Tapping into Africa’s massive VC potential

Tapping into Africa’s massive VC potential

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Start-ups, by their very nature are the creators of an idea, system, product, technology, or service that didn’t exist before. In Africa these ‘creations’ could be the latest mobile-based app, the arrival on market of a product that wasn’t available before, or the construction of a simple building.

The recent economic boom happening across most of Africa has given rise to a whole lot of startups. New products are available. New buildings are going up daily. New shops, new restaurants, cafes, and boutiques are springing up all around.

These are start-ups. Something new is being created where nothing existed before.

Where VC fits in

Venture capital, by its very nature, is the process of investing in new ideas, products, or people that will hopefully create value where none existed before – and make money in the process. So it’s a bit of a challenge when much of today’s venture capital (VC) activity in Africa is essentially later stage investment.

The investor community in Africa is often unwilling to take the risks of investing in ideas, concepts, or people based on assumptions of the future but rather demand a proven record of performance. Though this is a valid approach to investing, it leaves a gap in the start-up community across much of Africa.

From my experience working across much of Africa, there seems to be a mismatch in what entrepreneurs and visionaries need and what funding sources and the current type of ‘VCs’ in Africa provide.

 

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Here’s some ideas for both entrepreneurs and VCs to help bridge that gap given the current realities, and maybe, hopefully, we will start to see investors get back to what real venture investing should be and take the leap to help create something where nothing existed before:

Establish your track record

This kind of goes against the whole idea of being a start-up, because you’re a new business and have no track record right? Unfortunately in today’s market it’s going to be an uphill battle to raise funding if you don’t have an evident track record of activity. Start somewhere, somehow. Build something, sell something, anything, just get started.

I’ve noticed in my own experience that the plethora of aid groups, impact investors, development finance institutions, VCs and other early stage investors across Africa tend to herd around the operating businesses, no matter the quality.

The uneducated person selling a few thousand dollars worth of product per year will attract way more attention than the team with a plan for a million dollar new business.

The mismatch is unfortunate and skewed in part by the focus on developmental goals, rather than on investing for a return. The good news is that the competition is thin once you get started.

The key here is start somewhere, do something, and show a track record of activity. It’s not a guarantee, but it sure helps.

Generously give transparency and comfort

A lot of start-ups and entrepreneurs I’ve come across in Africa think their business idea is a pure gold mine, and with barely saying the name, much less giving an elevator pitch, they put an NDA in front of you.

Though it’s certainly valid to be cautious, paranoia simply won’t get you very far. Investors are looking for comfort, and information is a great, and often cheap, way of providing comfort. Keep good records of your business activities and financials. Be open about what makes you special and why you deserve to be invested in.

Though many a good business plan are only a page long, the supporting information, facts, contracts, news, insight and data that support the rationales in that business plan are key to giving a potential investor the degree of comfort they need to do a deal. Be up front, answer questions before their asked, and prepare, prepare, prepare. 

Be local

This point is most relevant to VCs but in some cases could apply to entrepreneurs. Be present in the market you are serving. This doesn’t mean having a representative or agent feeding deal flow and suggestions to your global or regional HQ. This means somehow get the decision-making down to the on-the-ground level.

Get in the action and get a feeling for the rhythm of the market. What are the risks, what are the needs, opportunities? Who are the players, what does a successful entrepreneur look like?

The stereotypically jean-clad, coffee drinking, web engineer image of the western entrepreneur may not be as relevant in the African start-up scene. Being able to identify and execute deals quickly is essential and will lead to great returns. Being local is essential!

Most of Africa runs on relationships and cash. Building the former is essential, having the latter helps. Entrepreneurs and VCs who make up the African start-up space have some significant steps to more accurately align the promising entrepreneurs, ideas, and projects, with the capital needed to turn success into reality.

Entrepreneurs and start-ups can move the needle with a few simple steps and approaches to attracting the investor attention they often deserve.

In many ways, Africa is one giant start-up. So much of the face of modern African economy is something new, that wasn’t there before. These are the creations and reality of people driven to find and create value where seemingly none existed before.

Josh Becker
Joshua Becker is the son of missionaries who moved to Zambia from the US when he was a baby. Becker is the co-founder of Impele Consulting Group, a consulting and investment advisory firm with local expertise now in nine countries across Africa. Additionally, he is currently the founder and chairman of the board of LibertyWorks, a socially and environmentally positive green energy and hardwood products manufacturer in Liberia, West Africa. Becker holds a BS in Management from ORU, and an MBA from Thunderbird School of Global Management.