Another week, another unicorn. Or so it seems.

Wave is the latest, having announced a $200 million Series A, valuing the mobile money provider at $1.7 billion.

Wave pulled the goalie, and brought with it to Senegal a "radically affordable" product - 70% cheaper than existing services - made possible by their strategic decision to build a full-stack mobile money platform. The startup took telco incumbents head-on in Senegal, offering free cash deposits and withdrawals, free bill pay, and 1% fees on peer-to-peer transactions, and their customers have rewarded them with the leading market share in the country.

But Wave's story, I believe, is much more than just a battle between fintechs and incumbents. Looking at this and other recent fundraises through a wide aperture, a few commonalities begin to emerge.

In particular, the requisite funding for step-change improvements in African markets, and the uniting characteristics of these growth-stage companies.

To best understand the traction and opportunity for Wave, I refer you to this piece by Everett Randle of Founders Fund, which participated in the company's Series A. It's this sentence that resonates most for me.

And beyond offering their own incremental products, by creating and maintaining the building blocks for financial transactions as well as the network of users conducting those transactions, Wave is creating the foundations for Africa’s first fintech platform of scale, which represents a far larger opportunity than Wave exclusively offering products on its own.

Wave is both building the infrastructure and the consumer-facing products on top of the infrastructure.

For as long as I've been around the African tech ecosystem, a common reprise is that startups must build across their given value chain, given how broken and fragmented said value chains are. This flies in the face of the Silicon Valley-style advice that tells entrepreneurs to "focus relentlessly" and "do one thing well". The realities on the ground do not afford entrepreneurs in Africa to focus in that way.

Wave - and its contemporaries - are building out the full stack because they have to, if they are to serve their customers and offer superior products as compared to the status quo. This approach is both operationally difficult, and capital intensive, but does create ample opportunity to avail both first-party and third-party services on top of their invested infrastructure.

Back in late-2019, our friends at DFS Lab wrote presciently about this.

These players don’t need to pivot to a platform strategy because platformization was the strategy from day one. The growth-by-layering strategy is much easier with these digital native services who don’t have the legacy invested infrastructure of banking or mobile platforms to overcome.

Wave's invested infrastructure enables its vertical expansion and a growth-by-layering strategy in which it adds new products and services incrementally. And, indeed, it's a characteristic present in many of the more highly-valued fintechs we are seeing today, from Wave to TeamApt to Chipper Cash to Yoco to OPay.

But speaking of OPay...while these companies are able to move vertically in their given markets on top of their own invested infrastructure, geographic expansion is an entire consideration altogether.

OPay raised $400 million two weeks ago (and in its aftermath, I wrote about valuations), which brought with it a $2 billion valuation. TechCabal explained, in part, how OPay has built a profitable business,

OPay’s agent network advantage is made possible due to the fact that the Fintech business acquired a Mobile Money Operator (MNO) license in 2019. With the MNO license, OPay can issue POS terminals to their network of agents around Nigeria.

OPay also operates under a switching license, which means that it doesn’t need to partner with any commercial banks to collect or process transaction or agency fees. It also means that OPay is running a very profitable business.

A switching license is expensive - "a prospective business must deposit ₦2 billion (~ $3.77 million) in escrow in the apex bank". Now extrapolate licensing costs amongst all of the market a given fintech wishes to operate in at scale.

Building the infrastructure costs money - both in technical talent, and in licensing costs. And to then take that platform to a new market costs even more money.

These highly valued fintechs have proven an ability to do more with less - to garner traction with consumers while simultaneously building the infrastructure. The question then becomes how much more will they be able to do with more? More invested infrastructure, more licenses, and more capital?

It's these capital requirements - and the realities of scaling across a fragmented continent - that is, in part, a driving force behind such sizable investment rounds. It is the bet that these companies will generate exponentially more revenue - once the dividends from their continued investments in infrastructure (and licenses) pays out - that is the driving force behind such sizable valuations, as well.

And this, I believe, is precisely what it takes to create the step-change improvements we wish to see in African markets.

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✌️ Justin

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