5 Years A Venture Capitalist…..
Lessons learned
I currently run the leading African specialist healthcare investment company: the Flying Doctors Healthcare Investment Company. But my journey as an investor has entrepreneurial roots. About 10 years ago, I embarked on a journey to establish West Africa’s first indigenous Air Ambulance company. I was unsure how I would fare, but I promised myself that if I succeeded, I would pay the success forward by investing in smaller companies and giving more people like me opportunities to build their own companies. As my company grew , I kept that promise.
Five years ago, I became a director on the board of the Greentree investment company. As a venture capital firm, we provide investment funds for companies that we recognise have the potential and market to grow. These companies provide services that are important for the African region and have great teams who are ready to make a mark. The companies we have funded include Paystack, Tech Cabal, Riby Finance and Mdaas Global.
In this article, I will be sharing some of the lessons I have learnt from our first fund and why it has been successful.
Team is everything
A fundamental reason why the Greentree company is able to make successful investments is the common goal we share as members of the board. Our vision is to power the growth of entrepreneurs across Africa.
If this conversation concerns what is factual and what is not, then it must be said that there is no justice nor righteousness in their slavery
- Brad Pitt, 12 years a slave.
The title of this article is a play on words, from the 2013 film; 12 years a slave. The movie tells the story of the deep injustices faced by black people under slavery. Similar to to injustices faced by black South Africans here on the continent during the apartheid era.
Even though slavery and segregation doesn’t exist in the same form today. The difference in Africa’s level of development compared to the rest of the world still places Africans at a disadvantage.
I believe so strongly in business as a force for good. I believe that profit is good and that the best way to lift Africans out of poverty is through the markets. The fourth industrial revolution is here. And whilst Africa has been left behind during the past industrial revolutions, its our duty to make sure we are not left behind again!
This thesis has helped us to adopt a unique and unified approach to identifying, investing in and supporting these companies. Our chairman, Mr Bode Agusto, an astute consultant and economics guru offers incomparable levels of experience, professionalism and expertise. Another strength of our team is our diversity. Only 7% of partners in venture capital partners are women globally. According to McKinsey, ‘a diverse board boosts decision-making quality’. We make better decisions at Greentree because we are diverse.
While Mr Agusto provides the backbone of governance structure in the company, Abasiama Idaresit offers a decade of experience in digital marketing, a very important tool in the world of tech. Dave Uduanu contributes a deep knowledge of the financial industry and I stand as one of the few female venture capitalists in Africa with knowledge of finance/economics, healthcare and business operations. A mix of all of our expertise and strengths has resulted in a rich perspective when making investments.
Bet on people
People like to say venture capitalism is the business of money , some say it is the business of technology, other say its the business of finance especially because we have a greater percentage of our investments in Fintech companies; they are not wrong.
However, I also like to think that venture capital in Africa is the business of people. People and their values. On the African continent, the combination of our low trust environment and weak institutions influences how we invest.
People are the center of every investment decision that we make. We are in the business of trust. The business of integrity . We are of course interested in businesses with great models and appeal to large market sizes. But business models can be changed and products can be improved on to attract bigger markets. Skills can be taught and learnt. However, founder integrity is irreplaceable and its necessary to make the right bets on the right people. I am happy that over time, the founders we have funded have proven to us that we chose the right people to invest in.
Mdass is one of those stories. I initially met them at a pitch event that I was speaking at years back. Great team. But we didn’t see eye to eye on the business model. A few years later, the business model pivoted. And we participated in a $1m raise to help them revolutionise diagnostics and primary care across Africa. Read about them here.
Impact is important
The end goal of capitalism historically has been profit-making. But at Greentree, we have a double bottom line for investments: profit and impact. This is why we place emphasis on investing in businesses that offer value to their target markets. It is essential to provide products that serve as solutions for the many African communities around us.
A great example of this is Paystack Nigeria, which since its inception, has made massive impact solving the problem e-commerce payments previously posed. Such payments are now seamless, secure and reliable, proving that services can provide impact to consumers while making money. Another example is Riby finance, a company which provides basic co-operative and thrift services as a digital tool. The company provides these services both online and offline, reaching various classes of consumers, even those preciously unable to access digital services.
