Exploring African Startups Exit Paths & Strategies : How VCs Can Best Support Startups to Success

From May to November 2023, I was part of the Dream VC 2023 Investor Accelerator cohort , a program for professionals including experienced operators, angel investors, and entrepreneurs who wish to contribute meaningfully to the growth of the African ecosystem. As part of the program, I had to research a topic of my choosing. I am greatly interested in the impact of venture capital and believe in its potential as an asset class, to fund some of the future market-creating innovations on the continent, and also to generate returns for founder-friendly and context-equipped investors. Consequently, I directed my research towards potential exit strategies available to investors in the African startup ecosystem. However, preliminary research made me realize that few studies and articles exist on African startups’ exit strategies. Thus, I chose to make a modest contribution to this underexplored topic. Besides, the prospective MaxAB and Wasoko’s merger announced in the final days of 2023, a year characterized by a dearth of VC funding for African startups, made it more urgent to delve into the topic. This article will focus on the following theme: “Exploring African Startup Exit Paths & Strategies: How VCs Can Best Support Startups to Success”.
Considering that liquidity events do not only apply to a specific category of investors (VCs) but also to those investing in VC funds, namely Limited Partners (LPs), some potential subsequent research areas could include the performance of African VC funds (carry and returns to their LPs), and eventually the case for African VC funds’ mergers.
For now, let’s delve into exploring African startups’ exit strategies and the role of VCs in supporting their success.

THE IMPORTANCE OF EXIT STRATEGIES FOR AFRICAN STARTUPS

In the dynamic landscape of African startups, the journey from inception to successful exit stands as a milestone, both for burgeoning and established entrepreneurs as well as for emerging and seasoned investors. The pursuit of growth and innovation is innately intertwined with the art of exit strategies.
For startups, mapping a clear path for exit from the early stage of the company isn’t merely a smart move; it is a crucial path to lasting success. From acquisitions to IPOs and other exit avenues, the chosen path influences resource allocation, business scaling, and overall value creation. Conversely, for VCs, understanding, influencing, guiding and/or aligning with these exit strategies is essential for yielding much-needed returns on LPs’ money. By supporting startups with mentorship, training, recruiting, access to networks and intellectual property support, VCs can contribute significantly to the success of startups while ensuring mutual gains in the exit process. Exits are crucial in shaping startup ecosystems by driving growth and spurring innovation while bolstering investor confidence, leading to a virtuous cycle of high-value deals, market-creating innovation and economic development ultimately.

An exit strategy refers to a predetermined plan devised by the founders or owners of a business to sell part or all of their ownership in the company to other investors or firms. A healthy environment for exits is an integral element of the venture lifecycle. As promising portfolio startups mature, venture capital funds generally exit (i.e. divest) their positions in those companies by taking them public through an initial public offering (IPO) or by selling them to presumably larger entities (via an acquisition, merger, or trade sale) or to a financial buyer (e.g., a private equity buyer). Exits in such companies allow the VC firm to distribute the proceeds to LPs, raise a new fund for future investment purposes, and subsequently, continue to invest in the next generation of companies. As a result, venture capitalists aim to discover and fund the exceptionally rare startup that yields a > 10X return, following the sacro-saint “Power Law” (a statistical principle that states that a small number of investments in a venture capital portfolio typically generate the vast majority of returns) almost all VCs resort to, sometimes blindly, to construct their portfolio. Although exits hold significant value for both founders and investors, the frequency of high-value venture-backed exits in Africa remains limited. Even among those that occur, few details are publicly disclosed, limiting the ecosystem actors’ understanding of the economics behind such exits.

In principle, there have always been tech startup-related exits on the continent, dating back as far as 1999, when Thawte Consulting, a South African digital certificate issuer founded by Mark Shuttleworth was acquired by Verisign for $575 million. A decade later, in 2011, the global payments behemoth Visa, acquired the South African’s mobile financial services company, Fundamo for $110 million. At the time, Fundamo operated in 40 countries, including 27 countries in Africa and the Middle East, having built a reputation for serving unbanked and underbanked consumers, and Visa sought to enhance its mobile services capabilities. Fundamo had raised $5.1 million in funding from SA-based VC firm, Knife Capital, marking one of many successful exits for Knife Capital. Multiple other high-profile exits happened between 2011 and 2018 such as the acquisition of Nimbula, a South African provider of private cloud infrastructure by Oracle in 2013 for an undisclosed amount, the acquisition of Weza Tele, a Kenyan fintech for $1.7 million by AFB, a Ghana-based company in 2015, and GetSmarter, an edtech startup acquired by the edtech giant 2U for $103 million in 2017, just to name a few. These prominent exits only account for a small fraction of all ecosystem exits, the majority not being publicized — an ongoing trend.

