June 29, 2020

Global Startup Economy Created Nearly $3 Trillion in Value

"The global startup economy remains large, creating nearly $3 trillion in value, a figure on par with the GDP of a G7 economy," says The Global Startup Ecosystem Report 2020, which was produced by Startup Genome, a policy advisory and research firm based in San Francisco, Calif., and Global Entrepreneurship Network, a Washington, DC-based entrepreneur advocacy organization. "Seven out of the top 10 largest companies in the world are in technology — the highest concentration of any industry sector among the top global companies — and 2019 saw close to $300 billion in venture capital investments around the world."

In her forward, Martina Larkin with the World Economic Forum says "The Global Startup Ecosystem Report (GSER) provides an important barometer of development across 100+ cities globally, which, for the first time, are all facing the common challenge of rebuilding as strict lockdown measures subside. Some of these hubs will see new digital companies coming out on top, with sectors previously in decline, like gaming and online education, resuming unparalleled growth. Others may struggle, and realize they need to take decisive action to avoid being left behind as the whirlwind of change sweeps away antiquated and analog routines."

Ms. Larkin adds: "Above all, it is critical that each hub and its startups, regardless of where they may fall in the ranking, remain connected, vibrant communities that can play a critical role in this reset."

The list ranks cities based on seven "success factors": performance, funding, market reach, talent, connectedness, knowledge, and infrastructure. Below are the report's key findings:
  • The top five global startup ecosystems remain the same, although with some movement within them. Silicon Valley maintains its #1 position. New York remains at #2, although now London is up and tied with it. Beijing is at #4 and Boston is at #5. Among the top five global startup ecosystems, only London was not in the top five in the 2015 ranking. Tel Aviv and Los Angeles follow, both tied at #6.
  • The 2020 rankings have seen the growth of many R&D powerhouses: those ecosystems growing largely building upon their strengths on research and patent production. Tokyo (#15) and Seoul (#20) are the prime examples of this, with both ecosystems scoring the max in the Knowledge Factor — a measure of R&D activity. Shenzhen (#22) and Hangzhou (#28) also fit this ecosystem archetype.
  • The Rise of Asia is more visible this year, with 30% of the top ecosystems coming from the region, compared to 20% in 2012. Of the 11 new ecosystems that made it to the top ecosystems list, six are out of Asia-Pacific.
  • There are two new entrants in the top 20 global startup ecosystems: Tokyo (#15) and Seoul (#20). They displace Bangalore (which fell primarily due to low levels of Funding) and San Diego.
  • In addition to Tokyo and Seoul, new entrants among the top 30 include Shenzhen (the advanced manufacturing hub, at #22), Hangzhou (home to Alibaba, at #28), and São Paulo (#30, returning to the top ecosystems list after falling off in 2017).
  • Six ecosystems debuted in the list of runners-up of top global ecosystems: Salt Lake-Provo and Dallas (tied at #31 with other ecosystems); as well as Copenhagen, Melbourne, Montreal, and Delhi, tied at #36 with Dublin.

The report encouragingly notes that "Startup Genome has nearly doubled the number of ecosystems studied since 2019 — assessing over 270 ecosystems across over 100 countries to rank the top 30 globally and runners-up. Our ranking this year goes beyond the top ecosystems to include 'Emerging Ecosystems' — the next 100 ecosystems after the top ones."

Moreover, "As startup culture and entrepreneurship spreads across the world, different ecosystems are gaining relevance and impacting economies in a meaningful way. The factor weights used to rank these ecosystems are slightly different from those used with top ecosystems (detailed in our methodology section) to reflect their emerging status and emphasize the factors that influence more in ecosystems that are just beginning to grow."

Key findings include:
  • The top 10 Emerging Ecosystems are, in order: #1 Mumbai, #2 Jakarta, #3 Zurich, #4 Helsinki, #5 Guangzhou, #6 (tie) Barcelona, #6 (tie) Madrid, #8 Philadelphia, #9 Manchester-Liverpool, and #10 Research Triangle.
  • Combined, the Emerging Ecosystems represent 49 countries and $348 billion in Ecosystem Value.
  • Europe is the leading continent for Emerging Ecosystems, with 38 cities in the list followed by North America with 32 startup ecosystems and Asia-Pacific is third with 22 ecosystems.

