Reflections on Dream VC Panels: The Development of the African VC Ecosystem

Insights & Key Takeaways from our 2022 LIVC Fellow Nicholas Chukwudike Anakwue

Dream VC’s First Panel: Feelers on the Future of African VC

In what was characteristically a high-octane virtual session, this year’s Dream VC cohort kicked off its distinguished panel meetings, with perspectives from a unique blend of professional experiences. And so, the Sunday evening meetup featured Eghosa Omoigui, General Partner of EchoVC, Adesuwa Okunbo Rhodes, Managing Partner of Aruwa Capital, and Stephen Deng, Partner and Co-Founder, DFS Labs and Sufficient Capital, rubbing minds together on the topic: Development of the African VC Ecosystem.

Moderated by DreamVC’s exceptional co-founders, Cindy and Mark, the discussions precipitated the most remarkable perspectives on Africa’s growing venture capital (VC) ecosystem and the opportunities for the future on the continent.

Pivotal moments: Skyscrapers, infrastructural groundwork

For an ecosystem that is relatively young, despite the explosion of activities in recent times, the question of where the future lies for African VC is what occupied the center stage of discussions during the panel. Identifying pivotal moments in the evolution of African VC, Eghosa hinted at the striking analogy of the ecosystem with that of a skyscraper. One can easily see from the surface-up, the magnificence of the structure, but face the temptation of underappreciating the time and effort taken in building the foundations. This necessity of getting it right from the get-go cannot be understated.

And so, Stephen identified the role that infrastructure building had in creating the foundations for other services and products to emerge.

The panelists agreed that the point at which the large accelerators entered the VC ecosystem in Africa was also pivotal. However, this has been much of a mixed blessing, for while it has propelled more capital into the African market, and offered the leverage of networks for founders, it has become an unnecessary success symbol. This allows room for the festering of CEO hubris which is also a precursor to startup failure.

The speakers further stressed that while Africa was the last continent to discover VC, the continent’s founders appear to be losing a critical advantage — capital efficiency. In a bid to model a $22 trillion market — Silicon Valley, most African founders appear to have discarded this differentiating aspect that can crucially enhance startup survival on the continent.

The biggest challenges to increased collaboration and growth

One significant challenge for collaboration is that of mindset. In regions like the United States, the operating philosophy is generally that of ‘build or buy’, which paves the way for easier mergers and acquisitions, other than what is obtainable in Africa. Companies, according to Eghosa, on this side of the divide, approach everything with the ‘we can do it ourselves’ mentality, or the ‘since you are doing it, we will destroy you’ mindset. These, he emphasized, are limiting and forcing Africa’s hand to miss the boat on effective collaborations and growth.

The speakers highlighted the prevailing challenge of gender equity gaps that still bedevils the African ecosystem. Adesuwa pointed out the imbalance in capital allocation, with few funds run by women (with just about 16 of these closed by 2022), on a continent where women make about 50 percent of the total population. Even more alarming, she stated, is the fact that last year, which was characteristically a dynamite year for African startups, female founders raised less than 1 percent of total funding to the continent.

As she further pointed out, the perception VCs sometimes have of female founders differs remarkably from those of male founders.

“While a young male founder is described as young and promising, a female founder of similar age and exposure is described as young and inexperienced,” Adesuwa said.

The task of bridging the gaps in funding for women, therefore, is equally compelling as they are timely. The speakers agreed that it would be unfair to leave the burden of straightening out this situation to only women-led funds. As Eghosa pointed out further, the #GeorgeFloyd moment has come and is fast going, and we are getting to a point, as more underrepresented persons/people gain greater access to funding, where we’d let down our guards again. We must be wary of falling back into inertia.

Africa-wide expansions: Good or bad?

As more businesses in Africa continue their growth trajectory, many founders are thinking of pan-African coverage. Stephen expressed the pressure that most founders feel on the continent to showcase real traction by expanding earlier than expected. Some of these choices are made ignorant of the difference in infrastructure between African countries, the peculiarities with regulatory red tape, the uniqueness of customer bases, as well as the competitive advantage that local players already possess.

He stressed the need for these businesses not to jump on copy-and-paste models, but to dig deep into the needs of their local market. Asking the crucial question, Eghosa posed:

“Can we cite up to 10 companies that have done a good job at pan-African expansion?”

The important thing, as Stephen continued later, is to drill down to the basics within the niche that a business serves. The business has the onus of doing the needed groundwork to get the business rolling and delivering value.

“There is no app store replacement for the work,” Stephen highlighted in clear terms.

Investments, Growth and Exits

Eghosa expressed the lack of enough focus on risk on the continent, particularly with regards to ‘source of money’ risk. He pointed out that founders have to be wary of who is on their cap tables, and do the required due diligence for investors as well.

The panelists also emphasized that the 10-year model does not always work for Africa’s markets, with Adesuwa suggesting more innovative and open-ended structures. Eghosa particularly identified sectors like AgriTech and HealthTech that may require 20-year fund structures instead. Due to market peculiarities in Africa, there is a proliferation of ‘full stack’ businesses that build everything, requiring more time and money.

As Eghosa continued, sounding the importance of persistence, “It takes 20 years to be an overnight success!”

The only important validation for a startup founder is building a product with a successful outcome. And this comes with years of diligent effort and commitment.

Final Notes: Steadying the Course for the Future

In what had been much of an eye-opening session, the speakers had done justice to many of the questions that occupy the minds of stakeholders in Africa’s blossoming VC ecosystem. Their final words of advice for wannabe VCs are as compelling. They all agreed that while VC is an interesting sector, in Africa, it is still quite young. There are still not enough precedents. There will be disappointments and setbacks, Adesuwa echoed.

However, the best investors, as Eghosa pointed out, have excellent judgment. For him, experience is key. As he continued, to become a truly industry-leading VC, as much as 8 years and $30 million of investments may be required to hone experience and judgment.

Full writing credits of this Medium article go to Nicholas Chukwudike Anakwue