Data from the last five years highlights a peak in exit activities within Africa’s tech ecosystem, showcasing differences in exit scale and type, startup stage and age, geography, vertical of focus, deal structure, and disclosure of exit terms.

Figure 1. Startups exits in Africa for the period 2013 -2023, Source: Africa: The Big Deal

Exit terms disclosure

Information about the terms of startup exits in Africa is quite limited. According to the Africa: the Big Deal Database, out of the 137 exits that happened between 2019 and 2023 on the continent, 129 have an undisclosed amount without much details on the deal structure(cash or equity basis), while the 8 remaining deals reveal varying degrees of disclosed terms. For instance, in July 2023, Medius, a Swedish leading provider of accounts payable (AP) automation, acquired the Tunisia-based expense management software startup Expensya for an undisclosed amount, with sources with knowledge of the deal reporting a potential “9-figure acquisition”. Similarly, in September 2022, Bboxx, a London-based cleantech startup acquired West Africa-based PEG Africa, a leading solar energy provider for an undisclosed amount supposed to push Bboxx’s valuation to be over $300 million, according to TechCabal[1]. On the other hand, in 2021, Egypt-based ride-sharing startup Swvl went public on the NYSE through Queen’s Gambit’s-led Special Purpose Acquisition Company (SPAC) merger, and a group of investors (Agility, Luxor Capital and Zain Group) contributed $100 million through a private investment in public equity (PIPE)[2]. This disclosed amount exemplifies the broad range of disclosure obligations associated with taking a company public.

Reasons for an undisclosed exit could be varied. Most of the time, the rationale behind an undisclosed exit is the price and how it will be perceived by the market (ecosystem). An undisclosed exit amount often stems from a deadlock situation between the startup being acquired, its existing investors and the acquirer. A potential misalignment in incentives might exist between the acquirer and the investors. If the exit price is high, both the startup’s founders and its investors will want to share it with the public. However, the acquirer may choose not to disclose the acquisition price, dreading a potential reputational risk from having over-paid, a classic illustration of the winner’s curse fear. In contrast, if the exit price is on the lower end, the startup and its investors may opt not to disclose it to maintain the perception of success.

[1] https://techcabal.com/2022/04/27/bboxx-acquires-ghanas-peg-africa/

[2] PIPE deals became an integral part of the SPAC merger strategy, as sponsors may need to raise more money than they get in the IPO to complete the acquisition of target companies.

Exit scale and type

Out of the 137 exits that took place between January 2019 and 2023, only 5 companies went public, with varying fortunes for each of them.

Figure 2. Biggest exits in Africa for the period 2019 -2023, Source: PR News, mdundo, Swvl, Fawry, Jumia, Multichoice and Author’s work

In April 2019, the e-commerce startup Jumia was listed on the New York Stock Exchange[3], with shares initially trading at $14.5[4], becoming the first African technology startup to list on a major global stock exchange. At the time, it had a market capitalization of about $1.94 billion. However, a lack of strategic focus and macroeconomic headwinds led to substantial losses, with Jumia’s shares trading at $3.11 as of November 2023, a 366% decline from 2019.

Swvl, a Cairo-founded mass transit startup that listed on NASDAQ with a market cap of $1.5 billion post a SPAC merger in July 2021[5], encountered similar challenges. As of November 2023, Swvl’s stock has depreciated by 99%, causing the company’s market cap to nosedive from $1.5 billion to $6.12 million. Additionally, Nasdaq had issued Swvl its third warning for potential delisting. The startup incurred substantial losses due to its complex business model, the absence of a tailored localized approach and strategic partnerships, and reliance on a high-cash burn model to fund its expansion and acquisitions.

These two examples demonstrate that the challenges observed with African startups IPO exits are not inherent to the IPO process itself, but rather to specific issues within startups’ core fundamentals. Factors like poorly defined business models and a lack of strategic clarity are common hurdles faced by these startups. Furthermore, it indicates that resorting to going public to stay afloat when unable to secure VC funding might not guarantee success if a clear and effective growth strategy hasn’t been established beforehand.