"Since 2010, these ecosystems have combined to generate 115 billion-dollar club startups," the report explains. "Nearly 60 of these startup ecosystems across over 20 countries have seen either a unicorn or a billion-dollar exit. Of these, 27 ecosystems have seen at least two such deals. Startups have become a top growth engine of the economy and policymakers are putting more energy and focus into the development of their startup ecosystems."

While Silicon Valley continues to be the leading global market for startups, other cities worldwide are showing they possess the aforementioned success factors required to support a viable startup ecosystem. In presenting this information, the GSER serves as a useful tool for stakeholders to answer a variety of questions:

For founders and startup executives:
  • Where should I create my tech startup to maximize my chances of success?
  • Where should I open a second office?
  • Where can I get the most bang for buck in terms of cost?
For investors:
  • Where do startups have the best odds of raising additional funding?
  • Which high-performing ecosystems have a gap in experienced local investors that I might be able to benefit from?
For policymakers:
  • How should I change local policies to support our startup ecosystem during the current COVID-19 crisis?
  • How should I measure the progress of our startup ecosystem?
  • What are the biggest gaps in our startup economy I should focus on addressing first?

Do you find this report useful in answering the questions above?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

June 28, 2020

Six Digital Consumer Trends That Are Shaping the Next Normal in Southeast Asia

The previous post focuses on a report published in 2019 by Facebook in collaboration with Bain & Company, a global management consulting firm, that explores the spending behavior and preferences of Southeast Asia's online shoppers, and the opportunities and challenges brands face in reaching them. This post looks at an update to the 2019 report, which claims that "Southeast Asia remains one of the most vibrant regions for the digital economy, a place where the growth of internet users and digital consumers have seen promise. This provides a unique opportunity for every type of business, making this region the world's growth engine."

Published on June 8, 2020, the update notes: "As we move into the second half of 2020 and 'the next normal,' we review those findings and ask: What's changed and what hasn't? What might the future look like for companies? To this end, we have observed six emerging consumption themes in Southeast Asia for digital consumers — those who have made purchases online in the last 6 months":

1. Essential shopping moves online

"In Riding the Digital Wave, we observed that Southeast Asian firms have a huge opportunity to fill the online retail gap, mainly in areas of clothing, accessories and personal care, which are expected to see growth of 25% to 30% every year. In addition, we indicated that one of the largest untapped opportunities for online spend lay in groceries: a US$350 billion market in Southeast Asia whose 0.3% penetration in the region, especially when compared with China, was much lower than other categories.

"Fast forward to Q2 2020. As businesses adjust to the new normal, this shift to online purchases has accelerated, mainly for essentials. People staying at home has increased the demand for essentials in the short term, both online and offline."

What is more, "during the current environment, at least 44% of digital consumers across Southeast Asia have spent more on packaged and fresh groceries online. This trend is here to stay. Among consumers who have been buying more since April, at least 80% indicated they plan to continue buying groceries online even in the future."

2. Discovery of new apps accelerates

"Consumers are turning to digital devices to keep themselves occupied while indoors. As a result, the usage and adoption of different digital apps have accelerated and will likely continue — a trend we described in our previous Southeast Asia digital consumer report.

"Across the region, 85% of respondents said they have tried new digital apps during Q1 this year." As reflected in the chart on the left, "Not all apps are equal, however. Apps that have seen the highest increase in first-time and continued usage are social media, video streaming, and instant messaging apps, followed by ecommerce, food delivery, and digital payments platforms."

The report adds: "When divided by age groups, categories such as social media, video streaming, and instant messaging continue to lead the pack, as these apps saw nearly similar spikes in usage across all age groups. Meanwhile, among middle-aged groups (25 to 54 years old), apps that saw relatively higher usage were ecommerce, food delivery, and digital payments apps. Among youth aged 18 to 24, it was short videos, music, and gaming."

3. Value for money is key consideration

The 2019 study "observed that 22% of consumers across Southeast Asia were value hunters, who make up a minority of spending online." The covid-19 pandemic in this year's second quarter, however, has caused "a shift to value-for-money purchasing across markets as conservatism sets in. Across Southeast Asia, 57% cite 'value' among their top-three purchasing considerations. The effect differs by country, and is more pronounced in Thailand and Singapore, where ~70% cite it as a top consideration purchase."

4. Reliable brands are on the rise

The report notes that "Southeast Asia's digital consumers have always been open to trying new brands. Their purchasing habits are largely driven by inspiration and openness to digital discovery, hence the term 'Discovery Generation' in our previous report."

