S2E3: Finding Fit – Opportunities in the Global South

We dedicate this episode to Fahim Saleh, the Founder and CEO of Gokada, who was killed in New York City on July 13th. Our heartfelt condolences go out to his family and the entire Gokada team.

This year, Nigerian fintech companies Paga and Migo are expanding to Latin America, to Mexico and Brazil, respectively. Another Nigerian startup, Gokada, was launched by an entrepreneur who built a successful ride-hailing company in Bangladesh, where there was a similar set of market conditions. In this episode, we explore the similarities – and the opportunities – between emerging markets across the Global South.

3:57 – Why is Paga expanding to Mexico? And why is Migo expanding to Brazil? We hear from Paga’s CEO Tayo Oviosu, and Migo’s former VP of Growth, Adia Sowho.
7:42 – Fahim Saleh launched Gokada after successfully founding a ride-hailing company in Bangladesh. What was it about Nigeria, and his experience in Bangladesh, that compelled him to move to Nigeria to build Gokada?
12:39 – Investors like Cikü Mugambi with IFC’s venture capital team, in evaluating deals are increasingly looking to markets in Latin America and South Asia for comparables and insights.
14:32 – Sayo Folawiyo and Justin Norman sit down to reflect on this topic, and discuss the notion of market size and under penetration of financial services as the core driver of opportunity for startups in Africa, Latin America and South Asia alike.

VO: Before we start, we’d like to take a moment to dedicate this episode to Fahim Saleh, the Founder and CEO of Nigerian ride-hailing company Gokada, who was killed in New York City on July 13th. I had the opportunity to interview Fahim in late June – what ended up being two weeks before his death – and with the approval of Gokada and his family, his insights feature in this episode. In a statement released by his family in the days after his death, his family said, “Fahim is more than what you are reading. He is so much more. His brilliant and innovative mind took everyone who was a part of his world on a journey and he made sure never to leave anyone behind.” My interview with him was filled with energy and zeal and a strong belief in the opportunities in emerging markets – and the loss of Fahim is a loss for the Nigerian ecosystem and anywhere else in the world he planned to build and invest in startups. Our heartfelt condolences go out to his family and the entire Gokada team.

Alexis Roman: I found it interesting how some markets that are literally neighbors can be so opposed, right? Like if you compare Rwanda to Uganda, it’s just two completely different healthcare systems. Same thing with Tunisia and Morocco, actually, they’re super, super different.

Justin: That’s Alexis Roman, the head of strategy and new markets at Helium Health.

Alexis Roman: And a market like Nigeria is extremely similar to Indonesia – like the similarities are uncanny. And so I think that opens up a different question about, do you need to expand in your region or can you look for higher growth and more revenue, and I guess a more logical expansion, in a completely different market? And I think the answer is yes. 

Justin: Last episode, Season Two, Episode Two, we discussed how startups and entrepreneurs in Africa are looking at expansion – and in particular, this very topic that Alexis is discussing – African startups expanding to other markets across the Global South. 

Tayo Oviosu: What became very clear to us is that we’re in a business that really requires scale and that requires being in a large country. Large in terms of population, large in terms of GDP.

Justin: That’s Tayo Oviosu, the CEO of Paga, who we heard from last episode. 

Tayo Oviosu: And so that led us back to looking around the world, and trying to figure out, you know, where are these problems of use of cash, access to finance still very big problems? I eventually got on a plane and went to India, I went to Indonesia, Philippines, Mexico, and eventually honed in on Mexico. So Mexico is the next market we’re launching.

Justin: Given the apparent similarities between African markets and other emerging markets across Latin America and South Asia it follows that – beyond just expansion – there are lessons to be learned and knowledge to be shared between entrepreneurs building in more similar environments to each other. Here’s Catalyst Fund’s Maelis Carraro, who we heard from in our episode about venture building earlier this season. 

Maelis: We recently connected a company in South Africa with a company, and Nigeria with a company in Brazil. And you’ll be surprised about the similarities when you think about serving that low income demographic with a difficult value proposition, which is savings, and kind of the behavioral challenges you have to overcome. And those lessons learned across markets are really helpful for the entrepreneurs

Justin: So, what else about Mexico, for example, has Paga compelled to expand there as its next market after Nigeria? Are other startups from emerging markets outside of Africa looking to the continent for growth opportunities or lessons? And what are some of those lessons and benefits of a more connected Global South? Let’s find out. 

VO: You’re listening to The Flip, the podcast exploring more contextually relevant stories from entrepreneurs across Africa. 

Justin: Welcome back to The Flip, I’m your host Justin Norman. Last season – episode 7 of season 1 – we explored the investment mandates of venture investors focused on Africa. And in particular, their pursuit of scale and to make investments in startups that have the potential to achieve a certain scale. It’s this scale that, in part, compels startups to expand to other markets – the topic of last week’s episode. So what does that mean for a startup in Nigeria, for example, that is being built in Africa’s largest market by population size?

