A Different Kind of African VC

Venture Capital has to change. The dominant model (best exemplified by Silicon Valley) ensured its own extinction by drastically driving down the cost of creating and scaling new businesses. Here are the three main things that are required: time; money; and people.

The Time to Build a Business

The methodology is there. Lean Startup — or some modified version of Lean — is unquestionably the best (or the least worst) way to find a repeatable and scalable business model.

The Money to Build a Product

Software is cheap or free. Rapid prototyping of hardware is cheap and much faster than it used to be. And when you scale up hardware, the supply chain to build a product is way easier to negotiate than it used to be.

The Ability to Recruit a Team

There are amazing communities of entrepreneurs and aspiring startup employees spread across the globe. A passionate and gifted founder will be able to find who he or she needs.

So what?

In Silicon Valley, the main cost of starting a business is labor. People. Why? Because a bunch of folks are pouring into the Valley each year, each with enough money to drive up the cost of living.

I decided to raise a fund to target the next generation of urban entrepreneurs in frontier markets beginning in Lagos, Nigeria. I assumed that I would need capital to invest in the companies, which would secure me equity in them.

It turns out that is not a good assumption. The cost of labor is low in Nigeria. That means the cost of getting to a repeatable and scalable business model is also low. There is no reason to invest a substantial amount of money in a Nigerian company. None.

How else can I secure equity? By offering an evolved version of the Entrepreneur in Residence position.

Give an entrepreneur the stability of a good (75th percentile) salary for a year. Give them legal support. Give them an accountant. Help them network to find the right founding team. Introduce them to potential customers. Advise them through the process. And take a small (probably 10%) stake in the company when it spins out after a year.

So…now I have to ask myself: Do I actually want to go through all the hassle of raising a fund? Or should I just focus on the seed stage, where I can already invest in multiple companies every year, funded purely from the profits of my other businesses.