The majority of tech startup exits across the continent largely involve acquisitions, primarily by other startups as part of their broader go-to-market strategy or to a lesser extent, by financial institutions like private equity and investment management firms aiming to develop portfolio synergies.

Exits on the continent are mostly the result of bigger startups’ programmatic approach to M&A. An example showcasing this strategy is exemplified by Onafriq (previously MFS Africa). In 2020, they purchased Beyonic, a B2B last-mile digital payments provider in East Africa, to expand into the enterprise segment. Following this, in 2021, they proceeded with the acquisition of Baxi, an SME-focused agency banking provider, marking Nigeria’s second-largest fintech acquisition. The move aimed to establish a presence in Nigeria and access offline merchants across the country and beyond. Autochek’s acquisition playbook follows a similar pattern. The Nigerian automotive tech firm acquired Cheki Kenya and Uganda from ROAM in 2021, facilitating its East Africa expansion and tapping into a customer base of 700,000 users. In May 2022, it acquired Morocco-based Kifal Auto, extending its reach to North Africa, and then CoinAfrique in July 2022 to bolster its presence in Francophone Africa.

Convergence Partners, a South Africa-headquartered private equity firm, stands out as one of the few PE companies to have made a tech startup acquisition on the continent in the last four years. It acquired Ctrack, an IoT solutions provider, to enhance and diversify its portfolio in 2021.

When it comes to disclosed exit amounts, they are quite varied, reaching up to the record-sized acquisition of Tunisia-founded Instadeep by Biontech, amounting to ~$680 million[6]. This is far from the average. A more standard example was seen in April 2023, when Smile Identity, a KYC compliance and ID verification partner for many African fintechs and businesses, acquired Inclusive Innovations, the parent company of Appruve, a Ghanaian developer of identity verification software in a cash-and-stock deal that was “not more than $20 million,”[7] according to sources close to the matter, per TechCrunch’s reports.

A case has been made for smaller acquisitions by both international and African investors alike. We may see a major rise of smaller, but meaningful, startup acquisitions with multiple seed-stage startups, or companies that had raised a seed-plus-extension-round, getting acquisition offers. I believe that bigger companies will likely engage in some bargain hunting, looking for companies that could fill a technology gap or give access to an untapped pool of sticky customers, that exhibit some traction, and where the purchase of such companies could save time and money for in-house development. An example is the acquisition of Chaka by Risevest in October 2023. The reason why these early-stage startups consider these acquisitions is that they have not raised much capital.

Such exits are good deals, not great deals. VC or angel syndicates that invested in them will make a good return on capital. By delving into some calculations from the investor’s perspective, it becomes clear why they are not against these smaller exits. If we consider a scenario where a startup had raised $500,000 through an early-stage funding round at a $2 million post-money valuation. A $4M-value 100% exit would allow the investor to double their investment, likely within a short period of time. Additionally, some preferred stocks may also pay back some of their principal, which can marginally boost the return to the investors. Although such a return is not typical of what VCs generally expect, returning capital early in a fund’s life allows for recycling. Recycling could allow VCs to reinvest the early returns in the fund instead of returning it to investors, increasing the pool of capital available for investment. If that capital is directed into a winner, it significantly enhances the fund’s overall returns.

[3] https://group.jumia.com/news/jumia-listed-on-the-new-york-stock-exchange

[4] https://qz.com/africa/1594036/jumia-ipo-shares-up-more-than-50

[5]https://www.cnbc.com/2021/07/28/swvl-a-green-focused-mass-transit-company-is-going-public-via-an-all-female-spac.html

[6] https://techcrunch.com/2023/01/31/instadeeps-acquisition-is-a-classic-case-of-an-african-startup-gone-global/

[7] https://techcrunch.com/2023/04/26/smile-identity-expands-african-footprint-with-acquisition-of-appruve-to-strengthen-id-verification-services/

Geography and verticals

In terms of the exit ratio by country, unsurprisingly the Big 4 (Egypt, Kenya, Nigeria and South Africa which are known for historically attracting the bulk of funding across all of Africa’s tech ecosystems) have registered the most exits between 2019 and 2023, with Nigeria (21) and Kenya (15) lagging South Africa (39) and Egypt (35). This could be explained by the fact that these ecosystems are the most mature on the continent and have received a significant portion of the funding, and hence investment (and acquisition interest) directed to African startups.

