Pressing Pause

We’re rapidly closing in on Portico’s three-year anniversary, and it has been a good run so far:

• Two of our early clients have achieved closes;
• We’re helping several founders get their investment firms started; and,
• We’re helping established managers crystallize their messaging and build their franchise value.

We’ve clearly found a niche as storytellers, simplifying complex information and packaging it for an institutional investor audience.

In essence, we create knowledge.

In practice, this means lots of work producing pitchbooks, PPMs, and white papers. Some of our clients report back that their marketing documents are some of the best that their prospective investors have seen.

I’ve said it before, but it bears repeating: it is genuinely gratifying to help people build their own businesses.

Though the fundraising environment is quite difficult for firms in our focus geographies, I’m optimistic that our clients will attain their objectives.

More generally, Portico’s research pieces and newsletters have been read nearly 10,000 times, satisfied clients continue to send through referrals, and we’re steadily building our brand equity. It’s tough to measure progress each day, but it’s discernible in the rear-view mirror.

I wrote a blog post last year in which I shared my reflections on entrepreneurship and life, and it has aged rather well.

A big, heartfelt thank you to our valued clients, our supporters who send referrals our way, and of course — you — for reading and sharing this newsletter.

The FT recently ran an important article on burnout and mental health in the workplace. And whilst the aforementioned accomplishments are pleasant to recount, I’m going to level with you: I’m tired.

Even though entrepreneurship offers a large degree of freedom, I feel as if I’ve just sprinted a marathon.

Allora, facciamo una pausa.

Translation: we’re going to shut down for August. It’s time for a mini-sabbatical to recuperate and recharge.

Books to read, Brazilian jiu-jitsu open mats to attend, beaches to enjoy.

See you in September.

Alla prossima,
Mike

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African Startups

“Are tech companies Africa’s new colonialists?”

On the heels of Jumia’s IPO, the FT’s David Pilling probed this question and my answer is: “Nope.”

Sure, Jumia is a Rocket Internet “copy-paste” special. Is there a risk that well-capitalized, foreign tech companies will sell at a loss and capture market share, displacing local firms in the process? Of course.

But I don’t think this narrative will define Africa’s startup landscape over the long term. In fact, I’m of the view that African entrepreneurs will build successful startups that address the needs of local businesses and consumers.

And by needs, I’m thinking a bit more broadly than e-commerce. I’m thinking about businesses that increase productivity and per capita incomes.

Join me in a thought experiment.

In his excellent book How Asia Works, Joe Studwell argues that three drivers explain the successful development trajectories of Japan, South Korea, and China: household farming, export-oriented manufacturing, and a financial system that channeled capital toward the growth of these two sectors.

According to Studwell, household agriculture has been pivotal because it has generated higher yields while maximizing the use of abundant labor. Household farmers’ greater productivity led to commodity surpluses and a “consumption shock” that sparked domestic demand for manufactures, goods, and services. Contrary to conventional wisdom, scale producers weren’t key to development.

Data from the UN Food and Agriculture Organization show smallholders account for ~80% of the food supply in Africa and Asia. Let’s leave aside the important issue of land reform, and simply consider how African startups could develop cost-effective, technological solutions that increase smallholder farmers’ yields and profits.

Think of the knock-on effects. The expansion of dignity.

Or, consider how startups might address postharvest loss for agricultural commodities. According to a recent World Bank study, African farmers who experienced postharvest loss reported that it amounted to upwards of 25% of their harvests. This can be financially devastating. What if local startups develop businesses that reduce loss through enhanced storage or improved logistics?

Think about the possibilities when farmers maximize the economic utility of their production, and consumers enjoy lower food costs and more discretionary income.

Would these types of businesses be unicorns? Listed on the New York Stock Exchange? Probably not. But they’d address market needs, be scalable, and improve livelihoods.

Is a European tech company like Rocket Internet, or a U.S. tech company going to find product-market fit in this vertical? I doubt it.

But, I bet European and U.S. investors could find a fund manager that’s able to identify local startups that will attain product-market fit.

I think Africa’s startups are going to surprise to the upside.

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ILPA Principles 3.0

The Institutional Limited Partners Association (ILPA) released the third version of its Principles and they’re very much worth reviewing.

The latest version provides fairly detailed guidance on important topics, such as fees, fiduciary duty, fund governance (including best practices for LPACs), and transparency / disclosure.

While you’re at it, don’t forget to check out EMPEA’s study Governance in Emerging Market Private Capital, if you haven’t already.