Adia: When you solve the problem in Nigeria, which has the unfortunate reputation for being a tough place to do business, it kind of sets a precedent for where else you can do business.

Justin: That’s Adia Sowho, formerly the VP of Growth for the Nigerian fintech Migo. 

Adia: But you know, from Nigeria, where do you go? Do you go to East Africa? I mean, there are lots of similar services in terms of credit provision in East Africa, right, with Safaricom being dominant. West African markets are pretty small. 

Justin: This question of where do you go was one posed by Tayo and Paga, as well. As the nature of Paga’s business requires a certain scale, the next biggest market after Nigeria in Africa is Ethiopia.  

Tayo: I’d say anybody who understands, who knows Mexico, and who knows Ethiopia… actually forget Mexico. Anybody who knows Ethiopia, and I told you, I’m looking at Mexico and Ethiopia, the one you should question me on is Ethiopia. It is not the easiest place to do business, that’s just a reality. 

Justin: For Migo, given the nature of their credit-as-a-service model, requisite market dynamics and the opportunities elsewhere in the world, they’ve opted to expand to Brazil as their second market after Nigeria.

Adia: In the case of Migo with Nigeria and Brazil, matching the problem. So Brazil and Nigeria have a nearly identical number of unbanked people in their countries. I think Nigeria has 90 million, Brazil has 100 million. And the reasons these people were locked out of the systems were quite similar – just no credit infrastructure was available to serve last-mile retail. 

Justin: But going to Brazil is also a function of having the requisite skillset and local relationships to execute on a strategy. 

Adia: One also has to look internally to see what you’re good at and, where, you know, the combination of your skillsets makes the most sense. I think the right mix of similarity in the problem, Migo’s capabilities resonating, you know, and having the right relationships, it all just came together in Brazil.

Justin: And the similarities are not just from a market size and consumer behavior perspective, but also from an intangible and cultural perspective too. 

Tayo: And I think maybe the other thing is just, the culture is very similar to one I recognize coming from Nigeria. It’s a very welcoming, family-oriented culture. When it comes to negotiations, it’s about, you know, winning the deal. I recognized, it almost felt at home. I feel at home.

Justin: And to be sure, the recipe for expansion success is relatively the same no matter what market you’re going to, whether in Africa or outside of the continent. 

Tayo Oviosu: I don’t see the question to us as any different than how did Google come launch in Nigeria, right? Our view of that is that, look, we’re going to have local teams who understand the local market and understand the nuances very well, and have them run the business. And, you know, at the group level, we’ll be able to share the learnings, the things that we’ve done, or the mistakes we’ve made in Nigeria that we shouldn’t make there. But otherwise, I think it’s really about building a local business.

Justin: And for Migo, that made expansion less about the individual country and more about the specific opportunity that a given market provided.

Adia: So it was less a case of making a decision on the country, it was more than that. Making a decision on, okay, if we see this opportunity, then that’s it, that’s the move we’ll make.

Justin: While the nature of geography and proximity may exacerbate the unfamiliarity with other emerging markets around the world, I think the evidence of other startups coming to African markets from other emerging markets is further evidence of the similarities and benefits of a more connected Global South. 

Fahim: I’m Fahim Saleh, I’m the CEO of Gokada.

Justin: Upon spending his formative years and having built some successful ventures in the US,  Fahim moved to Bangladesh in 2013.

Fahim: I was looking at Bangladesh because my parents are from Bangladesh, I speak Bengali, and I realized this is a country of 160 million people and there was nobody really investing in technology there.

Justin: Upon moving to Bangladesh, Fahim launched a venture factory called HackHouse, which was building and testing a number of different products –  one in particular, an ecommerce logistics platform called Pathao, was gaining more traction than the rest. After Fahim and HackHouse opted to work on Pathao full time, an investment from a prior investor in Gojek, the Indonesian ride-hailing company, pushed Pathao from an ecommerce logistics company to a ride-hailing company, as well. 

Fahim: He told us, “You guys should try doing motorcycle taxis.” It does really well in  Indonesia. There’s a lot of traffic in Indonesia. There’s more traffic in Bangladesh, in Dhaka, the capital city. Motorcycle taxis are a cheap and fast way to get around traffic.

Justin: Though there previously wasn’t a motorcycle taxi industry in Bangladesh like there was in neighboring countries, the conditions in Bangladeshi cities ultimately enabled a market to be created and to thrive. 

Fahim: Usually you see these in economies where there’s a lot of traffic, there’s a  booming population without, you know, improving infrastructure at the same scale of the population growth, and where they’re looking for cheaper transportation alternatives. Indonesia, it made sense, Nigeria it made sense, Bangladesh it also made sense, but it was never informally practiced. 