Moreover, "This year we looked closely at the types of brands consumers buy — and they showed a strong preference for trusted and established brands. Forty-two percent said they bought more established brands in the recent months. This preference is driven by the fact that established brands have the consumer trust and robust supply chain to ensure their products are always available and visible.

"When it comes to perfect sales execution in-store and online, availability across channels is imperative: 1 in 3 consumers have switched brands when they don’t find their preferred brands."

Importantly, "The change is starker in some categories than others. The move towards established brands is happening not just for individual items such as hand sanitizer, but is also pronounced across all broad categories. Among the Southeast Asian countries, Vietnam consumers are most inclined to buy from more established brands."

5. Health and welfare top of mind

"Across the board, the past few months have prompted increased focus on the health, safety, and environmental impacts of consumer products," the report says.

"In Southeast Asia, 73% of consumers said they were more likely to be more health conscious going forward. This is nearly twice as high as the increase in sentiment in the US, which stands at 40%. At the same time, at least half said they were now more environmentally conscious — at least twice as likely to increase as in the US."

Interestingly, "In countries like the Philippines and Vietnam, consumers prioritize health and wellness or corporate social responsibility even more highly than value-for-money."

6. 'At home' and contactless here to stay

The report maintains that up to 77% across Southeast Asia "are now preparing food at home more often, while at least 65% are watching more on-demand and broadcast TV." And "This behavior is likely here to stay as Southeast Asian consumers adopt more favorable attitudes to working from home and use remote-presence apps more often."

"Furthermore, contactless innovations and behavior have increased. Contactless payments are aggressively rising even in cash-dominant markets, while service providers and food services are innovating to offer contactless options.

"Even in cash-dominant markets in Southeast Asia, contactless payments, including mobile ones, have become a critical application. For example, in the Philippines GCash has seen a 30% increase in transaction volumes since March and has become the most downloaded finance app in Google Play Store."

For those businesses planning to capitalize on the changing digital consumer trends in the region, the report provides the following useful information:
The trends are still evolving, but companies will have to start thinking about its long-term implications. As the rise of the digital consumption accelerates throughout the region, businesses may have to drive product availability online and ensure multi-channel, online presence, especially via apps. For example, the grocery firm FairPrice On leveraged its offline store inventories to double down on its online grocery presence, while Indonesian retailer Matahari shifted emphasis to its online site and mobile app.

Further, the decline in consumer spending may pose a challenge for high-end products and bring back focus towards value-for-money items. The shift towards more established brands means having an extensive and reliable supply-chain network can have greater foothold on consumer trust. To this end, some small and medium enterprise vendors may consider finding a more established partner, as some vendors have done with Lazada.

Finally, a home-centric and health-conscious lifestyle suggests companies will need to design around home consumption and address concerns around health and safety. For a company like Grab, for instance, this meant reallocating their driver capacity to food delivery, as well as unveiling a US$40 million fund to sustain their service and delivery partners (with personal protective equipment, insurance, and subsidies for local businesses).
The new normal poses new challenges, but it also presents companies with the opportunity to help society redefine what this future would look like. It's the beginning of a journey for businesses to form new partnerships, boost resiliency, and embrace the digital future.
Changing digital trends presents an opportunity for businesses looking to capitalize on Southeast Asia's growing digital economy. The covid-19 pandemic has accelerated the adoption of the app economy in a variety of sectors including social media, video streaming, instant messaging, ecommerce, food delivery, and digital payments. While mobile phone adoption among Southeast Asian consumers will continue to grow, businesses will need to pay close attention to the six emerging consumption themes presented in this report in order to be successful.

What do you think of the report's findings?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 22, 2020

Report Explores the Spending Behavior and Preferences of Southeast Asia's Online Shoppers, and the Opportunities and Challenges Brands Face in Reaching Them

"As Southeast Asia's emerging middle class embrace the digital world, digital spending has become the new battleground for companies looking to expand their business," says a report published by Facebook in collaboration with Bain & Company, a global management consulting firm. The survey, Riding the Digital Wave: Capturing Southeast Asia's digital consumer in the Discovery Generation, explores the spending behavior of the region's digital consumers. The findings are the result of interviewing a total of 12,965 respondents from the six Southeast Asian countries of Indonesia, Malaysia, the Philippines, Singapore, Thailand and Vietnam.

