Africa Sees Explosive Growth in Blockchain Investments

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1:30What's going on, guys? Welcome back to the Crypto Daily Briefing on Real Vision. Today, we talk venture capital and Africa. I'm joined by two guests today from South Africa, Gideon Greaves, who is Managing Director at CVC Africa, and Brendan Neiker, who is the Principal and Head of Growth at CVC Africa. Guys, welcome back. Hey, Ash. Really excited to be on the show. Thanks for having us. Well, I actually should say welcome to the show. This is our first time on. Yeah, we're really excited to be talking about Africa. I think it's a topic. And I think being on the show shows that. So we're excited to dive deeper into a little bit of what's going on here on the continent.

2:12Well, we're excited to have you here. This is such an incredibly interesting topic. The developing world in general, and Africa in particular, is something that I find intriguing. and we just don't talk about it enough here on Real Vision. I'm glad we get to talk about it today. Before we get started, I want to talk a little bit about price action. Obviously, it's not been a great day for digital assets more broadly. Right now, Bitcoin trading at$29 ,310. That's off about 3 % on a 24-hour basis. Ethereum, well, let's be honest, the chart looks even worse, sliding almost 5.5 % on a 24-hour basis, trading right now on my screen at$1 ,985.

2:50dollars. You know, obviously, two points to bring up here. First, we saw an ugly CPI print in Britain this morning, 10.1 % year over year in March, following 10.4 % year over year in February. In March, just to point this number out because it's pretty dismal, 19.2 % food and beverage inflation on an annualized basis year over year. It's pretty grim. Second, I just want to talk about this briefly here. This is from some reporting from Coindesk that talks about the actual mechanics of this move that we saw today. Quote, also in the mix, a so-called long squeeze, more than$25 million in Bitcoin futures were liquidated.

3:29Longs or bets on rising prices made up 98 % of those liquidated positions. So what's happening here is you see the longs getting squeezed out, 98 % of the liquidations being longs. Obviously, that's downward pressure. I just wanted to jump in here and read this final point. Prominent, this is again from Coindesk, is a direct quote. Prominent pseudonymous crypto trader at 52SKU pointed out that 16 ,000 Bitcoin sell orders worth over$467 million at current prices preceded the dump, which may have initiated the long squeeze. And I'm going to read this directly from 52SKU from his Twitter page. 16 ,000 BTC is unusual size to be market sold solely from Binance spot.

4:12Usually that kind of sale happens before bad news comes out. That again from 52 SKU from Twitter. So obviously early days here in terms of what's happening in this little dip that we have. Guys, any thoughts on what's happening right now in terms of price action before we talk bigger picture what's happening in Africa? Well, you know, from my side, having a little bit, a slight macro background, you know, coming from the asset management space before I was sort of orange pulled into the world of Web3. I think it's exactly like you mentioned. It's a case of although we've seen a little bit of decoupling, you know, the famous decoupling over the last few weeks, call it few months.

4:54I think we're still very much tied as an asset class to the wider macroeconomic situation. And, you know, you saw this confluence of positive momentum building up in the market. So this building up of leverage longs and then this macroeconomic event from outside of the system, you know, so to speak, which essentially sort of washed some of that out. So I think on a larger time frame, I think we're just a victim of macroeconomic, wider macroeconomic effects in the market. Yeah, I guess we don't know at this point to what extent, if any, there's a tie between the events happening in UK in terms of that ugly CPI print and the sell.

5:32But you pointed out, Brenton, I think that's correct. We did see a great deal of upward momentum in a very short period of time. And the implication here being that you do see these pressure from leverage longs building and then you get these kind of liquidation moments. This is what happens, folks, when you borrow money. And place bets on it specifically. All right, guys, I wanted to talk a little bit more about the reason that you're here, because this is a topic that I find incredibly interesting. First, let's talk a little bit about your shop, CVVC, Crypto Valley Venture Capital. Talk a little bit about the sort of the mothership, the parent company, and ZOOG, of course, the Crypto Valley, and its relationship to what you guys are doing in South Africa and Africa more generally.

