Demystifying venture opportunities in African markets

This article answers frequently asked questions about 'the hierarchy of venture opportunities in emerging markets,' a mental model for entrepreneurs and investors

Afridigest provides ideas & analysis for startup founders, operators, and investors across Africa and beyond. 

This post addresses often mentioned topics concerning 'The hierarchy of venture opportunities in emerging markets.'

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‘If you were starting a new venture in Africa today, what would it be?’

‘Which African startups are the most attractive to invest in today?’

In ‘The hierarchy of venture opportunities in emerging markets,’ I provide a starting point for responding to these questions. The essay stands out because it offers an original framework — a new conceptual model that entrepreneurs, investors, and others can use to evaluate early-stage ventures in African markets.

In previous articles, I largely apply existing business frameworks or mental models to the African startup ecosystem. For example:

• In the essay, ‘Blitzscaling in African markets: Opera's OPay optimizes its operations,’ I apply the concept of ‘blitzscaling’ developed by Reid Hoffman and Chris Yeh to OPay’s activities in Nigeria

• In ‘How (African) startups should think about growth,’ I explore Ansoff’s Matrix and apply it to African startups

• And in ‘How Iroko went from pioneer to powerhouse,’ I evaluate Iroko’s evolution using the late Clay Christensen’s concept of ‘push vs. pull’ strategies (as put forth in the Harvard Business Review article, ‘Africa’s New Generation of Innovators’)

It’s likely for this reason — the departure from simply applying existing frameworks to creating a new one — that ‘The hierarchy of venture opportunities in emerging markets’ is among my favorite articles to date; it leverages Maslow’s hierarchy of needs to characterize the most attractive ecosystem startup opportunities in a way that hasn’t been done before to my knowledge. (While Maslow’s hierarchy of needs has indeed been applied to startups before, these analyses tend to simply characterize startups by industry or sector as done here and here.)

In The Hierarchy of Venture Opportunities, I put forth that entrepreneurs & investors in sub-Saharan African (and similar emerging markets) are most likely to find success if they concentrate on ventures that:

• build basic or alternative infrastructure;

• organize and integrate fragmented markets;

• minimize transaction costs & friction;

• enable entrepreneurship & economic empowerment;

• or create entirely new markets.

I explained my rationale there and depicted this in a pyramid reminiscent of Maslow’s:

Since publishing the article, I’ve had many interesting conversations on the subject and it seems worthwhile to clarify a few key points. So, below are my responses to frequently asked questions (or commonly mentioned comments).

• Explain The Hierarchy simply (without ‘big grammar’).

  Simply put, investors & entrepreneurs should be wary of startup ideas targeting sub-Saharan Africa that don’t materially fit into one of the five buckets of the hierarchy.

• Why is X ranked ahead of Y?

  Here, the name ‘hierarchy’ is somewhat of a misnomer as this is not quite a ladder or ranking like Maslow’s, but rather is best thought of as five buckets/categories of ventures.