Mdundo, which this month listed on Denmark’s Nasdaq First North Growth Market after an IPO, risks replicating the scenario of making losses as it chases the dream of becoming Africa’s Spotify.
“It costs money to become Africa’s leading music platform,” says Mdundo CEO Martin Nielsen. He says he doesn’t know when the company will make a profit. “We want to invest in new markets.
Nielsen says he has five million users now and aims to raise this to 18 million in two years. At that point, he says, the company is likely to target another quantum leap in users to 50 million rather than seek to achieve profitability. The company has enough capital for the next two to three years, but after this, growth will need further financing, he says.
Mdundo operates in 15 African countries and plans to raise this to 21 in the next two years. Its biggest markets are Kenya, Tanzania, Uganda, Zambia, Nigeria and Ghana. The company is close to breakeven in Kenya, but expansion is more important than consolidation, with Cameroon among priority countries, says Nielsen.
Music is provided to users for free, with revenue coming from advertisers. These include Coca-Cola, Diageo and Unilever as well as banks and telephone companies, says Nielsen.
The original funding for Mdundo came from a group of “angel investors” in Denmark who put money into start-ups. Along with the company’s executives, those investors are locked in to holding their shares for a year after the IPO.
So far, so good: too many corporate insiders use IPOs to rapidly unload stock as soon as a public market is available.
The catch is that most of the company’s small shareholders are also locked in for six months after buying their shares.
Nielsen has been based in Kenya since 2012. In the early 2000s, he recalls, most music in Denmark was consumed illegally. Spotify changed the game by making music legally available for free. “People stopped listening to illegal music because they got a better option.” The provision of a free music service in Africa which makes money from corporate advertisers can replicate Spotify’s feat, he argues.