What We Learned Interviewing 100+ African Investors & Entrepreneurs

(originally published on Faith-Driven Investor)

As a serial tech entrepreneur, I love the process of pivoting/iterating the next version of a potential product every 5 weeks. As an emerging fund manager, I received some great advice from a friend who’d transitioned into VC, “Yes, you can iterate on funds. But instead of 5 weeks, it might take 5 years.”

That motivated me to learn from experienced investors who’ve iterated. We asked them: what drives outcomes in early-stage ventures in Africa?  We interviewed 100+ Africa-centric entrepreneurs, investors, and LPs, took 900+ pages of notes, and synthesized our findings. We just released the resulting report: Chasing Outliers: Why Context Matters for Early-Stage Investing in Africa. Here’s a summary of what we learned.

Silicon Valley venture capital is largely a mismatch for most African ventures. The VC model works when the context has these critical ingredients: huge markets, high lifetime value of customers, efficient infrastructure to capture and retain customers cheaply, and plentiful investors at every stage of the business lifecycle. In most African markets (and actually in most markets globally), very few of those ingredients are present. Context matters.

Another important contextual element is time horizon. Things often take longer in Africa (and many emerging markets). Exogenous shocks — a shaky transition of power, a drought, a new head-scratcher regulation — are frequent. Relationships and trust take time to build. Also, an entrepreneur trying to solve problem A realizes she can’t unless she also solves problems B & C. How do you create the “Amazon of Africa” if there aren’t addresses? How do you loan money if there isn’t such a thing as credit scores? These foundational problems — reframed — are massive opportunities. Investors willing to look deeper into the context will be rewarded. But most overestimate what can be done in five years, and underestimate what can be done in 15.

Venture capital is like a race car. With smooth, straight roads, good weather, and a pit crew, you can get places fast. It’s a beautiful vehicle designed for a very specific purpose under very specific circumstances. But too often, too many have copy-and-pasted it into other arenas too widely.

Nonetheless, we are quite encouraged by the entrepreneurs and investors who are innovating within these realities. One fund’s primary investment thesis was companies that solve those “problems B & C” — reducing the friction of doing business. Some are innovating around fund structure and instruments used. Some are innovating how due diligence is done so that smaller $50-500k checks can be written in more sustainable ways. Some agri entrepreneurs are pursuing end-to-end vertical integration to build unique moats. I’m not surprised and excited to see that the early-to-growth stage African funds here at Faith Driven are utilizing innovative structures (e.g. Talanton and Future Africa). A significant new wave of entrepreneurs and investors will succeed massively in Africa, as they respect context, think longer-term, innovate in the right sequence, build great teams, and execute with resilience.

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