Investment Thesis Part 2 — What We Do or Don’t Fund. Ready for the Startup Journey

By Mbwana Alliy  |  February 19, 2014


We are currently in the thick of reviewing accelerator applications. Its a tough process filtering through almost 100 businesses and seeing whether they are a fit to work with us. About a year ago, I wrote a post about our investment thesis (Part 1). The main take away from that was to think about high impact and high growth vs lifestyle entrepreneurs in Africa. Recently, the Economist did an article that also articulates this well, we look for transformational businesses.  Entrepreneurs that see diamonds where others see the impossible.

Business plans and market analysis? No. Get on the Journey to Product-Market Fit
Plans are worth exactly the paper they are written on in the early stage startup world. Plans don’t get funded to succeed, traction and results do- at least for smart entrepreneurs that we want to work with. We have seen the best plans go to waste because startups can’t execute, inspire and grow a team. We have seen startups that think winning awards or having a conference speaking slot is traction vs talking to and working with customers. We have seen startups that spend most of their time talking to mobile operators and corporates vs solidifying their own product and getting customer feedback quickly.  The business plan is rigid and it only shows you might be good at writing, heck maybe its someone else’s business plan that you borrowed, cloned or worse that a consultant helped you write that you don’t even believe in. We believe in the principles of the lean startup (Eric Ries) and/or customer development (Steve Blank). Launch, don’t perfect, move fast, get early validation on key assumptions quickly.  If you rely too much on a plan, you are not dynamic enough to do a pivot when the world changes around you, or more likely your customers. The best market research is your own customer insight learnt by working on your business not something you researched from McKinsey reports or worse, CIA factbook on Africa. The best market research is when you have a customer who has paid you and is actively using your product, you should slap any consultant in the face when you can show them a repeatable cycle that brings in cash whilst keeping customers happy. In Africa, formal market research can be expensive and stale, so I embed a slide below around different methods of doing this- but its not substitute for 1st hand research as part of the startups. Mo Ibrahim was pretty crazy to launch a mobile operator business in Africa– there was no “market” for cell phones for cellphones in Africa right? Now Smartphones?

Market sizing for the africa startup from Mbwana Alliy

Startups, are a journey, with many twists and turns, to product market fit, where things take off- this is often where an accelerator can help- in the Savannah accelerator, we act as a sounding board by bringing on the resources, from iHub UX lab to the mentors to act as a compass guide- the best startups use these resources wisely whilst focusing on the business, not getting distracting- it is NOT AN MBA. If you are not learning something new about your customers and how to improve your product every week you are failing, if you spend the entire time in accelerator time launching and not getting any early feedback and traction you are failing- you are bound to run out of money by demo day and turn into a “zombie” startup.

Are you ready for the journey to product market fit?

Are you ready for the journey to product market fit?

It takes a team- a solid team- And it starts with a strong technical foundation
By far the biggest filter we have as Savannah Fund is the technical ability within a team- many startups outsource their technology to India or Eastern Europe, even worse some startups cobble something together in wordpress for the purposes of applying to the accelerator. We can see right though this, sometimes we will entertain the startup that has outsourced the tech for practical reasons and has been working on a full time CTO, but that’s the exception rather than the rule. It is possible to show a level of traction without a CTO, but before long that will start to catch up with you when you start to have bugs or need to rapidly pivot the business. A smart CEO will understand that outsourcing means managing “technical debt”. And in Africa, many startups simply won’t scale due to the sheer weight of the technical debt by not having a solid technical foundation. Of course, I am not blind to the fact that it’s hard to find qualified talent, having a great mission and good leadership can inspire great technical talent to join your team. So when a startup is doing something uninspiring like, cloning an existing business and no clear differentiation, they should not be surprised when they can’t attract a good technical leaders and talent. Having a good technical team means that you are well equipped for the ride and often at the end there is a product and maybe even IP to salvage, should things go wrong, most of the time you play the game again by pivoting vs thinking you are rebuilding the castle from the drawing board. Since every business in the future is likely to have a software component in it, this is an important issue for African startups to think about- if you don’t, someone from China, India or Silicon Valley will do so and come into the market. We believe that innovation relies on technical ability, in house ability, to cope with the startup journey.

Business Acumen = Traction and Adaptation

On the business side, its extremely simple- are startups solving a problem or addressing an unmet customer need? Are they doing this better than anyone else and the competition? Typically a unique customer insight or usage with key metrics acts as evidence beyond the idea and a pretty site or app. E.g. We signed up 100 customers, 50 come back every week and 10 are paying is better than 1,000 registered users who signed up the product after the one of many African contests or press articles. Sometimes its obvious when we sign up to use the product and it works like magic, but of course its impossible to test the product when its not even available in the market because some startups have “launch jitters”, which often

  • 1) stem from a shyness to launch by perfecting and going against lean startup principles or
  • 2) They don’t have the technical chops to release a Minimum Viable Product (MVP) and start measuring results early and validate customer need and assumptions.

Often the case is that entrepreneurs have outsourced core technology so they focus on perfecting for a big launch since they paid so much to developers that they want to get it right vs having a CTO on board that can change course on  daily basis as quickly as the “plan changes”. The reality is that many businesses don’t look exactly as they do in the business plan from day one, but its the ability to adapt from new learning that’s the environment that a good startup thrives.

Looking back at our 10 investments to date, this thesis has been remarkably consistent to those that are succeeding vs those who are struggling, particularly when it comes to generating revenue, an all important metric for raising follow on financing to keep staying in the game and to scale out. In future we will post more as to what lessons they have learnt that are unique to the African environment by sharing  it on this blog. Even as Savannah Fund, we learn as we go along with every new investment what works and we also urge investors to take more risks in investing startup traits that succeed for the journey vs perfect plans that are never really perfect.