The report obtained consumers' views on where they spend their money online, how much they spend, factors that influence them, as well as their consumer journey. Additionally, senior executives from more than 30 companies across a diverse range of industries weighed in on the opportunities they see, the challenges they confront and their approach to digital commerce business in Southeast Asia. While the survey was conducted in June 2019, prior to the covid-19 pandemic, the findings are valuable for companies planning to enter Southeast Asia's rapidly growing digital consumer market.

Below are the survey's top ten insights:
  1. Increase in affluence and internet access have led to the rise of digital consumers. Digital consumers in Southeast Asia have grown exponentially, from 90 million in 2015 to 250 million in 2018. This number is expected to grow 1.2 times by 2025.
  2. Online spending will outpace the growth of digital consumers. Digital spending is estimated to grow 3.2 times from 2018 to 2025, far bigger than the 1.2 times growth in the number of digital consumers.
  3. Clothing and personal care will drive the growth in online spend. Southeast Asia's online retail penetration is still low compared with other markets. It presents an opportunity for brands to step up and offer a dominant business model that can expand the market for themselves and their peers.
  4. The future of digital spending is discovery driven. Seventy percent of shoppers don't exactly know what they want when they shop online. This leads digital consumers to keep browsing till they find what they like.
  5. Omni-channel comparison shopping is part of the purchase journey. The purchase journey is rarely purely online or offline. Eighty-six percent of consumers surveyed compare products online, offline or both before making a purchase. About a third still check physical stores and other websites before buying.
  6. Discounts help acquire customers but don't necessarily promote loyalty. Discounting helps introduce customers to your brand, but it's not an effective differentiator over the long term. More than 50 percent of respondents don't necessarily wait for sales or deals.
  7. The primary driver of discovery is social media. More than 50 percent of consumers surveyed in Southeast Asia say they often discover new products via social media. In comparison, 22 percent often discover them via other online channels and 24 percent via offline channels and other means.
  8. Loyalty programs can create stickiness. Respondents with a loyalty program spend more and buy more often across categories. They are also more likely to be Promoters, who spend three times more across categories. Asked why they take part in loyalty programs, members said they primarily do so because of long-term savings.
  9. Fragmented market means companies have opportunity to win customer loyalty. A dominant ecommerce player has yet to establish itself in Southeast Asia. The market share between the largest and second-largest player is still largely head to head, unlike in the United States and China where the leading player's market share is several times larger than its closest competitor. The region's Net Promoter Score®, a measure of customer loyalty, is also still relatively low. This lack of loyalty in the market offers huge potential for brands in Southeast Asia to grow.
  10. Large brands need to build new muscles and examine potential for direct-to-consumer model. Brand owners need a clear, multi-channel strategy while simultaneously learning from the successful, digital-first “insurgent” companies. Some of these insurgent brands have found success by pursuing direct-to-consumer business models.

"As people go online, they move from being simply internet users to being digital consumers," the report notes. "Digital consumers are internet users who purchase online at least once in any of the following categories":
  • Consumer electronics and accessories
  • Household appliances and furnishings
  • Clothing, footwear and accessories
  • Personal care and beauty
  • Toys and baby care
  • Groceries and food delivery
  • Airline tickets and accommodation
  • Gaming apps and music

I agree with the report's conclusion that "[t]he rise of the Discovery Generation presents a huge opportunity. But navigating this landscape remains a challenge, especially for large brands. Brand owners need a clear, multi-channel strategy while simultaneously learning from the successful digital-first insurgents. These insurgents have been highly successful and are leading the way on innovative online brand building and becoming large regional brands in their own right. What can large brands do to overcome uncertainty?

"To address the challenges, large brands looking to engage the discovery generation can consider pursuing a ground-up approach instead of a patchwork of solutions. Some areas to think about include":
  1. Reimagine your brand discovery. What is your zero-based budgeting approach for marketing spend?
  2. Rethink your route-to-market strategy. What is your online strategy and how does it vary across categories?
  3. Redefine partnerships. How do you partner effectively with ecommerce platforms and leverage their customer insights?
  4. Redesign your organizational model. What capabilities should your organisational model have in order to win online?