Figure 3. Startup exits by selected African countries for the period 2019 -2023, Source: Africa: The Big Deal

However, in a funding scarcity landscape where investors prioritize performance over inefficient growth, it becomes crucial to compare each country’s number of exits to its number of deals to assess the ecosystem’s performance. This data paints a slightly different picture than trends observed on considering exits solely.

Figure 4. Ratio of deals to exits in select African markets, Source: Briter Bridges Intelligence

South Africa and Egypt stand out for their top positions in exits, achieved with fewer deals, resulting in a more favorable deals-to-exits ratio. Specifically, South Africa claims over a quarter of tech sector exits in Africa. Interestingly, smaller markets like Morocco, Ghana, and Uganda demonstrate stronger performance compared to Kenya and Nigeria.

When looking at the different verticals, the fintech sector stands out for having the highest number of exits, aligning with the consistent funding the sector has received for over four years, followed by the logistics and transport sector. The deep-tech sector has also witnessed an increasing number of exits over the past 2 years, although those exits are primarily concentrated in Tunisia and South Africa, which are vibrant hubs of deep-tech innovation on the continent.

Figure 5. Exits by sector for the period 2019- 2023, Source: Africa: The Big Deal

In terms of performance, while fintech attracts the most funding and boasts the highest absolute number of exits, the ratio of deals to exits of the sector is lower than that of verticals such as proptech, data analytics and cleantech. Fintech represents less than one-third of the continent’s total exits volume while having attracted nearly half of the total funding amount.

One sector that has shown promising performance lately is cleantech, displaying a favorable ratio of deals to exits. However, there’s a risk of the cleantech sector becoming saturated due to its increasing popularity.

Figure 6. Ratio of deals to exits per sector, Source: Briter Bridges Intelligence

Startup age at the time of acquisition and founding team gender

According to data from Africa: The Big Deal database, startups typically run for an average of 3 to 8.5 years before their exit. This isn’t set in stone. Notably, Jobberman was acquired by One Africa Media in 2021, marking a 12-year journey post-launch, while the retail platform DigiDuka was acquired by Marketforce after just 2 years of operation.
In terms of gender diversity among startups registering liquidity events in Africa, of the 137 analyzed startups, only 24, approximately 17.5%, featured a female co-founder. Instadeep stands out as one such example. Among those 24, 16 also have a female CEO, while merely 7 are women-only founder teams. These statistics parallel funding trends where just 13% of VC funding in the continent over the last 5 years was allocated to women-led startups.
After delving into the exit landscape and outlining specific challenges and opportunities related to liquidity events for startups and investors in Africa, let’s investigate how VCs can effectively bolster startup exit plans and paths.

EFFECTIVE PORTFOLIO MANAGEMENT

One way for VCs to support and prepare startups for exits is through effective portfolio management. Portfolio management encompasses thorough market research to inform decisions, strategic networking and resource allocation to foster startups’ success and thus increase the value of any VC’s investments. The portfolio management approach’s core areas include team building, operations, perspective (strategy), skill building, customer development, analysis, and networking. VCs typically offer diverse support to their portfolio companies, including money, leveraging their brand to enhance a startup’s perceived potential, facilitating introductions to industry experts for valuable advice or offering in-house expertise. Scaling support involves establishing mentor networks, securing crucial partnerships, providing legal counsel, and implementing key performance indicators (KPIs) and data repositories like data rooms.

There are various trade-off implications a fund manager should take into account when building and managing a portfolio. Those trade-offs can center around the follow-on reserve. The majority of VCs approach follow-on strategies in two primary ways. The first method consists of setting aside a percentage of the total fund size for follow-on investments. That percentage will be the driver of various other portfolio aspects like the number of companies to invest in, the initial check size, and ownership targets. Conversely, the second method involves setting a certain number of companies (X companies) to invest in with a targeted ownership percentage (e.g. 10% ownership) in each company and an initial check size, from the outset and having the amount left allocated to follow-on rounds.

Under both of the aforementioned strategies, VCs will typically use their follow-on reserves to re-invest in the biggest winners in their portfolio (to maintain or increase their ownership) or allocate part of the reserve into their portfolio companies that need a bridge round or extend support to struggling yet promising ventures. The approach to determining portfolio winners varies per VC firm and can be more or less specific with some VCs categorising their portfolio companies into multiple performance tiers (top quartiles, top percentiles, etc..) based on specific internal criteria.

