South Africa Summit Advises Venture Capitalists to Invest in Locally-Adapted Businesses, Instead of Chasing ‘Unicorns’

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The Africa Early Stage Investor Summit, a high-profile event that was held in South Africa this November, has established that venture capitalists (VCs) should focus their efforts on locally-adapted businesses in Africa and avoid chasing investments that are based on the Western model.

The two-day Summit, which was organized by Venture Capital for Africa (VC4A), an organisation that connects African startups to opportunities, found that investing in Africa requires an African approach.

South Africa’s Cape Town welcomed over 300 active and aspiring investors representing Africa’s early stage investing ecosystem for the event, which was organized by VC4A and the African Business Angel Network (ABAN) a Pan-African non-profit association.

Celebrating its fifth year, the summit attracted the highest ever number of early stage African investors from 35 different countries, and more specifically 25 African nations representing over 110 investor organizations to share expertise, experiences, and fostering collaborations to bolster the ecosystem of capital provision for African entrepreneurs.

One of the key takeaways from the two-day Summit was that Silicon Valley will not be replicated in Africa. Though there are lessons to be learned from the Valley, African VC faces unique constraints in scale, capital and exit opportunities. Rather than spend time ‘unicorn hunting,’ investors should push founders to build profitable, sustainable, and locally-adapted businesses.

A unicorn is a privately held startup company valued at over $1 billion.

The second takeaway was that collaboration is required to build a thriving industry. Investors must be activists in attracting more capital and resources into African markets, especially from larger corporates, growth equity investors and development finance institutions (DFIs). More collaboration is needed in designing instruments and financing structures tailored to African ventures.

The third takeaway was that human capital and diverse teams will be a key to success. In the coming decade, Africa will hold the majority of the global youth population, bringing a wealth of opportunity and innovation. Yet accessing strong talent and building diverse teams remains a stark challenge for most ventures. Investors want to see more female and locally-led organizations with thoughtful human capital strategies.

“It is easy to invest money in Africa right now, but it is hard to make money in investing here. The key is to be exit centric – we only invest in entrepreneurs who are focusing on building sustainable businesses that can exit,” said Keet van Zyl from investment group, Knife Capital during the opening panel discussion.

“This conversation succinctly captures the challenges venture capital faces in Africa and why we need to keep working to strengthen and support the entire African venture ecosystem,” commented VC4A CEO, Ben White.

Also speaking at the event was Babajide Sodipo, Regional Trade Adviser with the African Union (AU), who announced a new partnership between the AU and ABAN formalizing their joint ambition in supporting entrepreneurs and SME’s across the continent.

“It’s amazing to see this industry rise in Africa. The passion and commitment shown by speakers and participants alike to partner with entrepreneurs to unlock the continent’s opportunities demonstrates how much there is to still achieve and I have no doubt that this ecosystem will prosper,” concluded White.

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