Lastly, the report presents the following recommendations on how "large brands make their next move their best move":
  1. Leverage ecommerce channels as it's estimated that majority of growth for consumer-packaged goods will come from that platform.
  2. Ensure your brand is visible and available across all channels. If your brands aren't visible and available, people can't buy them.
  3. Brick-and-mortar tactics will not work; ecommerce requires different capabilities and approach.
  4. Pick your battles, place your bets. Consider business models outside of ecommerce. Some of these insurgent brands have found success by pursuing direct-to-consumer business models, so their potential for disruption can't be ignored. 

This blog has covered Southeast Asia's recent economic advancements resulting from improvements in the region's mobile communications network and transportation infrastructure. The former, which includes the deployment of high-speed mobile broadband and the use of low-cost smartphones, increases the number of people who transition from internet users to digital consumers. The latter provides for easier ways to deliver goods to the 423 million digital consumers residing in the six countries covered in the survey. Based on my experience of doing business in the region, I confidentially agree with the report's assertion that "[t]he opportunity has never been greater."

Do you have a strategy to capitalize on the increasing number of digital consumers in Southeast Asia?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.

June 14, 2020

Developing Islamic Fintech Solutions to Reach the Next Generation of Muslims

Melanie Noronha, senior editor for The Economist Intelligence Unit's (The EIU) thought leadership division in EMEA, writes, "Advanced technologies, from blockchain to artificial intelligence, are transforming financial services. Islamic finance is no different. Sharia-compliant fintechs are popping up in Islamic and non-Islamic nations alike, promising to win over millions of young Muslims and extend financial services to the underbanked. Against the backdrop of the coronavirus pandemic, Islamic fintech is ever more important."

Islamic fintech: Reaching the next generation of Muslims is the second paper in a series by The EIU on "Innovation in the Islamic Economy." (A blog post about Ms. Noronha's first paper may be read here.) Supported by the Dubai Islamic Economy Development Center, Ms. Noronha notes: "Muslims make up about a quarter of the world's population and are said to be the fastest growing religious cohort. As such, the potential market for Islamic financial services is enormous. The median age for Muslims globally is just 24 years old, making a majority of them 'digital natives' ready for digital Islamic financial solutions."

"Islamic fintech marries sharia compliance with digitally-delivered financial solutions," Ms. Noronha explains. "This makes it easier for Muslims to access savings, investments, insurance and mortgages that are in line with the principles of their faith."

What is more, "Businesses offering Islamic investment solutions digitally must deliver on two fronts: compliance and access.

"To ensure compliance with sharia law, fintechs have to navigate an intricate set of rules. Interest charges, or riba, are prohibited. So too are investments in 'sin stocks' of businesses profiting from alcohol, arms, tobacco and gambling. The rules also prohibit profiting from debt and require investments to be backed by real assets. This has led to the creation of sukuk—sharia-compliant financial certificates, similar to bonds, which give an investor part-ownership of an underlying asset. ... There are also detailed investment criteria surrounding a company's leverage and interest income."

As for access to Islamic fintech, "selecting the right technologies is key. Fintechs are deploying a growing array of halal payment platforms, e-wallets, insurtech and remittance services through mobile phone apps. New digital Islamic banks such as the UK's Niyah and Germany's Insha are offering interest-free products through similar channels," notes Ms. Noronha.

She adds that "[b]eyond product delivery, technologies used by fintech firms promise to bolster Islamic finance by driving efficiencies and reducing costs. In turn this could cut costs of payment services and transactions says Mohamed Damak, global head of Islamic finance at ratings agency S&P Global Ratings. Technologies such as artificial intelligence might also help to improve compliance."

For example, "Blockchain, if deployed at scale, has the potential to reduce the risk of fraudulent transactions according to Mr Damak. Emirates Islamic Bank is already using the technology to authenticate paper checks in the United Arab Emirates."

Blockchain, which is loosely defined as a distributed ledger, or database, shared across a public or private computing network, could have an important use in Islamic finance:
To address high costs and a lack of transparency within the sukuk market, "blockchain could literally be the missing link" according to Mr Damak of S&P Global Ratings.
He expects blockchain technologies will open the market to smaller companies by cutting the cost of issuing a sukuk. In 2019 an Indonesian microfinance institution, BMT Bina Ummah, used a platform created by startup company Blossom Finance to raise US$50,000 in what it claimed to be the first blockchain sukuk.
With respect to transparency, Mr Damak explains: "At present an issuer can substitute one underlying asset with another without informing investors, even though it can completely change the risk profile of the transaction. Blockchain will resolve that by documenting every change." In addition, in instances where there are dozens of assets underlying a single certificate, he predicts that the technology will show investors in real time which ones are underperforming.
Looking into the future, Ms. Noronha encouragingly says: "Deploying sharia-compliant financial solutions through digital channels could drive the next wave of growth for Islamic finance. Islamic fintech is poised to deliver financial services sought by a young, middle-class Muslim community that has largely been ignored as well as those seeking ethical financial solutions at the speed and cost of modern finance."