Among African-focused or African-exposed VCs, one can observe varied strategies in portfolio construction and management, when it comes to fund allocation and follow-on reserve.

For example, Loyal VC, a global VC with a 350+ portfolio, allocates 95% of its capital to follow-on investments and only 5% to the initial check. The rationale is that a prolonged collaboration with founders enhances opportunities for customized support. However, it strictly operates by a policy of providing follow-on support to the top 2% of startups within their portfolio only, every month.

Knife Capital, a South Africa-based VC firm, allocates 10 to 15% of its funds for follow-on investments, rooted in the belief that there must be available dry powder (available funds for investment) to offer catalytic capital to winners.

On the other hand, other African VC firms such as LoftyInc are adapting their strategies in tandem with the different funds they are raising. Initially an angel syndicate, LoftyInc transitioned into raising a fund supporting seed to series A companies and started writing follow-on checks. The firm evaluates its portfolio based on company performance, tailoring follow-on investments accordingly. Follow-on amounts depend on performance and the startup’s tier within the portfolio, with the possibility for star companies to be written larger-than-initial-check follow-on investments. This approach is aligned with LoftyInc’s goal of exiting portfolio startups at later stages (e.g., series B and C onwards).

Proactively preparing startups for future exits means that African VC firms have to think about the types of exits they are aiming for, right from the due diligence phase of a potential deal. Establishing a list of potential future buyers and the rationale for the exit (e.g., intellectual property, acquihire, market access) is crucial. Doing so will allow a VC to reverse engineer exits from the prospective acquirer’s standpoint and develop strategies for business development, recruiting for portfolio companies and partnerships. For instance, such preparation could involve nurturing relationships with comparable VCs, facilitating the option of potential share sales to later-stage VCs through secondary sale exits. African VC firms can take a few other practical steps to improve the potential for successful exits within their portfolio. For example, they can focus on ensuring that their portfolio companies maintain seamlessly organized data rooms and/or have an Investment Banking-quality financial model at all times.

In practice, African VC firms engineer their exits and provide related support to portfolio companies in different ways.

LoftyInc, as an example, strategizes secondary exits (potential buyouts by later-stage funds) and thus, offers portfolio companies recruiting, marketing, and business development support, aiming to give them an inflexion toward series A and B.

Certain VC firms like Knife Capital, known for M&A exits, thoroughly investigate various exit strategies, including management buyouts (MBO), having had a few in the past. Nonetheless, it prioritizes value creation and ensures that value add is as close as possible to the company’s valuation.

“There are these sorts of paper valuations that don’t get to exits and don’t realize returns, and as a result, we all lose the plot as an industry in the middle of it all” Keet Van Zyl, Partner at Knife Capital.

In contrast, Loyal VC, structured as an open-ended fund, prioritizes the growth of portfolio companies over emphasizing exits at the outset. This approach is explained by Kamal Hassan, the managing partner of the firm.

“We don’t spend a lot of time thinking about exits, but rather help the entrepreneur to grow a stellar business. The truth is that exits are tied to the fact that most VCs have close-ended funds, they invest in over 2 years and have to shut down after 8 years, but it is a bit different for open-ended funds such as Loyal VC” Kamal Hassan, Managing Partner at Loyal VC.

SUPPORT THROUGH VC PLATFORM APPROACH IN THE AFRICAN CONTEXT

Understanding the dynamics of VC Platforms

Every venture capital firm ponders how to enhance support for its portfolio companies post-investment. As more VC funds emerge, distinguishing VC capital has become vital. Money is ultimately a commodity, and value add will be the defining criterion that founders consider when selecting which investors, they take capital from. The Forward More than Money report 2021, reveals that although 92% of VCs characterized themselves as value-added investors, 61% of founders rated their value-added experience as ‘below average’. This starkly illustrates the gap between VCs’ perception of value add and that of founders. One way for VCs to close that gap and offer support is through developing a VC platform strategy. The role of VC platforms has surged in popularity over the past 10 years as more VCs acknowledge the importance of portfolio support. In fact, the concept of ‘Platform’ remains relatively new within the VC landscape with the first VC Platform roles being formalized around 2013. But what is a VC platform?