6:14Ash, so I think the company name really gives away what we do, right? Crypto Valley Venture Capital, the acronym for CVVC, based out of the canton of Zug, which is known to be the Crypto Valley, of course, in Switzerland. The founders started the company back in 2016. There's two aspects to the business. The one is CVVC, which is the holding company and the investment vehicle. Our focus is to invest into startups that utilize blockchain. So we have various funds. We invest off the balance sheet. and CVBC also owns another business called CVLabs. And CVLabs is what we believe to be our USP or our secret source as a venture capitalist.

6:55We know how competitive the landscape is. You need to be doing more than just allocating capital to startups. So we have CVLabs, which does just that. Essentially, it's an ecosystem business that helps accelerate adoption in the space, building ecosystems across the globe. What we do, we have co-working spaces. So think of it as the WeWork of crypto in South Africa, Berlin, in Lisbon, in Switzerland, in Liechtenstein. And then we do various events from hackathons to networking events. And of course, the reason we're here today, research and reports as well. Yeah, it's so interesting. It seems as though that the venture capital business, particularly in the cryptosphere, is evolving in a direction that there is a lab component or a lab functionality that almost seems to be table stakes these days, that if people are moving into developing these accelerators, co-working environments, all the points that you just made there, it really is, I think, a very interesting development in the VC space.

7:57Yeah, I think, obviously, of course, Web3 and blockchain being the most progressive and innovative technical sector of venture capital, as I mentioned earlier, you've got to be doing more. I think as a VC, unless you're a household name, if you're a new fund manager, you've got to be doing more than just allocating cash. You've got to be adding value to the portfolio companies. So we run an accelerator out of CV Labs. And where it really, really helps is when you're launching into a new market like South Africa and Africa, where it becomes really important not to just empower these entrepreneurs by capital, but also to actually help build the ecosystem and bridge the gap between the Web 2 world and the Web 3 world.

8:43And what's interesting is, you know, being in Africa, of course, the market is accelerating at a crazy pace. But there is still that feeling for a firm like us being a sort of, you know, big fish in a small pond, meaning that if we knock on the door of a regulator or a legacy corporate, the door is always open for a conversation because no one else is knocking. And I think that's really important from the labs business and the ecosystem building side. So walk us through what that looks like on the ground in South Africa, how you guys add value to portfolio companies. You know, there's this cliche that I think is very true, this idea that talent is evenly distributed, but opportunity is not in this world.

9:26Tell us a little bit about how you work with young entrepreneurs in this space, in the crypto space. How do you add value to those businesses? Well, I mean, if I can just touch on that, I think ecosystem is a big word, right? It's a buzzword that that's often used. But when we speak about ecosystem, what we're really trying to build is across four pillars. So it's access to capital. It's access to talent. It's a clear regulatory framework. And it's access to the legacy markets. and how we've managed to achieve that is, you know, since Gideon mentioned we launched in mid-2021, we've been very privileged that when we've knocked on a lot of these doors, and I will say having some relationships at the Swiss government backing you really helps, we've managed to bring in some of the biggest banks on the African continent, some of the biggest firms in supply chain, the central banks of a number of African countries, and because of that, we've managed to bring all of the players to the same space where they can now engage with the corporates in terms of getting pilot projects out, getting access to capital, getting access to services, where they can now access the regulators and sit with them and say, hey, this is our business model.

10:37This is how it works. How do we appropriately adjust it so that we can fall within the ambits of the current regulatory framework? So that's a lot of, you know, what we've been doing in general in the ecosystem side. And I think specifically here, when you look at things like the co-working spaces one of the most valuable things that Y Combinator alumni always allude to is not the capital which is great it's the network of alumni that of startups in your cohort and the amount of value you're able to create from that and what we've experienced in Africa is a lot of the really early stage startups they have a lot of the same problems they need to speak to the same service providers they have a lot of the same requirements and by creating an environment and a physical place where they can all be together and engage with all these counterparties.

