Kenya-based investor Maina Murage is a Principal at Norrsken22, the African growth fund that recently invested in Kenyan e-mobility company ARC Ride. Here, he explains why the economics for riders, rather than green credentials, are driving Africa’s shift to electric motorbikes.
You’ve spent your career backing growth-stage businesses across Africa. What led you to Norrsken22, and more specifically, emobility ventures?
Prior to Norrsken22, I worked at Dutch family office DOB Equity. The firm invested in a large spectrum of firms, from early stage tech to more traditional businesses. I was focused on early stage investments then and since we viewed these through an impact lens, e-mobility was already on my radar. At the time the industry was still very nascent and was just figuring out which business models could work.
When still at DOB Equity, I noticed two things: first, that once a company got to Series A onwards, a lot more of their time would have to be focused on foreign investors who had the capital to fund businesses at that stage. Secondly, when a founder in Africa would pitch to foreign investors, they would spend much of their time providing context to the African landscape to an American or European VC, rather than discussing how they might accelerate the business. This isn’t the case at Norrsken22. Norrsken22 invests at the later stage, and the firm has a true and expert understanding of African markets. I wanted to be a part of that. Once I moved to Norrsken22, I kept an eye on the e-mobility space and was keen to invest as it was clear that it was now emerging as a more mature sector.
It’s amazing to work with a firm run by people on the continent. They ‘get it’, which means their portfolio companies have a far greater chance of being able to hit the ground running. Even in a sector like e-mobility which is probably a bit of an atypical VC bet. It’s impossible to ignore the opportunity especially if you sit in Kenya, Rwanda, Uganda. The transition is happening in front of your eyes.
Many African countries are generating significant quantities of their energy from renewable sources – Kenya being a standout example, with approximately 90% of its electricity generated from renewables like hydroelectric power. How much does this clean grid change the investment case for rolling out electric vehicles?
Green credentials are certainly a consideration when looking at impact, particularly environmental impact. We have to ask the question: how clean is an electric vehicle if the majority of the energy it uses comes from fossil fuels?
In Kenya, we’re lucky that that particular question isn’t an issue. However, it’s still important to note that when you move someone from an ICE (internal combustion engine) bike to an electric bike, you’re really moving them onto a renewable source, regardless of how the energy is generated.
For us, the consideration of clean energy was one factor in the investment case, but I wouldn’t say it was number one, which was instead the economics for the rider. Riders save between 20% – 40% of their monthly operating costs by moving to electric. This was the more prominent investment consideration because it presented the clearest logical reason why someone would switch from an ICE to an electric bike. Most riders wouldn’t consider where the electricity is coming from, instead they are more concerned about how much money they can keep in their pocket.
Rwanda recently became the first country in Africa to mandate universal battery-swapping for electric motorbikes. Is this type of regulation important to unlocking large-scale investment for the sector?
Regulation is a tough issue because in my opinion, the jury is still out on standardisation versus free design. I can see the logic in wanting standardisation, but locking all players into one standard today could cause stagnation because the technology is rapidly evolving. My hope is that governments allow the technology to develop more and mature before mandating standards. I suspect a private market solution is going to be better. For example, Arc Ride is already building battery swap networks that are interoperable to multiple OEMs, so I don’t think this is a problem that needs regulation to solve.
Where do you see opportunities for electric motorcycle growth across Africa, and how does that differ from elsewhere in the world?
In Africa, an e-bike is a work tool, running more or less the whole day, rather than for people commuting from home to work. From the moment the rider leaves their home, they are working, and downtime will be mostly waiting for the next job, either on the ride share platforms, delivery businesses or a rolodex of customers. As such, we are a lot more comparable to Asia than the Western markets.
As a result, downtime is the issue we need to solve. Every rider needs to know that if they get back to back jobs, they will have the ability to complete them seamlessly. For e-bikes that means batteries swapped in under two minutes, rather than a 30 min charge. There is a huge transition happening across the continent from ICE bikes to electric. In East Africa alone there are roughly four to five million ICE bikes that will go electric when replaced. The push is not only from the users of the bikes themselves, but also from the governments which would like to import less fuel.
Right now, the main barrier to entry has been the initial upfront cost. However, I recently asked a “boda” driver why he chose to use an electric vehicle and he said, “to get work, people prefer them, which is why I bought it.” The existing market is there, and the additional people getting into it are very likely to choose electric over ICE. In Kenya, that’s probably around 100,000 new bikes a year coming into the market.
Electric motorbike manufacturer and battery-swapping network Spiro raised $100 million in a funding round last year, marking the largest ever investment in African e-mobility. What does this significant deal signal about where the next wave of investment will go?
Currently, Spiro is definitely number one in terms of bikes on the road and with the highest funding.
ARC Ride – which Norrsken22 recently invested in – is playing a different game. They are aiming to become Africa’s leading Battery-as-a-Service (BaaS) provider. They focus on swapping networks and invite OEMs to build and distribute bikes which utilise it. We expect three or four serious players in this market with a long tail behind them, and we backed ARC Ride because they have been focused on this and are making major progress across multiple markets.
At first, ARC Ride had to start with putting out their own bikes using their swapping network, because you need to show the value of the swapstation network. But the true goal is actually to get other OEMs to utilise the network as well. As such, we would rather more OEMs use the ARC Ride network, rather than having to put our own bikes into it. We want to be OEM agnostic, where any bike a person chooses can use an ARC Ride battery. This capital is going to be used to expand what ARC has built in Kenya to Ghana, Tanzania, Uganda and South Africa.
‘Generation rent’ has reshaped how younger Africans think about vehicle ownership, with growing demand for on-demand delivery and mobility schemes. How does that shift change the investment landscape?
ARC Ride doesn’t change much about how riders have traditionally bought bikes. Usually someone will put down a circa $100 USD deposit, then they’ll pay back daily amounts from what they earn, over a 12-18 month period. We’re not changing how that works. The only difference is you’re not owning the battery itself.
The reason for that is both from a cost perspective, because if you want to own the battery it would double the price of the bike. But also, it makes no sense to own the battery if you’re going to be swapping it across the network. For us, we’re not changing behaviour much.
Beyond the environmental case, electric motorcycles are increasingly a route into self-employment. How much does that weigh into Norrsken22’s investment decisions?
For us, this is higher on the priority stack than the environmental case. As much as we love that EVs are greener than ICE bikes, the number of riders using these bikes for work is the main reason we’re in this investment. Our investment strategy is for the self-employed individual to make a living using their bike, maximising uptime through the swap network. ARC Ride’s connection with Uber also generates a lot of work for the riders themselves. ARC Ride is enabling this to happen not only in Nairobi, but also in tier two cities in Kenya, and are going to other markets across the continent
The self-employment opportunities are endless across rideshare, deliveries, and fleets for companies who need to move things from point A to B. Some e-commerce players will choose to have their own riders. Some companies have their own bikes for moving paperwork across different places. In Kenya, a bike is very versatile – from moving parcels on the back. The possibilities are endless, and open up a massive market.
Our thanks to Maina for taking part in our EV Leaders interview series. You can read some of our other latest interviews, here.