VC Platform can mean different things to different VC firms. Broadly, it designates a structured post-investment support that a VC firm offers to its portfolio companies, aimed at enhancing their chances of success and to differentiate itself. According to Cory Bolotsky, “platform serves as the connective tissue for everything that occurs within a venture firm, from building and establishing a firm’s brand to drive awareness and dealflow, to supporting portfolio companies with specific operational challenges, to fostering relationships with key stakeholders that can enable all of the many parts of company building and investing”. Platform roles may vary by title but responsibilities commonly fall under six main categories: business development, community and network, content, marketing and communications, events, operations, and talent. VC Platform roles exist to scale support as investors spread thin as their portfolio grows in size and to differentiate themselves to attract first-class deal flow. Stephanie Manning from Lerer Hippeau, a NY-based early-stage VC firm, offers a breakdown of Platform roles and functions.

Figure 7. VC Platform roles and functions, Source: Lerer Hippeau blog, Visible VC

VCs typically narrow their focus to two or three out of these six areas, determined by their portfolio companies’ needs, resource availability, and brand strategy.
Platform strength and differentiation do not just happen organically for a VC firm. The firm has to be very intentional in developing a VC platform strategy, as all its efforts will prepare startups to exit successfully. VCs have to consider some key factors before developing a platform strategy: the firm’s investment approach including stage/vertical focus, portfolio size, investment speed, assets under management, and geographical reach; and its goals (priorities versus non-urgent areas, competitiveness and maturity of the funding and exit landscape, and its experience carrying out chosen strategic activities). Cory Bolotsky developed a ten-element framework, aimed at equipping fund managers with a tool to assess their platform strategy and determine where the fund stands within each category. A scoring scale, ranging from stage 0 (no support) to stage 4 (dedicated and validated support), evaluates the fund’s position in each category.

Figure 8. VC Platform Strategy Matrix, Source: https://platform.bolots.ky/

A few trends are noteworthy. Historic data, according to a 2023 study titled The Power of Platform, by The VC Platform Global Community, that surveyed 850 VC firms, show that at the pre-investment stage, platform roles primarily focus on marketing, community and investment operations while at the post-investment stage, there is a shift of focus towards talent, business development and more recently ESG compliance.

Figure 9. VC Platform Specialization per Investment Stage, Source: VC Platform Global Community

The same study also showed that a tailored platform strategy contributes to outsized fund returns. In fact, all 2010 to 2019 vintage funds that have the strongest Platform (on a No Platform to Significant Platform Scale) scored a Net IRR that is 1,100 basis points greater than that of those funds that have No Platform within those vintage years, and 390 basis points higher than the overall pool average. No Platform implies 0% of the core team, Moderate Platform about 10% of the core team and Significant Platform more than 10% of the Core team.

Fund returns from vintage years 2015–2019 illustrate that trend, with Funds with Significant Platform generating a 35.9% IRR, that is 32% higher than the IRR of funds with No Platform.

Figure 10. Funds Returns in correlation to Platform Strength level, Source: VC Platform Global Community

VC Platform Approaches across African VCs: similarities and differences

VC Platform roles are quite nascent on the continent, and the emergence of VC Platform roles in Africa mirrors the increasing popularity of VC as an asset class. As of Q1 2024, only a handful of African VC firms have developed a fleshed-out platform strategy. Several factors contribute to the limited presence of VC platform strategies on the continent, including the small size of funds, limited assets under management, and the nature of deals pursued (mostly early-stage deals). As of Q1 2024, less than 10 VC firms operating in Africa have a Platform role. Among these, notable firms include Venture Platforms, LoftyInc, Future Africa, EchoVC and Launch Africa, to mention some of them.

When comparing these VCs, several parallels related to the recent establishment of the role, the rationale behind its creation, the platform strategy development, and its significance come to light.

The Heads of Platform at these VC firms, while being industry veterans, have typically held the role for an average of less than 4 years. Their firms introduced this role while raising their second, third, or fourth fund, rather than at inception. The rationale behind creating the role was that they raised larger funds, equipping them with more resources while also requiring a structured strategy to effectively amplify support for their invested startups as the portfolio experiences exponential growth. The majority of these firms don’t have a definitive platform strategy. Instead, they are continuously refining their approach in response to their portfolio companies’ evolving needs.

Many of these VC firms are increasingly providing ESG and compliance support to their portfolios. This trend is fueled by factors like the increasing demands from LPs and the complexity and diversity of ever-evolving regulations across Africa.

“In VP’s case, for example, regulatory and licensing support is a key part of how we support our portfolio given that we have a large fintech portfolio and the regulatory landscape in countries where our companies operate can be complex to navigate.” Damilola Teidi, Head of Platform and Networks at Ventures Platform.

