Venture Capital Funding in Africa
TLA Africa recently organised a Panel discussion on Venture Capital Funding in Africa. The event was third in the @TLAAfricaSocial series, and was held at Huckletree on 13 June, during London Tech Week.
INTRODUCTIONS
The event was Organised and coordinated by TLA Africa co-Leads, Akosua Annobil and Emem Usanga.
Emem introduced the event with background on TLAAfrica. Tech London Advocates Africa is a network that works to solve common issues within the tech ecosystem to make technology transfer and business between London and Africa easier.
Callum Swanson @DLA_Piper the event sponsor, gave a welcome speech and background. DLA Piper is a global law firm with the legal expertise to support Africa specific deals. They recently advised Cellulant Corporation, on its series C equity capital raising from The Rise Fund, Endeavour Catalyst and Satya Capital.
PANEL BACKGROUND
The panel background of speakers to talk about the funding in the African context. With representations from both sides of the table.
Bnkability is an intelligent learning platform with a recommendation engine that recognises, defines and designs bankable projects. They focus on getting African businesses Investor ready.
Chanzo Capital is a growth capital firm investing both capital and mentoring in high-tech startups and scaleups in Africa’s digital economy. They invest between $500K and $5M from Series A to C.
Omidyar Network is a philanthropic investment firm harnessing the power of markets to create opportunity. They use an impact investment model for advancing social good at scale.
Gebeya Talent is a Center of excellence for African software engineers. Building self-sustainable ecosystem that trains hires incubates African software engineers and provide an online workplace for top IT talent.
Asoko Insight is Africa’s most comprehensive corporate information platform. Global users access Asoko’s online database to research thousands of Africa’s top private companies for KYC, trade and investment purposes.
PANEL DISCUSSION
Venture Capital Funding Panel discussing The Perils vs Security of VC Funding
Panel (L-R)
Emem Usanga [Moderator] Founder @bnkabilityAFR
Eric Osiakwan Managing Partner @ChanzoCapital
Yaw Mante Investment Associate @OmidyarNetwork
Amadou Daffe Co-Founder & CEO @GebeyaTalent
Rob Withagen Co-Founder & CEO, @AsokoInsight
The Panel was expertly moderated by Emem who led through questions and topics seamlessly and enabled highlights and objective points made by the panelists. Main subject areas covered as below;
VENTURE CAPITAL
1] A difficulty is that some VCs don’t understand the market or challenges, so best to look for VCs that can bring value, however these can be hard to find.
2] For VCs there are success and pitfall stories. @eosiakwan shared a success story of a startup Chanzo Capital has invested in (See Case Study).
3] There are issues of VC understanding the market and this requires education, through interaction with startups and the ecosystem. Also important to note the political issues and uncertainity in Africa can be an obstacle.
4] Limited Partners (LP’s) are investors in a venture capital fund, and they require legal systems with redress for disputes. Investment world is people centric and startups need to build relationships.
5] It’s not all about VC Funding, Asoko has had results from approach to Family Offices and High Networth Individuals (HNW). This works better when synicate approach is used.
6] Deal flow is an issue and the foreign exchange risks are a disincentive, especially after Seed funding since the FX risks become significant at Scaling. There is a need for a mechanism to minimise FX risks.
FUNDING ECOSYSTEM
1] Corporate venture is important for Africa because of their capacity for patience and skills transfer, which traditional VCs still struggle to deal with.
2] Essential for startups to build traction to support funding requests, however a big issue is the lack of a developed value chain of funding compared to other markets.
3] Challenges are high risk market, with a funding ecosystem that is still growing. However there are attractive niche sectors e.g. Fintech – @theflutterwave funding round was oversubscribed.
4] Omidyar Network takes a philantrophic approach, with imapct investment for social good and they have helped to create sector change and bring in other investors. They take a patient approach with reduced emphasis on returns due to their focus on social good.
5] There are Funding gaps and lack of value Chain in contrast to Silicon Valley, where the Funding ecosystem and chain is fully developed. African Market is at an evolutionary stage in terms of funding, with similar challenges compared against SE Asia and S America
6] Cost of Capital is an issue, there are short-term incentives in the African financial market that pull away from VC funding, since startup is long term strategy. e.g. Borrowing rates of 15 – 25% from Banks are a barrier to Startup funding.
STARTUP ECOSYSTEM
1] The ecocsystem is still growing, and some startups have no experience dealing with VCs.
2] There is a need to prove your thesis, show deliverables and deliver double digit returns.
3] The lack of exits and entreprenurs who have gained valuable CEO experience and capital gains is also a handicap in the funding ecosystem.
4] There are tax incentives in the UK for Investors, e.g. SEIS which gave tax breaks for Angel Investment and this Government policy needs to be replicated in Africa.
5] Early stage failures are high and Chanzo Capital explained their experience from the 12 startups portfolio investment (since 2015) and issues with traction and revenue. e.g. @TerangaSolution since 2013 and revived in 2017 due to a proven product concept with Sheraton Hotel Senegal which gave good learning cycle. They subsequently got a contract with ‘Destination Senegal’ and have a recent merger deal (see Case Study below).
6] Most African economies are Import dependent and this affects the fiscal policy approach taken by Governments. e.g. @InterswitchGRP had to pull out of a significant IPO/Exit, which would have helped it gain Unicorn status, however Nigerian foreign exchange policy changed beforehand which devalued their offer and they had to postpone.
CASE STUDY
1] Last month saw the merge of African and European traveltech startups @HotelOnline and Senegalese @TerangaSolution to become frontier market leaders. Chanzo Capital is an investor in Teranga Solutions
https://buff.ly/2H7kEHW
2] It is necessary for startups to hit targets and gain traction and also use swift test of VCs using pitchdeck. Proof of concept is important and Series A can be a tricky point, without lack of reference points. Asoko got seed rounds $1.4 Million and $3 Million also $3.6m for Series A, from institutions & investors (Total $8M). https://bit.ly/2yjvWtJ
3] Gebeya talent raised $1m from their seed round and $6M from Series A (Total $7M). They are currently looking at raising more Capital but need traction and benchmarks. https://bit.ly/2JXJY5m
LBAcademy is a UK Business Growth Hub that provides digital skill and talent training to Tech & Creative Startups for high growth.