Africa needs to show a consistent flow of successful exits if it is to achieve an active investment landscape comparable to those in the US and Europe, according to Oliver Drews, chief executive officer (CEO) of Clifftop Colony Capital Partners.
Speaking to Disrupt Africa, Drews said there is a failure to connect business and capital which is particularly prominent in Africa, and which needs to be bridged in order to develop the investment ecosystem in Africa.
“There is a disconnect still between business builders and capital allocators. This asymmetry obviously exists all over the world but is particularly prevalent in Africa, where the financial infrastructure of channeling different types of capital are underdeveloped and where asset classes still need to be established. The raison d’etre for our business is that we try to bridge this as well as possible, but it is a Hercules task,” Drews said.
According to the CEO, a string of successful exits would be necessary to capture the attention of the international investment community, and to create an African startup and investment hub.
“In order for Africa to overcome this [disconnect], we need to show a consistent flow of successful exits, not only for the business owners selling but also for the investors buying into these opportunities,” Drews said.
“In my view, Cape Town/Stellenbosch alone, if it wants to be a hub for startups, noticed by the international investor community, needs to produce 3-5 exits of over ZAR100 million (US$8.59 million) per year, where the acquirer is seen to make serious returns. At this point, we are still far away from that.”
Drews believes African assets offer huge opportunities for the future, however the potential of African businesses is often hampered by the difficulties in creating a balanced team with the right skill-sets to grow the company.
“Owning African businesses and having exposure to African assets will present phenomenal value opportunities for a very long time. However, one of the main challenges remains execution and creating balanced start-up and business building teams,” Drews said.
“A good start up team covers the broader business building aspects of product, sales and finance. In many cases I just see specialised project managers,” he said.
“The other issue I see that teams underestimate the capital required in most business plans to build something substantial. Hence they don’t focus enough on early-stage valuation and then are faced with heavy dilution further down the line. Not enough emphasis is placed on the corporate finance aspect of building businesses.”
Drews also notes the lack of focus on structures, processes and “housekeeping” is another factor hindering African startups from being sustainably scalable.