Each of these VC firms prioritizes a few distinct specializations within the platform area, yet their shared objective remains consistent: providing comprehensive support across their entire portfolio.

LoftyInc, an early-stage firm investing in seed to series A startups, for example, centers its support on marketing, community engagement, ESG, and compliance while ensuring that the portfolio support isn’t solely the General Partner’s responsibility but also extends to the wider fund team. The firm considers thought leadership/education its unique advantage.

“We make it our mission to continue to build the ecosystem as a whole and get potential LPs interested in the African ecosystem by our speaker engagements for example” Lydia Idem, COO and Head of Platform at LoftyInc. Attracting potential LPs to engage with the ecosystem and providing them with local insights might increase the likelihood and quality of startup exits on the continent.

Ventures Platform’s platform strategy emphasizes community and networks. Regarding community-building, it employs a dual approach — both offline and online communities. This aims to ensure that portfolio companies’ founders know and support each other. The networking aspect involves leveraging their networks and investor database to connect industry experts with portfolio companies for business growth whenever necessary. Its platform strategy also considers how to empower the firm’s staff in non-platform roles with platform-related skills and visibility into platform strategy (metrics, reporting) in order for Ventures Platform to offer holistic support to its 70+ startups — portfolio.

VC firms on the continent are also preoccupied by assessing the critical aspects of their platform strategy and measuring success. To achieve this, they establish specific KPIs aligned with their objectives.

One of the key metrics EchoVC Partners and Ventures Platform leverage to assess their platform strategy performance is the Net Promoter Score (NPS). Semi-annual NPS surveys and informal communications help Ventures Platform’s team obtain insights on the effectiveness of support offered to their portfolio. At LoftyInc, the key performance indicators (KPIs) approach center around assessing the platform team’s engagement with each portfolio company to understand their needs. Additionally, it evaluates the firm’s method of documenting this communication process.

Given how cash-constrained VC firms are and how fragile the financial economics of a fund could be, African VCs must ensure buy-in from their leadership i.e., GPs’ adherence to platform processes. They should establish a clear learning and development plan to grow more skilled platform experts who will provide superior support to portfolio startups and better prepare them for quality exits.

CONTINUING THE CONVERSATION: THE RORSCHACH TEST OF VC INVESTING AND SUPPORT IN AFRICA

Across Africa, the thinking about exits diverges among VC firms: some prioritize outsized exits, while others emphasize sustainable growth and impact-driven outcomes. This array of approaches highlights the importance of aligning portfolio startups’ objectives with VC strategies, ensuring a better trajectory towards success. As the ecosystem matures, and the number of VC firms increases, having a scalable approach to startups’ support will ultimately be the key to generating outsized returns but also for building a unique selling proposition for emerging and seasoned fund managers investing in African startups. However, given the magnitude of issues the continent is facing, African VC firms should seek to act as key enablers of growth, possibly raising from LPs willing to invest more patient capital in market-creating innovations. They are already expected to add concrete value to their portfolio companies and ensure the value creation is as aligned as possible with their portfolio startups’ valuation ultimately. Only by taking such actions can they disprove the now-infamous viewpoint of Aswath Damodaran on VC “So, VCs are traders. They’re not investors. They trade on companies and a successful VC is one who times a drive, times entry and exit drive. So, I would not shed any tears for VCs who lose money when the momentum goes against them because they make money when the momentum is in their favour. I don’t expect VCs to have deep thoughts about businesses because they’re interested in whatever metric will allow them to flip the company to other people at a higher price”. Let’s see how many will prove him wrong!

SPECIAL THANKS
I would like to express my gratitude to Idris Ayodeji Bello, Founding Partner at LoftyInc Capital Management, Kamal Hassan, Partner at Loyal VC and Keet Van Zyl, Partner at Knife Capital for their invaluable insights on startup exits and portfolio construction and management.
I would also like to acknowledge Damilola Teidi, Head of Platform and Networks at Ventures Platform, Lydia Idem, COO and Head of Platform at LoftyInc, and V. Chinyere Inya, Partner and Head of Platform at Future Africa for sharing their knowledge on platform strategies in the African context.
I would be remiss in not mentioning Cindy Ai and Mark Kleyner, Co-Founders and Program Directors at Dream VC for their precious help not only in refining the research topic but also in proofreading this article, and providing me with invaluable feedback.