Shifting the culture of African VC
Today we announced the final close of the TIDE Africa Fund, with over $70m dedicated to bring global standards of commercial Venture Capital to African entrepreneurs, as a means to support them in their value generation journey, as they leverage technology to deliver innovative business models to a largely underserved market.
When we started investing in African startups more than ten years ago, from funds that were not focused on Africa, the opportunity to raise a dedicated African VC fund became increasingly clear. However, despite the business nature of gigantic markets that laid before us, the brilliance of local entrepreneurs and the possibilities of technology, there was a stark contrast between these factors and the limited availability of capital. The main source of financing available to startups came from social entrepreneurship and impact investing.
Our VC experience in Europe, Israel and the US made it clear that Africa was being forced into an impact narrative that only addressed a small subset of investment opportunities. The real, game-changing upside for Africa — just like anywhere else — was instead in the combination of private capital and local entrepreneurs with a superior understanding of the large local problems. They also possessed an ability to design and execute business models that could have a real chance of solving these problems, after too many years (and too many billions) of ineffective global aid. The real lasting impact — on employment, inclusion, and the ability of local entrepreneurs to be in charge of their own destiny, without “instructions from the West” — would come as a consequence of local leadership able to compete in global capital markets for funding, based on the merits of the size of the opportunities and validity of the business solutions.
We talked to hundreds of local entrepreneurs, across SSA, and concluded that the strictest standards of global VC could very successfully be applied to Africa. One in every two hundred entrepreneurs — just like anywhere else — was boldly and effectively attacking gigantic (and impactful) opportunities with technology and superior business models. We selected some of them: Twiga Foods in food security, Andela in engineering-as-a-service, uLesson in education, Kobo360 in logistics, Ajua and Terragon in catalysing entire consumer facing industries, from FMCG to Banking to Telcos, that have very little data-driven understanding of the African consumer.
At the same time, our research found that hundreds of entrepreneurs were failing to scale because of two fundamental barriers. The first was limited access to capital, which resulted in unexciting business plans with limited upside and limited capital requirements. The second was the need for talent and mentoring, as many of these entrepreneurs — just like anywhere else — had never gone through a cycle of scaling, failing, and being supported in the pursuit of high-risk, high-return ventures. But in Africa, these challenges were amplified by a fledgling ecosystem and a scarcity of angels, talent and VC support. The creeping pressure to look like Silicon Valley exacerbated the dynamic with hype and unrealistic valuation expectations.
An excessive focus on impact or hype fails to recognize the enormous substance of Africa as an investment opportunity. In fact, global private capital is starting to move into Africa, to the extent that it finds fast-growing sustainable businesses led by entrepreneurs with a high level of ambition. Andela, Twiga and Kobo360 alone managed to attract more than $150m in recent rounds from global investors like Goldman Sachs and Generation Fund, on the expectation that they can generate world-class returns.
Similarly, the exit market is catching up with the nascent African VC space, and is ready to monetize properly-funded, fast-scaling businesses. From our own portfolio, Upstream was acquired by Actis and Movirtu by Blackberry, generating significant returns and providing evidence that a value generation narrative is fully applicable on the Continent.
At a size of approximately $1bn, African VC is still small and early compared to more developed ecosystems. It is up to VC funds and entrepreneurs to focus on value generation to raise the profile of Africa as an attractive investment opportunity on its merits. There is no need to over-emphasize social impact or to borrow a delusional and superficial narrative from Silicon Valley — just like anywhere else.