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Bia

Vietnam was a genuine highlight of my research trip through Southeast Asia a couple years ago.

After several meetings in HCMC’s District 1, I walked to the War Remnants Museum on a recommendation, and it exceeded my expectations. It’s incredibly moving. You really must go if you’re ever in Saigon.

I left the museum’s courtyard thinking of my two-year-old son and of the countless children — from infants to adults — who suffered and died in the war.

I was emotionally drained, and as I ambled by Independence Palace, sweat percolating through my shirtsleeves, I spied a waitress delivering a tray of frosty beers to a table of boisterous old-timers. The suds sloshed forth from the mugs and splashed on the sidewalk — an ephemeral trail of breadcrumbs for the weary traveler.

Hearing the cackles of laughter, I was momentarily transported to the house of my best friend from childhood, where (South) Vietnamese émigrés bantered over card games that lasted long into the night. It was a heaven-sent sign to pause and marinate on the mysteries of life.

Now, I’ve tossed back some brews in my day, but I was astonished at the volume of beer these men consumed. To be fair, those draft Bia Hà Nôi went down smooth, at a price that encouraged encore after encore.

But as it turns out, their voracious appetite for beer wasn’t an aberration. The FT recently ran an article on beer consumption in Vietnam and it kind of blew my mind.

For instance, beer consumption more than doubled between 2008-18, from 1.9 billion liters to 4.2 billion liters. According to the World Bank, the population increased by 11% over that period, reaching 95 million. The WTO estimates that Vietnamese will be the biggest consumers of alcohol in Asia by 2025 (on a per capita basis).

Astonishingly, FT Confidential Research conducted a survey of 500 university students in Hanoi and Ho Chi Minh City, and it revealed that nearly 20% had driven drunk in the prior 12 months! Not good!

Look, I’m all for adults having the freedom to drink beer, and for consumers to have choice (on this note, Pasteur Street Brewing Co in Saigon was a delightful discovery).

And I am not pointing fingers in judgment. In the city where I make my home, craft breweries are spreading like venereal disease, and my country’s newest Supreme Court Justice testified before Congress, “I liked beer. I still like beer … sometimes [I] probably had too many beers.”

Nevertheless, some of the statistics in the FT piece are shocking, and they scream for regulation.

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Food for Thought

A few things that have me scratching my chin:

• Contrarian Indicator?
  Jonathan Wheatley discusses the convergence thesis and declining GDP growth, and asks, “Does investing in emerging markets still make sense?“
• Inauspicious Beginnings?
  India’s newish insolvency tribunal issued a ruling on the bankruptcy of Essar Steel, and decided that senior secured creditors don’t get priority. Not an ideal precedent for the growing pool of private credit funds in the market.
• Premature Deindustrialization?
  “Asia’s future is now,” says McKinsey Global Institute. They highlight that “more of what gets made in these countries is now sold locally instead of being exported to the West.” The world needs a rebalancing in China, but is this decline in exports necessarily a good thing for Asia’s continued development? (See Studwell, op. cit., on exports as a driver of productivity and competitiveness.)

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In the Beach Bag

I don’t know if these are the books that I’ll end up reading, but they’ll be in my beach bag:

• Stalingrad | Vasily Grossman
  The prequel to Grossman’s masterful Life and Fate.
• The Kingdom | Emmanuel Carrère
  Carrère’s Lives Other than My Own left me in a puddle of tears, so I thought I’d read some of his other stuff.
• The March of Folly | Barbara Tuchman
  A chronicle of dumb decisions from one of my favorite authors.
• Crossing to Safety | Wallace Stegner
  Recommended by some amici.
• Light Years | James Salter
  The Salter novel that I haven’t read yet.
• Things that Bother Me | Galen Strawson
  Philosophical mumbo jumbo.
• Black Lamb and Grey Falcon | Rebecca West
  OMG I started this three years ago and need to finish it already.

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From the Bookshelf

No matter how vast the skyscrapers and powerful the cannon, no matter how limitless the power of the State, no matter how mighty the empire, all this is only mist and fog and — as such — will be blown away. Only one true force remains; only one true force continues to evolve and live; and this force is liberty. To a man, to live means to be free.

— Vasily Grossman, Everything Flows (NYRB Classics: 2009)

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The information presented in this newsletter is for informational purposes only. Portico Advisers does not undertake to update this material and the opinions and conclusions contained herein may change without notice. Portico Advisers does not make any warranty that the information in this newsletter is error-free, omission-free, complete, accurate, or reliable. Nothing contained in this newsletter should be construed as legal, tax, securities, or investment advice.