October is a busy month for the City of London. Fresh from their summer holidays, business leaders convene for a series of conferences running through autumn.
The first three weeks are particularly frenetic for Africa watchers, with the Financial Times, African investment event Afsic, and the African Private Equity & Venture Capital Association all holding court in swanky London hotels.
The evolution of these Africa-focused conferences from talk shops for minerals and mining giants to hotbeds for venture capitalists investing in tech, reveals a trend towards new profit opportunities in frontier markets. Conversations with venture capitalists, particularly those investing and invested in Africa, are unfailingly intriguing. Where others see risk and governance failures, they see opportunities and markets.
There is something special about African venture capitalists. Their investment theses, risk appetite and ability to clear all sorts of hurdles hark back to the first venture capitalists of the early post-World War 2 years, when the French-American “father of venture capitalists” Georges Doriot was taking high-risk bets on ventures started by former soldiers. Now, the African venture capital sector is looking plucky, having enjoyed two bumper years with venture funding hitting a high-water mark of more than $5bn a year.
Despite the pandemic, rising interest rates and high inflation, the sector has delivered at least five unicorns in 24 months (venture capitalists must be doing something right). For more proof on the successes of the industry look to outfits such as Enza Capital and Novastar Ventures, both of which raised their second or third rounds. In just a few years, Enza Capital increased its exposure to eight African markets, making 48 investments in 31 companies — including clever bets on start-ups such as Guidewheel, a Kenyan climate tech company that has since expanded to the US and Mexico.
Target ratios
With the growth of this market plain to see, the beleaguered City of London is presented with an opportunity beyond its annual October Africa shindigs. The city should leverage its global pull factor with frequency and focus — connecting international financiers with African entrepreneurs in quarterly multiday engagements. Representatives from the continent’s various ministries of finance and trade should be invited too, as should companies such as the London Stock Exchange Group (LSEG) and British International Investment. For its part, the British government could assist in building out initiatives to support African venture capital funds, with a preference for those that deliver strong returns — economic and social.
Initiatives primed to lend their resources and network are British International Investment and the Commonwealth Enterprise & Investment Council. These development partners could target higher leverage ratios through blended financing structures, including renewed focus on an enhanced role for private insurance, partial guarantees and cofunding alongside philanthropies. These institutions could also support capacity building, within domestic finance institutions and in developing a pipeline of investable opportunities. A more radical approach would cause the transformation of the British International Investment from a development finance institution into an investment bank.
Despite recent news of China’s Africa debt financing reaching two-decade lows and a tough macro environment, Africa still presents private and public investors with the prospect of bumper economic returns. The cases of Flutterwave, Go1 and Paystack are just a few examples of bold venture capitalist bets that have since generated serious value. With perspective and a cursory survey of the entrepreneurship ecosystems in Kenya, Nigeria, SA and Ghana, Doriot’s aphorism is as true now as it was in the 1950s: “Someone, somewhere, is making a product that will make your product obsolete.”
• Nott works for a venture facility for public benefit and is based in London. He writes in his personal capacity.
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