Its about more than money
Businesses succeed and fail all the time and what distinguishes them is not always funding. When I started my company, I had to learn finance. I learned how to build and understand financial models, banking and capital markets, legal aspects of financing, economic policies and their implications, cash flow cycles, profit- and loss- making . Eventually, deciding to start a Masters degree in Finance and Economic Policy.
In my early days of investing, I thought the only thing these businesses needed was money and my knowledge of finance. But now I realise venture capitalists in Africa need a lot more than money. The Nigerian economy is roughly the size of Seattle in terms of GDP. But the population of Seattle is less than 1m people. There are 200m people in Nigeria.
There are returns to be made in tech, but the markets are fragmented, money markets are shallow and people are extremely poor. Innovating for the bottom of the pyramid is possible and potentially profitable, but it requires experience on the ground.
Local knowledge of the market and deep local networks are particularly important for African VC’s. As is a VC’s access to important contacts and policy makers, knowledge of business operations, ability to coach and guide.
I often say that in America and Europe only one set of forces acts on your start up; the market forces. In Africa, there are often two sets of forces; the market forces and the evil forces.
Fighting evil forces requires a lot of local knowledge and an extensive local rolodex. That’s why techcrunch argues that global funds looking to invest in Africa should co-invest with a local fund.
Relationships and people are important anywhere in the world, but perhaps more so in Africa. Its quite telling that in a joint interview Dangote said the major thing he has learned from Bill Gates is how to give away wealth and its importance.
Whilst Bill Gates said, his major learning from Dangote was his ability to leverage relationships, to ‘reach out’ to people. He spoke highly of Aliko Dangote’s communication and relationship building skills.
Bill Gates, said that he really doesn’t place much emphasis on building relationships and generally sends emails rather than speaking to people on the phone.
I think this conversation holds perhaps reflects a difference in our stages on development and businesses cultures.
In Africa, you have to pick up the phone a lot to get things done. Relationships and social capital are also more important that perhaps they are more developed parts of the world. In Chapter 9, of this Harvard Business Review audio called ‘Getting to Da’ the author explains how in Nigeria contracts are less enforceable, so trust, relationships and track record are more important. The author uses quotes from a Nigeria executive to explain his point.
This paper by Mckinsey also suggests that it is more important to build relationships in emerging markets compared to other markets.
We believe …companies must devote far more time and effort to building such support in emerging markets than they would in developed ones
This HBR article further points out the importance of investing social time with negotiating partners in emerging markets.
The devil is in the economics
The top 5 tech companies now have a market cap of about $4tr. Bigger than the entire economy of Africa.
As I stated earlier, knowledge is as important as funding to a growing company in Africa. It is important to gauge the size of the product’s target market as well as monetary and fiscal policies that affect the product in the target location (You can learn more about Marcoeconomic Policy in Nigeria from my youtube tutorial series here).
Classes and sizes of various markets differ with geographical location and demographics. It is vital to avoid going into the market blind either as an entrepreneur or an investor. Read my detailed article on market size and consumers in Nigeria here.
There are only 2m household in Nigeria with earnings over $9000 vs 100m in India; this is important when considering who we are innovating for.
Similarly, transporting goods between two states in Nigeria costs over TWICE as much as it would do between two American states and it takes four times as long. This is a problem that can be solved. But also an issue that needs to be taken into consideration when innovating, for example, in the ecommerce market.
Developed economies tend to have more stable economic policy. However, in Africa, more attention needs to be paid to unit economics (my article on profit here), capital efficiency, cost of logistics, risk of devaluation, inflation, consumer behavior and structural policies.
That said, the size of the opportunity is incredible. Listed tech firms now make up more than a quarter of the value of America’s stockmarkets -The Economist. So imagine the potential that technology holds to transform lives, markets and economies in Africa. Its huge.
Tech has been an important part of Nigeria’s past, but technology will define Nigeria’s future.
Conclusion
A recap:
- Team is everything
- Bet on people
- Impact is important
- Its about more than money
- The devil is in the economics
We currently stand on the brink of a technology driven revolution that will profoundly alter the way we live, work, and relate to one another. This revolution will be drastic, unlike anything mankind has experienced before.
I am excited about this revolution and the opportunity is provides to young Africans. Its been a great five years and an absolute privilege working with tonnes of fascinating founders and innovators. Looking forward to raising and deploying fund two and doing my little part to continue to help build Africa’s future.
Learn more about me and the work I do by clicking on my profile here: https://medium.com/@drola/my-official-profile-bc53e23c64d3