11:29I mean, I guess this is why they call it an accelerator, but it really accelerates their ability to take something from zero to one and get to those later stage series A, series B maturity of a company. So let's talk a little bit specifically about this report that you guys have just released on what's happening in Africa today. Because I think some of these numbers were just frankly eye-popping that I saw. African venture funding grew by 34 % to$3.14 billion as global funding fell 35 % to$415 billion. I mean, that's a pretty extraordinary statistic in and of itself. But this also, I think, a quite striking number.

12:11Africa now represents 1.8 % of all global funding, up from 0.3%. So that number is what? It's about sixfold. I mean, this is just extraordinary growth that you guys are seeing. Ash, you know, I like to say sometimes, sounds corny, but Africa is the new Bitcoin. And that's certainly what we see. We have a lower base, of course, if you compare us to the developed markets. And there's a lot going on here. We can definitely see a trend where there's a lot of international capital flowing into the tech startup scene on the continent. So you're seeing those flagship names, A16Z, Sequoia Capital, Pantera, Paradigm, Coinbase Ventures, etc.

12:53All that capital is now flowing into the continent. But they're investing into those validated growth rounds where we are really playing from the grassroots level in that early seed stage, where we're seeing sort of arbitrage opportunity there as well. but you can definitely see the international interest into the market, into Africa. And as you touched on there, 430 % growth in blockchain funding on the continent compared to 5 % globally in what's been a bear market is really encouraging. Go ahead, please. If I can just add a little bit of context to that, I mean, exactly like you said, Ash, if we look at the global scene, funding is down over one third, over 30%, over the 2022 period.

13:42African venture funding, which I think speaks to the potential of Africa, the demographic situation, et cetera, was up 35%, the only continent to be up year on year in terms of venture funding. And then if you look at the subset of African Web3 and blockchain funding, like you said, that's up 430 % or more than 10 times the general market trend in Africa. So the explosion that's going on now in this space locally is just unbelievable. Hey, everyone, we're going to take a quick pause and hear a word from our partners. We'll be right back.

14:19So let's talk a little bit. I want to take this in two parts, actually, to talk a little bit about what's happening in Africa from a tech perspective more generally, and then talk a little bit about blockchain. But just I want to set the table here. Obviously, some very favorable demographic factors in Africa, extremely young populations compared to the rest of the world. Europe is aging, North America is aging, Africa, a very young continent. But I want to talk about what's happening there from a tech perspective, because this is so interesting to me. One of the things that people who are involved in this topic seem to be interested in and discussing is this idea of leapfrogging.

14:53In many cases, you don't have decades of infrastructure from a legacy perspective that you have to deal with. I mean, right here in the United States, we had Chair Gensler from the SEC testifying yesterday down on Congress. Now, people who are involved in the blockchain ecosystem and who are passionate about this technology often talk about legacy banks, for example, opposing blockchain development. One of the interesting things about Africa, we saw this with mobile development, the ability to do peer-to-peer payments in Africa, because in many cases, the legacy infrastructure was just being built on a very early stage.

15:27And so you don't have this kind of competition from legacy infrastructure. I think this is a fascinating concept. Talk a little bit about what's happening in terms of technology in Africa more generally before we laser focus on what's happening from a blockchain perspective. I think it's a good point, Ash, that you wanted to talk generally about the technology. And I think that's also why in our report, which is focused on blockchain, we had a big section where we wanted to talk to African venture funding because they do kind of go together. and at the end of the day, it's really fueling the growth to the blockchain ecosystem because there is a lot of leapfrogging happening in the space.

16:06Most of the use cases that you see in general venture funding is related to financial infrastructure. So it's fintech and loans and various businesses within that space and that's now coming through to blockchain as well. So even with the use cases on the blockchain side, We're also looking at almost going back to basics, if I can say that. So a great example of a company we invested in is House Africa, based out of Nigeria, verifying property on the blockchain. It's a use case we've all been speaking about for a long time. African institutions are more likely to adopt this technology a lot quicker because it's a massive problem on the continent.