Justin: So they started with a test. 

Fahim: We tried to do an experiment – this was even before Uber came to Bangladesh. We literally had to buy 20 bikes and hire motorcyclists just to get a pilot going. And the first pilot was just a Facebook group and people ordered rides on the Facebook group and we connected them with one of our full time motorcyclists. And everybody loved it. People were like, ‘Why wasn’t this here before?’ And within two years, probably from, you know, 2016, when we got that investment to 2018, the company went from doing a few rides to tens of thousands of rides. They were at like a $100m valuation, Go-Jek came in for their Series A.

Justin: Now, before we get into the launch of Gokada, it’s useful to highlight that what made Pathao successful in Bangladesh was a requisite set of conditions. Although they weren’t digitizing and better organizing an existing market, it was ultimately these set of conditions that allowed for there to be a market. And these conditions exist in other emerging markets, of course, which compelled Fahim, after selling some of his Pathao shares, to start looking at where else in the world the conditions were right for ride-hailing with motorcycle taxis. 

Fahim: I was like, okay, why don’t I think about another market I could go into and do something similar to what Pathao is doing. Maybe there’s other markets out there that could use structure in the motorcycle taxi industry. And literally I just, you know, I went on Wikipedia and I just did a search on population numbers. Bangladesh is like number eight with 160 million. Nigeria is number seven with like close to 200 million. And I’m like, okay, Nigeria, that’s interesting.

Justin: And beyond topline population numbers, Fahim was looking for other market dynamics.

Fahim: I was looking for a place with a lot of traffic. Then I just typed in things like Lagos traffic into Google, and I just saw all these articles. And yeah, just the number of Okadas in Nigeria. I saw this number – 8 million, right? 8 million registered Okadas, which is like, you know, it’s like 5 percent of the population. That number just astounded me, and I was like, okay, well this is something I have to check out.

Justin: After spending some time in Lagos and sussing the situation on the ground, as Fahim launched Gokada, he was quick to learn the different dynamics of the Okada industry in Nigeria compared to the industry in Bangladesh. Despite the differences, Pathao and Gokada were actually launched using a similar strategy. 

Fahim: We quickly realized that, you know, aggregating these Okadas, to basically aggregate all of them efficiently, like Uber would do or Pathao did in Bangladesh, it’d be incredibly difficult for a startup to do off the bat. And seeing the challenge in aggregating the already pre-existing supply, I decided instead to create our own supply. And then at a later time, when we were more mature as a company, we could focus on aggregating these Okadas. The starting point of that model was basically from our prototype at Pathao.

Justin: Now, while Gokada and other mobility companies have run into some speed bumps – both related to Lagos State regulation and certain competitors coming in and flooding the market with subsidies – it underscores the vital importance of taking a local and contextualized approach to business building. And in exploring and evaluating these opportunities, though operationally they require contextualization and localization, of course, investors are leveraging comparables from other emerging markets. 

Ciku: I consider what other comparable companies are not just in not just in Africa, but across other emerging markets. 

Justin: That’s venture investor Ciku Mugambi of IFC’s venture capital team.

Ciku: And one privilege that we have is that we have access to lots and lots of data. And so we’re able to actually benchmark a lot of business models that we find here in Sub-Saharan Africa across our wider portfolio in other emerging markets.

Justin: It’s a unique opportunity for Africa-focused investors like Ciku, where other emerging markets are similar in their stage of development, but may be a few years ahead of what we are seeing in the tech ecosystem in Africa.

Ciku: We’ll typically, you know, assess how business models have evolved in other emerging markets to kind of recognize potential patterns for existing portfolio companies. So let’s say a company started off with one particular revenue stream and from that, they were able to naturally extend their product to include two or three other services. Then we can quickly, you know, tap into those lessons and share them with our portfolio companies and see if that makes sense for this particular market or what needs to be tweaked or changed.

Justin: And in Ciku’s experience, these lessons go in both directions. 

Ciku: And even vice versa, there’s lessons that we can take from our African portfolio to our portfolio companies in other emerging markets.

Justin: This raises an interesting question – as we’re starting to see African startups expanding to Latin America and South Asia and likewise companies from China, for example, coming to Africa, what does that mean for the strategies and opportunities for emerging market startups – both from Africa and from outside of the continent, as well? It’s that topic and more that my b-mic Sayo and I sat down to talk about, in reflection of this episode. Take a listen…

Sayo: I wonder if the only similarity is – in fact, the only two similarities – are market size and under penetration.

Justin: Probably, but aren’t those two similarities the same similarities within Africa?

Sayo: Not market size.

Justin: And maybe that goes into a separate question, which is like, you know, there’s not really connectivity amongst African markets in a real way. And so if we’re optimizing for both market size and under penetration, then that means it makes more sense to go to Mexico or Brazil.

