The Big Four Fallacy: Rethinking African Markets

In venture investing, the most significant returns often come from seeing what others overlook.

Here's a thought experiment: What if your fundamental assumptions about investing in African startups were wrong? What if the "Big Four" markets—Nigeria, Egypt, Kenya, and South Africa—aren't actually where the greatest opportunities lie?

Most VCs investing in Africa are making a classic mistake: pattern matching. They see success stories of startups like Paystack, Flutterwave, and Moniepoint in Nigeria, and think, "Aha! Nigeria is where it's at." But this is lazy thinking. Similar logic underlies the signal-seeking investment theses for headline markets such as Kenya, Egypt, and South Africa. It's the equivalent of deciding in 1995 that the only place to invest in tech was Silicon Valley.

The truth is, Africa isn't one market. It's not even four markets. It's a complex tapestry of interconnected economies, each with its own unique challenges and opportunities. While the Big Four are undoubtedly important and proven markets, by focusing solely on them, we're potentially missing out on the next big things.

The Pattern Matching Trap

Pattern matching is a useful heuristic and cognitive shortcut that investors often use to make quick decisions. It involves recognizing familiar patterns and applying previous experiences to new situations. In the context of African investments, this can lead to both positive and negative outcomes.

On the positive side, pattern matching can help investors quickly identify promising startups that share characteristics with previous successes. It can streamline due diligence processes and help allocate resources efficiently. For example, recognizing similarities between the opportunities presented by a new fintech idea and Paystack might lead to a good investment decision.

However, the same thought pattern can potentially lead to a concentration of capital in a handful of markets, founder types, and verticals while leaving vast swathes of the continent untapped. This narrow focus creates a self-fulfilling prophecy: more investment in certain markets leads to more success stories, which in turn attracts even more investment, creating a feedback loop that further marginalises other regions.

This isn't just bad for the overlooked markets—it's potentially detrimental for investors too. We're competing for the same deals in the same overcrowded markets, driving up valuations and potentially missing out on hidden gems elsewhere. The intense competition in these markets can lead to inflated customer acquisition costs, team compensation, and reduced returns on investment.

Moreover, pattern matching can lead to missed opportunities. By focusing solely on what has worked before, we might overlook innovative solutions that don't fit the established patterns. This is particularly risky in a diverse continent like Africa, where unique local challenges often require novel approaches.

But here's the thing: the best opportunities often lie where others aren't looking. And in Africa, that means looking beyond the Big Four. It requires a willingness to challenge assumptions, dig deeper into unfamiliar markets, and recognize that the next big success might come from an unexpected place or in an unexpected form.

To truly capitalise on Africa's potential, investors need to balance pattern recognition with openness to new ideas and markets. This might involve developing new frameworks for evaluating opportunities, building networks in underserved regions, or collaborating with local partners who have a deep understanding of these markets.

Lakes and Oceans: A New Mental Model for African Markets

Instead of thinking in terms of countries, we need to start thinking in terms of what I call "Lakes" and "Oceans." This isn't just a cute metaphor—it's a fundamental shift in how we should approach African markets.

Ocean markets are the behemoths. Nigeria, Egypt, Kenya, South Africa—these are your Atlantics and Pacifics. They're vast, with huge populations and GDPs to match. On paper, they look irresistible. But here's the catch: they're also shark-infested waters. Everyone's fighting for a piece of the action, from local players to multinational corporations. The competition is fierce, and the regulatory environment can be as unpredictable as a rogue wave.

Lake markets, on the other hand, are your Victorias and Tanganyikas. Countries like Senegal, Côte d'Ivoire, Morocco, or Cameroon. They're smaller, sure, but don't let that fool you. These markets are deep, and they're connected. A startup that can navigate one of these lakes well can often easily slip into neighbouring waters.

The real magic of Lake markets is in their interconnectedness. Many share common currencies (like the West African CFA franc), have similar regulatory environments, or are part of regional economic communities. This means that once you've cracked one market, expanding to others can be relatively smooth sailing.

But here's where it gets really interesting: Lake markets often have room for only one or two dominant players. If you can back the right horse early, you might just end up owning the whole lake. And if that player can then navigate from lake to lake? You're looking at potentially geo-diverse dominance.

Take the example of Wave. They didn't just dip their toes in Senegal's waters. They dove headfirst, became the big fish in that pond, and then swam over to Côte d'Ivoire. Before anyone knew it, they were valued at $1.7 billion. That's not just impressive; it's a blueprint for how to approach these markets.

The Ocean strategy is about fighting for market share in crowded waters. The Lake strategy is about becoming the big fish in a small pond, and then expanding your territory pond by pond. It's not about making a splash; it's about creating ripples that turn into waves (pun unintended!).

Charting a New Course

This shift has profoundly influenced our approach at Ventures Platform. We've begun to view African markets through a new lens, looking beyond the obvious choices. Our strategy now involves exploring calculated risks in less familiar territories, seeking out hidden opportunities that others might overlook.

For founders, this paradigm shift opens up a world of opportunities. By focusing on dominating a Lake market and then strategically expanding across interconnected regions, you have the potential to build something truly transformative. The next African unicorn might not emerge from Lagos or Nairobi, but from Dakar or Abidjan.

The future of African tech isn't going to be built by following the well-trodden path, but by those bold enough to venture beyond the familiar. It belongs to the visionaries who can spot potential where others see limitations, who can turn perceived weaknesses into strengths. These are the entrepreneurs who will write the next chapter of Africa's tech story.

At Ventures Platform, we're committed to this new vision. We're not just looking at the vast Oceans; we're diving deep into the Lakes. We're searching for those hidden gems—the agile startups that can navigate the intricate waterways connecting these markets, creating ripples that will eventually become waves of change across the continent. That's where the next big African success story might come from.

In venture investing, the most significant returns often come from seeing what others overlook. The biggest opportunities in Africa may not be in the Oceans where everyone is competing. They're in the Lakes that others are ignoring.

So, let's rethink our assumptions about African markets. Because in these overlooked Lakes, we might just find the key to unlocking Africa's true potential. The future of African tech isn't just bright—it's vast, diverse, and waiting to be explored.

Credits
Thanks to Seyi Tomosori, Sola Osonuga, Kola Aina, and Dolapo Morgan for reading and providing valuable feedback on the initial drafts of this essay.