
Enterprises governments and high net
worth individuals and deploy those
deposits in treasury bills and federal
debt that's their business model they're
not interested in lending the consumer
they're not interested in building they
mobilize deposits and
buy um government paper that's their
Core Business in a nutshell so they
won't go anywhere because the space you
are disrupting as a fintech they are
frankly not interested but everyone has
bank account yes so what do you deal
with like so and that's where they get
paid they're just using it to mobilize
deposits yes yes yeah exactly bu TS
right so so they they frankly so when
you're trying to like create a credit
card for the customer and Bank them and
you know Cool Tools they are not
interested they want you to do it so you
work with them yeah you do it and then
when it's big enough they like huh okay
this is big enough maybe now we acquired
well what's interesting is like the
Dirty Little Secret of both of the
companies I'm pushing towards Banks is
that the use cases are business use
cases not consumer like one is a uh a
Payroll use case where like how do you
process payroll in regions of the
country where there aren't Bank branches
and like you know how and it's a big
problem it's for government like how do
you pay the Army and then the other one
was um card issuing for employees for
workers and
so it's been interesting to navigate
that because like you have a bunch of
Founders who are like oh like to your
point who are like oh consumers are
getting screwed and you've got Banks
being like I literally don't
care and like you've got companies and
what do you tell them to do and you're
like well you know if the bank's your
customer maybe you should figure out
what the bank wants yeah and do that and
I think um it's going to be interesting
because I think it's counterintuitive to
think that you could compete in
Enterprise software against the Western
companies but those large institutions
in Africa have different problems yeah
and like the Western software companies
are not addressing so we'll see we'll
see but it's been tricky man
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