16:50Whereas a more developed market, for example, Japan, And it's definitely not on their list of priorities to put title deeds on a decentralized database. That being said, they will have to upgrade the technology at some stage. We all have to go from writing a letter to email. And the idea is that these African startups that we're investing in will be able to export their technologies because they'll be adopting it first. That's really interesting. And by the way, we should talk about the electronic title registration system here in the United States with something called MERS. mortgage electronic registration system that turned out in 2007, 2008 to be an absolute disaster.

17:28It was very difficult to figure out chain of custody on title. It was very difficult to figure out the mechanics of how mortgage worked. There was no transparency and it was difficult to tie the financials to ownership. So we have these problems here. Maybe we just have this misconception in the developed world about the primacy of our technology when, in In fact, when it gets tested, when there are stresses to the system, it does not work very well. Clearly, blockchain an opportunity to begin to upgrade here. And it's interesting, as you say, if it's a priority, for example, in Nigeria to actually build out the first generation national system.

18:05What an interesting opportunity for Africa to take a lead in this technological development around the world and to export that technology. Yeah, I mean, with that case in particular, there's two states that have now, that the startup we invested in is now verified property for two states on the continent. So, I mean, there was actually a great report, I think two years back, by the African Development Bank, that showed that 22 % of working age Africans own their own business. So that's almost one in five, one in six Africans that are entrepreneurs and own their own business. The average age of an African is 19 years old.

18:44So I think that just shows you, I mean, the reason why that statistic's there, we believe, is that because there is nothing to fall back on. So you have to become an entrepreneur. So we've got, you know, an ecosystem and a nation or continent that's just built with entrepreneurs and hustlers. And they're building solutions that have to be fixed and have to be fixed quickly. or they're solving quick problems that have to be fixed quickly. By the way, by way of contrast, for people who may not know statistics, myself included, off the top of their head, the median age of an American is 38. The average age of a person in Japan is nearly 49.

19:28I mean, these are pretty striking contrasts when you talk about the average age of an African being 19 years old. Yeah. I mean, here's an eye-opening stat for you that, according to the World Bank, by 2050, one third of the world's young population will be African. So one third of the people within that specific age range will be from the African continent, which is absolutely astounding. I mean, roughly one in six people logging into the Internet will be doing so from the African continent. So I do think this demographic, wider demographic situation is why you see the general tech space as well as Web3 doing so well.

20:07It's just because the foundational metrics, like Gideon said, a young population, entrepreneur forward, large addressable problems to be solved, no legacy infrastructure. It's just the confluence of all of these beautiful factors that's going on in Africa at the moment. Right. And I should say, obviously, this isn't an endorsement of a particular company or a particular technology. But just the demographic factors, the infrastructure factors, as you point out, the tradition of entrepreneurship, it has to make this just an incredibly interesting place for investors as they begin to understand what's happening there, particularly when you look at the growth, for example, of China over the last 20 years.

20:46I know obviously it's a different metaphor. It's a different situation. But clearly what we've seen, the developing world being able to make just tremendous strides in terms of industrialization and then also in digitization, as we talk about now. Let me ask you guys this. We've talked a little bit about tech in general. Let's shift specifically to blockchain on the continent. Tell us a little bit about what's happening there, how people think about it, and what you guys see as some exciting use cases. Branson, go ahead. As the principal, you got the knowledge. Oh, perfect. Look, I mean, it's a lot of what you're seeing on the African continent, and I can speak to this as well before joining CVVC, I spent a lot of time or I spent two years running Binance Africa.

21:32And what you see on the continent is often, which is, you know, a little bit counterintuitive, but regardless of regulatory stance is some of the African countries are the leading or have some of the highest rates of adoption globally. So, you know, you can check the chain analysis reports, Kenya, Nigeria, South Africa, all are always in that top five in terms of population penetration when it comes to crypto. And if you look at the reasons and the actual activity, more so outside of South Africa, a lot of it is being driven by purely stable coin activity. And the reason for that is because exactly like we mentioned, people in Africa have a very urgent need and no alternative in terms for better financial products and better financial services.