Which sharia-compliant financial solutions do you think will be of value to a growing young, middle-class Muslim community?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

June 13, 2020

Report Examines Key Trends in Nigeria's Fintech Sector

"Nigeria, Africa's largest country by GDP and population, is among the continent's fintech leaders with a lively crop of start-ups and a growing suite of digital offerings from mainstream banks," says a report produced by The Economist Intelligence Unit (The EIU). "Fintech revenues are forecast to reach an estimated US$543m by 2022, driven by increasing smartphone penetration and its unbanked population."

Sponsored by Mastercard, an American multinational financial services corporation, and MTN Group, an African mobile network operator, State of play: Fintech in Nigeria examines key trends in the fintech sector in Nigeria and assesses both industry drivers and impediments to further growth.

The EIU report addresses the following questions:
  • What solutions are Nigerian fintech providers focusing on?
  • How healthy is the broader ecosystem in terms of venture capital investment, skills and the regulatory environment?
  • What are the key challenges and bottlenecks facing the country as its fintech sector matures?

Moreover, "This report, based on desk research, data analysis and expert interviews, traces the evolution of fintech in Nigeria."

Below are the key findings of the report:
  • Nigerian fintechs are branching out from payments into lending, micro-investment, wealth management, peer-to-peer transfers and insurance. Payments and remittances are the most developed sub-sector to date. The country has seen a surge of new and simplified apps to help merchants, businesses and consumers. Mainstream banks, initially slow to react to the digital era, have quickly adapted to offer apps and tools in areas like loans, while non-traditional players—including telecom companies and retailers such as supermarkets—are entering the finance space.
  • Nigeria's regulatory environment balances innovation and consumer protection but must continually evolve to respond to market dynamics. The Central Bank of Nigeria has passed laws and regulations to promote digital payments and allow more actors to enter the space, boosting competitiveness and consumer choice. But it is balancing these with consumer protections through its cybersecurity framework and data protection regulation. Recent reforms, such as easing entry of start-ups into the capital markets and the creation of a fintech sandbox, could also lead to an enrichment of the ecosystem. While there is no fintech-specific law as yet, a sector roadmap provides overarching direction to the industry. A legal framework may prove necessary to manage the emergence of new types of fintech and accelerate fintech solutions for "insurtech" and wealth management.
  • To develop and flourish, Nigerian fintech needs to address shortcomings in the broader ecosystem. While venture capital investment is forthcoming, the majority comes from abroad with Nigerian investors currently playing a small role. As the sector matures, skills gaps are emerging outside of product development in areas such as business management and marketing. Given the challenges that fintechs in all markets are facing in terms of profitability, expertise in business management and corporate governance is needed. Some experts question whether fintech has truly moved the needle on financial inclusion, believing that it is easing financial transactions for those already in the system. But the jury is still out. Although a causal link with the rise of fintech is unclear, surveys conducted by Enhancing Financial Innovation and Access, a financial sector development organisation, reveal that the percentage of financially-excluded adults in Nigeria reduced from 41.6% in 2016 to 36.8% in 2018.

Having followed the fintech industry in over the past several years, I appreciate the report's assertion that "Globally, the fintech sector is among the most appealing for investors looking for the next wave of disruptive innovation. Digital 'neo-banks' are expanding their market share, especially among younger consumers, while bespoke apps and platforms are taking once-elite financial services, such as stock market investing, into the mainstream."

Referencing a report produced by KPMG, a global audit, tax and advisory services firm, "Total investment activity globally—combining venture capital, private equity and merger and acquisitions—reached a peak of US$120bn in 2018, up from US$51bn in 2017."

What is more, "Africa can lay claim to having laid the foundations of fintech with the mobile money revolution springing out of Kenya back in 2007. Today, it remains a front-runner in financial innovation: The number of fintech companies in Africa grew at an annual rate of 24% between 2009 and 2019, fueled mostly by Nigeria, Kenya and South Africa."

