It wasn’t so many years ago that there was a significant shortage of any kind of investor at all within the African tech space, a situation that has been righted since. The biggest VC firms in the world are now active, the local VC ecosystem is growing quickly, and, perhaps most importantly of all, successful African founders are starting to pay it back into the ecosystem.
The year 2021 was a record-breaking one for African tech startups, with 564 companies securing over US$2 billion worth of investment. If you look closely at the list of investors – 771 of them were disclosed – a number of names jump out, ones that you would have gotten used to being on the other side of the table. And the trend of Africa’s most successful founders becoming the investors has only continued in the first couple of months of 2021.
Key among them are Paystack CEO Shola Akinlade, a recent investor in the likes of Earnipay, AltSchool Africa, Casava and Edukoya; Flutterwave’s Olugbenga “GB” Agboola, who has backed the likes of Remedial Health, Duplo and Payhippo; and Agboola’s fellow Flutterwave co-founder – and Andela co-founder – Iyinoluwa Aboyeji, who has been prolific via his Future Africa fund. Yet there are many more experienced founders doing the same across the continent.
Profit + altruism
But why are successful founders ploughing capital back into the ecosystem. Grant Brooke founded Kenyan agri-tech startup Twiga Foods back in 2015, scaling it quickly and raising significant capital before departing as CEO in 2019 to focus on other things. One of those things is investing, with Brooke being an LP in a few funds focused on African markets.
“Then when they bring up a startup in a field I feel like I have extra domain expertise I’ll follow with a direct angel check from myself. Sometimes I also write checks in LatAm and MENA for companies tackling problems I’m familiar with. Mostly I’m trying to leverage my experiences to make wise investments, where I have an advantage, and to help the entrepreneurs succeed,” he said.
He says being altruistic and seeking returns on his investments are ultimately two things that go hand-in-hand.
“We need to make profits to keep doing this, of course. But also, I think our generation of startup founders on the continent are some of the best mentors and support for the teams just starting today,” Brooke said.
Babs Ogundeyi is a busy man, running Nigerian fintech Kuda while also being an investor in the likes of Casava, Edukoya, Kippa and Mono. Like Brooke, he says he can bring more than just capital to the table.
“I provide advice based on my own experiences. I am a founder, I know how difficult things can be. There is a social element as well as a commercial element to it,” he said.
There to help…
Aaron Fu runs Sherpa Ventures, an early-stage Africa-focused VC company that counts a number of successful founders – including Brooke – among its LPs. He is well-placed to speak on this subject, with Sherpa playing a key role in helping founders re-invest in Africa’s startup ecosystem.
“We’ve heard time and time again from founders that are starting out on their investing journey that they’d do a tonne more deals if they had more time to source and to do due diligence, and so that’s the gap we’re looking to fill. Our team reviews hundreds of deals each month, and does the groundwork to diligence them before taking them to investment committee,” he said.
“Of course there are a tonne of founders out there who have incredible brands and personal staff which help organise and process deal flow. Those stars are constantly doing an incredible volume of deals but most of our own founder investors prefer a quieter profile and sometimes don’t yet have the resources – or desire – to run a private investment team.”
The desire to invest is certainly there, however, and it is continent-wide. Local founders have increasingly become investors in Nigeria, the likes of Brooke are active in Kenya, and in South Africa there is a prominent group of successful founders who have turned their hand to investing. One of them is WooCommerce co-founder Mark Forrester, who has made a handful of local investments and tries to play an active advisory role.
“I’ve also turned down many opportunities, and taking the time to explain why, being honest about their business or stage of business they are in, and wherever possible plugging them in to the right channels is important,” he said.
Fu cites three primary motivations for founders.
“One really is that they’ve seen the return potential from startup investing first hand and are looking to diversify their portfolio beyond holdings in their own startup. The second, and far more common one, is wanting to share the learnings they’ve paid sometimes heavy price tags to gather over their own journey with another set of founders. Finally, less commonly, explicitly mentioned is a desire to learn about fresh new approaches and technologies from our founders and maybe even look for ways to partner up with the portfolio,” he said.
Giving back, adding value
The value an experienced founder can add to an early-stage startup, especially in their own sector, is immense.
“They’ve seen first hand what it takes to build a Series B – C company, the pitfalls along the way… They’re not reading from a playbook about how to implement an ESOP, they’ve implemented the best ESOP they knew how to at the time, which had its own flaws, and can share how they would do it if they were to do it all over again,” said Fu.
“These are founders who have not only entered new markets, but also left them, these are founders who have had thousands of investor calls and can share first hand tips of how to get over the hump of the first 100 rejections. Having experienced founders on your cap table is especially value adding to first time founders, helping scale up their organisations embedded knowledge base rapidly.”
Brooke says it is about giving back.
“A lot of people helped us in building over the past several years, now it’s great to be in a position to do the same, however small it is,” he said.
“I’ve made a lot of mistakes. And if I can help an entrepreneur not repeat them, they can move a lot faster.”
Abdul Hassan, CEO of Mono, writes small cheques for early-stage fintechs, and has backed the likes of Duplo and Grey. He echoes Brooke’s words.
“Someone wrote me a cheque of US$100,000 without a website, incorporation or any tangible thing, but he believed in me when nobody did. I want to be able to do the same for smart entrepreneurs,” he said.
Forrester too…
“I think having found relative entrepreneurial success one must realise you are a lucky outlier, and your journey, networks and learnings are massively valuable and sometimes course altering,” he said.
“Having walked in founder shoes often gives your opinions gravitas, helps shape trusted relationships, and forms a basis for well-rounded views on startup health. VC and entrepreneurship is often misaligned in terms of what success and failure might look like.”
A mature ecosystem
The fact this virtuous cycle has been created in Africa, mirroring trends we have seen in more developed ecosystems, speaks volumes as to the growing maturity of the startup ecosystem on the continent.
“Five years ago, it was “where are the exits?” and now we’ve started to cross that bridge, we’re seeing unicorns, and we’re seeing founders spin out of well-known start-ups ready to solve problems they’ve lived. At least for me, I’m investing in problems I’ve seen firsthand, and experienced, and know the value in solutions for,” said Brooke.
Ogundeyi agrees this is a positive development, and hopefully we will see more.
“It takes someone that has created value from scratch to truly believe in the ability of another to create value from little or zero,” he said.
For Fu, it is “incredibly exciting” to see this activity ramp up.
“It feels like we’re only one or two years away from an early-stage funding ecosystem that is primarily driven by capital from experienced founders, either directly or indirectly via their funds they’ve invested in or roles as advisors and partners at global venture funds,” he said.
