Why Venture Capital Firms In Africa Should Invest In Public Markets, A Journey To Crossover Funds
Introduction
There are only two exit paths in venture capital: the first is Merger and Acquisition (M&A) but let’s also add secondary market under it, and the second exit path is an IPO event.
In Africa, the IPO market for Venture Capital is simply non-existent. For our local stock exchange, no venture backed startups has for once been listed and the global stock exchanges like NYSE or NASDAQ, only a few like Jumia made it there but quickly fell from its rise of an all time high of $62/share in Feb 2021 to $3/share in Aug 2023.
The Golden Age of Venture Capital in Africa
With a projected population of 2.4 billion people by 2050 in Africa, and 400 million people in Nigeria by 2050, there seem to be a great upside in investing in Africa but currently only few startups are building in asset-heavy sectors like manufacturing, agriculture and mass item production which are areas that could employ millions of Africans as compared to software tech platforms which on a average employ between 100 to 500 people.
Two of African biggest and most sought out unicorns employ only a few. Flutterwave (300 employees), Opay (2,307 employees)
Out of the current startups been built in Africa after 2020, only a few are focusing on other industries, the rest are fintechs which was primarily driven by Stripe acquisition of Paystack which led everyone jumping on the bandwagon of financial inclusion.
Prior to 2020, it seems like the companies building in the fintech space have gotten more of the upsides and market share: Piggyvest, Cowrywise, Paystack, Flutterwave, Bamboo, Paga, Moniepoint etc.
As a high profile Africa-focused venture firm that started investing around 2015, you’ll have probably had some of these companies in your portfolio, which is by far the best vintage that has happened to the tech landscape in Africa.
Unlocking Alpha: The African Venture Capital Odyssey to Crossover Funds and Public Markets
In the bustling landscapes of the African continent, a transformative opportunity awaits, one that promises to redefine the trajectory of Venture Capital (VC) firms and catalyze an era of unprecedented growth. As the African Venture Capital industry strives to navigate the challenges posed by underperforming vintage years and a scarcity of successful exits, the concept of Crossover Funds and their embrace of Public Markets emerges as a beacon of hope, innovation, and alpha generation.
The African Venture Capital Landscape: An Odyssey of Innovation and Challenges
African Venture Capital has carved a niche for itself by nurturing and supporting an array of innovative startups across diverse sectors. These startups, often born out of ingenuity, determination, and a desire to address pressing challenges, form the bedrock of the continent’s burgeoning tech ecosystem. However, while the entrepreneurial spirit flourishes, the journey from seed funding to successful exit has proved arduous.
The African VC industry has encountered a unique set of challenges that hinder the realization of substantial returns. Underperforming vintage years, market volatility, and a dearth of successful exits have cast a shadow over the potential of VC investments in the region. Despite the impressive innovation and creativity displayed by African startups, the route to public listing has remained elusive for many, stifling the prospects of wealth creation and economic empowerment.
The Paradigm Shift: Crossover Funds and the Public Market Connection
Enter the concept of Crossover Funds — an evolution in investment strategy that seamlessly integrates the dynamism of Venture Capital with the stability and scale of Public Markets. Crossover Funds represent a visionary approach that transcends traditional boundaries, positioning African VC firms to harness a broader spectrum of opportunities and generate alpha in the face of challenges.
By venturing into Public Markets, African VC firms embark on a journey that unlocks a constellation of advantages. The strategic diversification offered by Crossover Funds acts as a shield against the volatility that may plague individual vintage years. This diversification, when synergized with the inherent stability of Public Markets, weathers the storm of underperforming investments, mitigating risk and safeguarding against financial setbacks.
Alpha Generation Amidst Unfavorable Times
Crossover Funds offer a transformative mechanism for generating alpha even when vintages are underperforming. While the African startup ecosystem brims with potential, the scarcity of public exits has impeded the realization of substantial returns. The fusion of VC funds with Public Markets creates a dynamic strategy that allows African VC firms to capitalize on the high-growth potential of startups while strategically investing in established public companies. This duality amplifies the prospects of alpha generation, ushering in a portfolio strategy that is both resilient and growth-oriented.
Pioneering a Culture of Public Listing
One of the notable challenges faced by African startups is the lack of successful public listings. The absence of tech giants on African stock exchanges reflects a missed opportunity for wealth creation, economic development, and technological prominence. Crossover Funds emerge as pioneers, carrying the mantle of nurturing a culture of public listing in the region.
By investing in Public Markets, African VC firms advocate for the importance of startups progressing to the public sphere. This advocacy extends beyond financial returns; it entails fostering a conducive environment for startups to mature and flourish. Crossover Funds, through strategic investments in established public companies, bridge the gap between startups and Public Markets, promoting dialogue, knowledge exchange, and a collective drive towards successful public listings.
Empowering Inclusive Wealth Creation
The transformative potential of Crossover Funds extends beyond financial markets. Public Markets provide access to a wider spectrum of investors, ranging from institutional giants to individual stakeholders. This democratization of investment access aligns with the broader goal of fostering inclusive wealth creation and socio-economic empowerment.
African VC firms, through their engagement with Public Markets, usher in a new era of financial inclusivity. This movement expands the scope of wealth generation, allowing a diverse array of individuals to partake in the benefits of innovation and economic growth. As capital flows into Public Markets, a ripple effect of empowerment is set in motion, fundamentally altering the landscape of African economies.
Champions of Pan-African Economic Resilience
The pursuit of Crossover Funds and investment in Public Markets transcends individual financial gains. It underscores the role of African VC firms as advocates and architects of Pan-African economic resilience. The infusion of capital into Public Markets across the continent strengthens regional economies, promotes responsible corporate governance, and encourages cross-border collaboration.
African VC firms, as champions of this movement, navigate beyond geographic confines, contributing to the collective progress of the continent. The alignment of Crossover Funds with the ideals of Pan-African economic unity positions African VC firms as catalysts for change, driving sustainable growth and collective prosperity.
Conclusion: A New Frontier of Growth
The journey of African Venture Capital firms towards Crossover Funds and Public Markets is nothing short of a new frontier of growth, innovation, and prosperity. As challenges persist within the African startup ecosystem, the visionary integration of Venture Capital and Public Markets offers a transformative pathway forward.
The paradigm shift towards Crossover Funds empowers African VC firms to generate alpha during underperforming vintages, overcome exit challenges, and champion a culture of public listing. Beyond financial gains, this movement fosters inclusive wealth creation and fortifies Pan-African economic resilience. The synergy between Venture Capital and Public Markets emerges as a catalyst for a future where African startups thrive, economies flourish, and the African continent ascends to new heights of global prominence.
