Event Recap

GetFundedAfrica Investor Forum Virtual Event Recap : Venture Capital Funding and Syndicates

Breakout session of GetFundedAfrica’s investor forum titled, Future of the Venture Capital Landscape in Africa.

Facilitator: Francis Sani

Panelists:

  • Chahir Fahmy, CF (VCs & Accelerators, Africa Transformation Office, Microsoft).

The session centred around the thoughts and expert projections of the panellists to the answers posed by the facilitator.

Q: What do you think about the role of venture capitals and accelerators in the next one to three years?

CF: In the next one to three years, ecosystem is evolving and developing really fast. I expect that venture capitals and accelerators would evolve and develop just as fast as the start-ups and founders.

Profiles of founders are changing across the continent. From Egypt to Kenya. From Morocco to Nigeria to South Africa. They are not just the fresh graduates anymore but mid-career or senior professionals from consulting to tech to family businesses.

Requirement from venture capitals and accelerators would be different; less handholding and more collaborative work to help change their mentality and harness previous experience to work for start-up processes.

Expectations also include venture capitals and accelerators would eventually become more specialized, maybe more targeted towards specific industries like fintech. Health techs are coming. Agric tech is important for our continent.

Venture capitals and accelerators would become more specialized, more industry focused or tech-focused in terms of specific technologies like machine learning, blockchain, etc.

Q: What, do you think, would be the role of accelerators and venture capitals in the next phase of start-ups, say in the next one – three years? Would they complement each other?

HD: It depends on how an accelerator positions itself, but also the range of expertise that exists within a syndicate. However, I image a world where they do complement each other. For example, Founders Factory Africa has an accelerator component but the way we structure it is from a venture-building perspective. So, we’ve built a team of about 20 – 25 individuals, all operator-focused. They’ve had exits in the industry and are really just delivering that knowhow and expertise in the industry to founders, alongside product and engineering, growth hacking, partnership and investment.

Obviously, that’s the role that I’ve seen a lot of accelerators across the continent shift towards, to be a lot more hands-on, non-program focused which means there’s a lot of hands-on expertise injected into the business to help them solve some of the challenges.

Syndicates, on the other hand, seem to have a stronger pool, more expertise on business development e.g. If I work in a big corporate, how can I tap into my corporate nature to facilitate certain introductions. I do think there’s a world where founders can sort of navigate a balance of skills required and leverage both accelerators and syndicates by just making sure to manage the cap table quite well.

It can be complementary with a lot of our founders coming into the program, we can understand the skill set of the existing investors, where the gaps are and operationally plug into some of those gaps.

Most often, it has worked out quite well and I don’t imagine any role changes. As founders look to expanding to new markets, think about how do you have a soft-landing from Nigeria to Kenya – very different markets, right?

I do think there’s space for both.

Q: Seeing a lot of founders starting their own syndicates and also investing actively. What are your thoughts on these developments and the impact on the ecosystem?

EA: Growth of syndicate groups on the continent is definitely a win for all of us. Founders who have raised funds in pre-seed, see or series A round are now becoming angel investors. I reached out to founders for a fund I’m raising and a lot of them welcome the idea. Having come from that background, they’re willing to give back to the community. It’s a new and good thing that founders are giving back to the community because a lot of the start-up founders from early on can see themselves represented from those who have actually made a success, a name for themselves in the start-up ecosystem. It can only be good for the community.

I hope to see more founders, even regular professionals, get involved as angel investors or potential limited partners (LPs) because we need more LPs. Angel investment is risky but

when you invest in a founder venture studio or accelerator program, you diversify your portfolio among many different companies versus hedging your bet on just one.

I think we can only go up from here.

Q: What role, do you think, is the start-up bill across Africa – Nigeria, Senegal, Tunisia, etc- playing in the growth of the start-up ecosystem?

HD: Since the start-up bill, it recognizes the top 5 regions for start-up deals. A lot of different start-ups, accelerators and incubators have launched despite the pandemic. There’s a lot of data to validate that the start-up bill in Tunisia has been quite a good accelerator for growth.

There’s also a ripple effect in terms of how the broader ecosystem grows. So, you’ll see a lot of talent development organizations. In Nigeria, you have Andela that builds world class engineering and software talent, and I think that’s the ripple effect of a growing tech ecosystem.

The second thing is better pathways for founders who want to build for a global market. InstaDeep is a perfect example, a Tunisian company that launched operations now in the EU. So, you know with significant series E raisers.

Just to balance the views. Nigeria has grown in spite of that type of legal framework. There’s no blanket statement. Each country would need to figure out the nuances relevant to encourage that growth within that country. Sometimes people grow in spite of it and other cases like Tunisia, you have to leverage the infrastructure towards lowering of the barrier to entering into entrepreneurship. Unfortunately, there’s no standard answer. I think it’s a little nuanced because we’ve seen two different cases across the continent.

Different strokes for different folks.

RELATED POST: GetFundedAfrica Investor Forum Virtual Event Recap: Soonicorns

Q: When you think about the next big thing when it comes to venture capital funding, what comes to mind?

CF: Blockchain. I think the next big thing might blockchain. Maybe not blockchain as we know it right now. Maybe not what we see, maybe something else; we’re just scratching the surface. But I think the blockchain as a concept can bring many solutions to many African issues and challenges.

Q: How important is it to have local capital?

EA: A lot of Africans are still hesitant towards taking the risk when it involves the tech industry. 90 % of my capital is coming from the US. Just a few Africans are involved. Not many high-net-worth individuals, friends or people are willing to invest in the business as angel investors, etc.

I fear that five years from now, when the rewards are reaped, not many Africans will be counted among those who profit. We need more local capital.

Q: Does local capital matter?

CF: From an emotional standpoint, we see the value of local investments but from a venture capital perspective, it’s not as crucial. However, I think it’s just a matter of time before local investors start to see the value of investing in local start-ups when they see them become a lot of success stories, when they see exits, unicorns.

In Cairo, we’re seeing that trend now. Most angel investors are local. It’s just a matter of time. It might not be that most of the venture capitals will be local but a bigger portion of them will be.

And I think that they could have some sort of added value because they’re part of the ecosystem, the local environment where the start-ups are located and would have a deeper understanding of what the issues are and, at the same time, speaking as limited partners (LPs), they could give confidence to other international or regional LPs to join.

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