 Sayo: Yes. And to be honest, market size and under penetration, as far as any metrics go, are pretty good ones, right? But I do see where you’re trying to go, and I think, it’s a smart question. I just don’t think it’s as obvious as you want it to be, which is that like, oh, what matters is prevailing conditions versus Africa. Like it’s not to say that we’re all the same, but it’s just like, there are cultural and environmental factors that contribute to what is the end product and who the end people are. And so to me, it is way more likely that it is going to be close to your neighbor than it is going to be like all the way in South America.

Justin: But that also doesn’t really matter, right? Like, are we going to talk about, like, culture that drives consumer behavior?

Sayo: No, but that is a thing. That is a thing. Savings – what do you call those – stokvels and things like that. It is a cultural, and there are massive cultural aspects. You know, credit and how people think about that culturally, it is a massive thing. But I think that really, the big thing is the big market size, under penetration, it is worth figuring it out. I think what we’re talking about is that in this world of like big tech, money raising, scale, blah blah blah game, if you want to find the market sizes, you have to find the market sizes.

Justin: Yeah, the parameters are different.

Sayo: Yeah. You’re just not going to really find them next door. Like you might have to travel quite far to find the right market size that allows you, that makes it worth a lot of the mistakes you’re going to invariably have to make. And I think you’re dealing with the high caliber of entrepreneurs that can work it out. 

Justin: So let’s say, just for argument’s sake, that, you know, it’s one degree easier for a Nigerian company to expand to Kenya. The market size variable perhaps makes it more worthwhile to expand to Mexico given, you know, the formula let’s say, right? If it was market size times ease of expansion times under penetration equals output.

Sayo: Yeah. You know, something like that, I think that actually is the crux. I do think it’s really interesting, and I’m watching with quite keen attention, just how a lot of these guys are playing that – what did you call it – Global South play. Like, I think it’s great. It’s export, you know? And I think that’s awesome. And there’s a question, I guess it’ll be interesting to chat about, like what ends up being our comparative advantage? I also don’t think – I don’t know the answer to this other than just, it’s an interesting thing to watch, to see how it happens. Because we also just don’t know the depth of the IP of all these players. Like I imagine it’s deep, I imagine it’s deep, honestly. So I just, I wouldn’t be able to articulate what it might be.

Justin: There’s something interesting to say about like, you know, Migo as a credit-as-a-service provider, like, the network effects of their data. I mean, that’s where like, I don’t know, does a data set of Mexican consumers and Nigerian consumers have a multiplier effect, you know or make the value of the IP exponentially greater?

Sayo: Yeah, for sure. I can see that. Do you know you have, like when we – remember that complexity we were talking about – I think that also translates into value. You know, if you have the ability to solve the more complex equation I think it gives you or makes you more valuable.

Justin: And then I suppose the question is, are more people going to start applying this equation, right? What does that mean if more African startups look outside? And then maybe a corollary to that is, is the reason why we haven’t seen many Latin American or South Asian or Indian companies coming here yet is because African markets, maybe with Nigeria as an exception, don’t pass this equation very well?

Sayo: I mean, there’s, there’s a lot of people, there’s a lot more people here than you think, bro. You’re not reading the Tech in Asia piece about big startup A coming to West Africa or whatever it is, but best believe there are a lot of Chinese firms in technology, media, and telecoms in West Africa. 

Justin: Yeah. Okay. Yes. I agree with, yeah, a hundred percent. They just haven’t, you know, Gojek hasn’t expanded here.

Sayo: Yeah. Just, yeah, just not the sexy ones.

Justin: Yeah. I mean, I guess there’s something to be said about like, you know,  the most listened to music streaming company is owned by Transsion.

Sayo: Yeah, they’re here bro, you know what I mean? They’ve done that. They’ve done the maths.

Justin: That’s a good segue to our China episode.

Sayo: Yeah nice.

VO: That’s it for this week’s episode of The Flip. As we just alluded, we have an episode exploring the connection between China and Africa coming up. But beforehand, in next week’s episode, we hear from a number of investors across the funding value chain to explore the topic of valuations and the pathway to exit. Thanks as always for listening, and we’ll see you next week. 

Alexis Roman – Head of Strategy & New Markets, Helium Health
Tayo Oviosu – Group CEO, Paga
Maelis Carraro – Director, Catalyst Fund, BFA Global
Adia Sowho – former VP, Growth, Migo
Fahim Saleh – Founder & CEO, Gokada
Cikü Mugambi – Associate Investment Office, IFC Disruptive Technologies & Venture Capital
Sayo Folawiyo – Co-founder & CEO, Kandua
Justin Norman – Founder & Host, The Flip
Audio Production by ZVUK Studio
Episode Artwork by Chileshe Tembo – The Zig

Join over 1,000 entrepreneurs who read and listen to The Flip.