Hello from the crypto rabbit hole. I've been here for the past few weeks, each day deeper in it than the last. Today's piece isn't about crypto, but I think my crypto learning curve is relevant.

As I try to wrap my head around more about esoteric subject matter, like DeFi and valuing NFTs, and as current prices for digital collectibles like CryptoPunks go through the roof, it's easy to think "this doesn't make sense, it's a bubble", and write it off.

Time and again, with new technology and innovation, people criticize what they don't understand.

This is true in crypto, and I think it's true in early-stage investing, as well, particularly in nascent markets.

Last week, Derin Adebayo published a piece entitled "Responding to shoddy journalism" for his newsletter, Unevenly Distributed. In it, he criticized western media - namely the Economist and Financial Times - for their shallow, reductivist articles on the African tech ecosystem. (I will, reluctantly, link to the articles here and here).

Both articles discussed the socioeconomic realities on the ground in Africa, and asked if the recent fintech hype can last in this environment. In response, Derin writes,

It’s not that anything in the article was untrue. Nigerians are mostly poor. The economy isn’t growing. The CBN is a very hands-on regulator and is always a wildcard. Infrastructure in Nigeria is underdeveloped. The investors quoted in the article aren’t wrong to point out these facts. But these aren’t new facts. I struggle to believe there is anyone investing in Nigeria’s fintech ecosystem that would be shocked to hear any of this. So if there is over-exuberance in the market, it is certainly not due to ignorance of these factors.

Why are these seemingly smart investors investing in African fintechs at such high valuations, some people ask, as they criticize what they don't understand. Don't they know that the people are poor!

Is what we are seeing over-exuberance though? Or, from the long-term perspective, is it an appropriate amount of exuberance? The history of technology is rife with pessimists thinking companies are overvalued, only for the prices of said companies to continue to rise. (Seriously, check out the Twitter account Pessimists Archive for the best of the worst!)

Derin concluded his piece with the following,

When a $500B economy is run 95% on cash, it’s difficult for me to see <$1B in investments aimed at digitising that economy as being ‘unsustainable’.

Unsustainable? Far from it!

If only we would zoom out...

Time Horizons as a Competitive Advantage

I had the opportunity, a few weeks ago, to interview Ham Serunjogi, the Co-founder and CEO of Chipper Cash, for our upcoming season of The Flip podcast. Chipper sits squarely in the middle of the fintech exuberance, having recently raised a $100 million Series C.

I was especially interested in hearing Ham's perspective on this exuberance in the context of Chipper's business model - in which the app offers free peer-to-peer transactions for their users.

That'll never work in Africa, the punditry says.

Zoom out, Ham responds.

At a fundamental level, we told ourselves, "if you're going to do this thing seriously, if you really want to move the needle with cross-border payments, you have to solve the problem of inclusion and accessibility"... and the once you can solve that piece everything else can be figured out over time.

At the time, in the short run, it might seem unsustainable. But when you look at it from a long-term perspective, it makes sense. We try to push ourselves to think about things in that capacity, which is, what would it look like in 10 or 20 years when you have 50% of people in Africa being able to participate in the cross border space meaningfully? What does that world look like? How do you drive value in that world?

…sometimes breaking out of old ways requires thinking in wholesale magnitudes and in long time horizons, and that's the approach we took here.

Ham and his team have heard all of the criticisms of the African markets in which they operate. The people are too poor, you'll never make money from them, the TAM is too small.

All of these criticisms are true in the short term, but Chipper's strategy - which does include raising significant capital - affords them the ability to have a long-term time horizon. And that, in and of itself, is a competitive advantage, especially in a market where there is so much to build.

Meanwhile, telco-led mobile money providers literally can't ween themselves off of P2P transfer fees and tactical business models, despite a 10-plus year head start. What happens when fintechs - who are thinking and building for the long-term - show up with a better and cheaper option? We're seeing it happen firsthand with Wave in Senegal.

A quote Stripe's Patrick Collison gave in a podcast interview when describing his admiration for Jeff Bezos, really resonates,

There’s something quite deep about the notion of using time horizons as a competitive advantage, in that you’re simply willing to wait longer than other people and you have an organization that is thusly oriented.

Opportunity compounds as infrastructure continues to be built. The further in the future you are building, the easier it becomes to solve the problems in question, and the more value that can be captured, as a result.

And so too does understanding compound. That which doesn't make sense - the internet, social media, crypto, ecosystem-specific growth strategies and fintech valuations - becomes familiar and commonplace.

So while there may (appear to) be over-exuberance; while it may appear that there are smart people making dumb investment decisions, the long term, I believe, will tell us a different story.

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Thanks, as always, for reading 🙏

Justin

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