The EIU encouragingly notes that "Nigeria's massive population, entrepreneurial workforce and crop of successful fintech startups could well place it at the leading edge of Africa's financial innovation story. The venture community has validated the local talent pool and fintechs are proving that they are fit for market through year-on-year usage increases. Mainstream banks are also quickening their pace to fend off the threat of disruption by innovating their own products or partnering with start-ups and financial SMEs."

Are you planning to invest or otherwise support Nigeria's fintech sector? If so, what risks and opportunities have you identified?

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of Solutions for a Sustainable World.

June 7, 2020

There Is No Such Thing as a 'Standard NDA'

Nolo defines a nondisclosure agreement (also known as a NDA or confidentiality agreement) as a legally binding contract "in which a person or business promises to treat specific information as a trade secret and not disclose it to others without proper authorization. Nondisclosure agreements are often used when a business discloses a trade secret to another person or business for such purposes as development, marketing, evaluation, or securing financial backing. A nondisclosure agreement will not protect trade secrets if the trade secret owner has not taken reasonable steps to keep the information secret." While NDAs are often signed during the normal course of conducting business transactions, they should not be entered into lightly.

This blog post has been sitting in my "draft" folder for several months. The idea for the post came when I attended a Meetup event that was being hosted in the office of a Fortune 500 corporation. To my surprise, the company required attendees to sign a one-page NDA. When I expressed that I take any document that legally binds me, individually, or my company seriously and I had concerns about NDA that was presented for my signature, I was told "it's just a standard NDA." (I also inquired into why host a public event if doing so creates a risk of attendees stealing trade secrets despite our movement being limited to the cafeteria. I did not receive a response.)

"There is no such thing as a 'standard NDA' when it legally binds you, individually, or your company," an attorney said to me when I started my professional career 27 years ago. While many NDAs are poorly drafted and those that are well-constructed are often difficult to enforce, they should still be taken seriously.

If you are an entrepreneur making a pitch for money from a prospective investor, do not ask the investor to sign a NDA (see slide 37 in "Fundraising for Your Business: Dos and Don'ts of Pitching to Your Investor"). Asking the investor to sign a NDA conveys a message that you want the investor to trust you with his or her money, but you do not trust them with your idea. And while you may think your idea is the next unicorn (a business whose valuation is more than $1 billion), business success is based on execution and not ideas alone.

Here are a couple of articles that provide additional information about investors not signing a NDA: "Why Most VC's Don't Sign NDAs" and "Why Investors Don't Sign NDAs."

As a prospective investor, I do not sign a NDA until my advisors and I commence the due diligence process. Prior to this step, we will have held several meetings with the founders and thoroughly reviewed company's business and financial plans.

I will, however, sign a NDA as a recipient of confidential information on behalf of my company early in the process when I am seeking to enter a partnership with another business, establish a joint licensing agreement or commence a merger and acquisition. It is important to note that that I am signing the NDA as an officer of my company and not me as an individual. The distinction is important in order to protect the corporate veil the creates a separate, legally recognized corporate entity and shields me as the shareholder from personal liability.

As previously mentioned, I have seen many poorly drafted NDAs. Common errors include not properly defining the recipient or discloser, an incomplete definition of confidential information, and term of the agreement. The NDA that I use, which was prepared by my attorney, may be found below or downloaded through this link.

My attorney also provided the following instructions that all parties should follow when executing the NDA:
  • In blue ink, write you initials on the lower right-hand corner of each page except for the signature (final) page. Applying initials to each page will prevent one party for switching a page containing language different from the original agreement; and
  • In blue ink, sign, print your name and date on the signature page. The purpose of the blue ink is to signify that the signature is an original one. This is important should there ever be a dispute as to whether or not a party actually signed the NDA.
In lieu of physically signing the NDA, it is now generally acceptable to execute the agreement via a web-based electronic signature service.

What are your thoughts on the purpose and timing to sign a NDA?

UPDATE: Upon reading this post, a friend forwarded a link to "How to Use and Review Non-Disclosure Agreements (NDAs)," which contains additional information about NDAs.

Aaron Rose is a board member, corporate advisor, and co-founder of great companies. He also serves as the editor of GT Perspectives, an online forum focused on turning perspective into opportunity.