22:20So, you know, when you're in a country where your currency is being devalued by 30 % year on year, the ability to access dollars from just$10 is unbelievable to you. The ability to earn a yield on micro balances of dollars is completely life-changing to you. And I think that was the first wave we saw sweep across crypto in Africa. And then because of that that educational step that was needed for that, people really started to delve a little bit deeper into the technology. And, you know, we're still a maturing market. So you can actually see this in the report. Seventy five percent of the funding that went to to African blockchain startups was either between custody, exchanges or fintech.

23:09And I think that's that's very common of a new market. And once you've got this mature layer of foundational products, you know, being remittance providers, deep pools of liquidities across different countries, regulated exchange parties, once you have those primitives, you can now start building all of the really sort of complex layered solutions. You know, we're starting to see some of it emerge in the space of embedded finance in terms of, you know, using stable coins and liquidity pools to fund working capital for small businesses in Africa. And the lion's share of what we're seeing in terms of deal flow, both on the continent and as an investor, is within those three spheres, right?

23:54So a lot of it in the infrastructure space. But I think over the next two to three years, now that these large players have emerged and you've got those foundational building blocks, specifically in terms of fintech items and liquidity, et cetera, you can now start building a lot more sophisticated business models on top of that. But again, coming back to what we're seeing in Africa, the lion's share between two-thirds and 75 % is all in the fintech space. So micropayments, remittances is the lowest hanging fruit in Africa. So for those who don't know, to remit money into sub-Saharan Africa is the most frictionful region in the world.

24:32It often takes up to a week, if not longer, you know, up to 12, 15. And on the micro side, up to 25 percent. I mean, in today's day and age, you have people who give money to bus drivers who drive across the border and hopefully hand it to someone on the other side of the border. and the ability for this technology as well as things like stable coins, smart contracts, et cetera, to, again, leapfrog the entire lack of infrastructure there is really coming to fore on the continent now. So a lot of fintech, but as those mature, I think we'll start to see a little bit more of those complex business models being built on top of those primitives.

25:10Yeah, so I actually had a startup that was pitching to us a moment ago and he was giving a really interesting case study about two remittances that went into Mozambique, two tranches of$250 ,000. The first one took three days. The second one, it took five months. So as Brenton said, two-thirds is really in that fintech space and its infrastructure. And we're investing in equity in Africa. We're not seeing a lot of those really robust tokenomic models coming into place. But as Africa or any emerging market does, we will start following the more developed markets. But to touch on one or two statistics that shows you how much of a need there is to solve these sort of problems, Africa and Nigeria is the majority of our deal flows coming from Nigeria.

26:01The average inflation rate there is 17.5%. Remitting money into sub-Saharan Africa, the average cost there is 8.5 % of your transaction value. going as Brenton, you mentioned 25%, you get those cases and Bob where 40%. So a lot of it is going back to basics. And as much as we want to tell you some really, really crazy, innovative, you know, DeFi protocols on the content at the moment, we're really seeing blockchain used for what it was intended to. And we're going back to basics, but it's causing massive impact and solving a lot of problems. Hey everyone, we're going to take another quick break and hear a word from our partners.

26:44We'll be right back to the Real Vision Crypto Daily Briefing.

26:52Yeah, this is so interesting because it's where the micro meets the macro, where macro meets VC. I mean, these are challenges that have bedeviled the residents of the global south outside of just Africa. We've seen it in Latin America. We've seen it in developing Asia. The challenges that are caused by inflation and by very high fees on a relative basis. Here in the United States, where people may complain about getting a$10 charge from their bank, the base effects are much higher when you're dealing with the people who are working tremendously hard, having just huge amounts of their money vaporized by transaction providers.