Does your Africa Startup need Angry Capital?
Several years ago, Acumen Fund’s Jacqueline Novogratz made a name for her impact investment firm that many social Enterprises, particularly in Africa, needed patient capital. The premise being that many ventures were exploring unproven markets, bottom of the pyramid customers and quick returns would not be forthcoming. Patient debt and equity investments would be needed to develop these ventures and markets.
But as Africa begins to rise with a thriving middle class and appetite for goods and services let’s not forget or confuse that some Ventures can still access traditional venture Funding models. From Angola, Nigeria, Kenya to South Africa – there are real markets developing fast. There are not always easy to capture, but for the savvy, hungry entrepreneur, they are for the taking.
At a Saturday lunch discussion with Okendo Lewis Gayle of Harambe Entrepreneur Alliance, Alan Knott-Craig and two Savannah Fund Partners discussing the challenges of South African startups yielded an interesting insight. Alan , who once ran Mxit, Africa’s largest social network, said:
There is NOTHING wrong with the South Africa tech ecosystem, we have the talent and markets are developing in many sectors from ecommerce, financial services to Entertainment
African startups need more Angry Capital, the type of risk capital you often only get in Silicon Valley to take these startups to the next level vs what the money managers and local investors in Africa are seeking or expecting.
This echos what Paul Bragiel had seen advising a few startups including some in our portfolio looking to raise the next round of financing where he often gets very angry that the startups are not doing more to capture growth.
15% month on month growth is not good enough going forward in the same manner, you need to step it up to 40% month on month growth and raise a much larger round to capture this market quickly before others do. Be a leader!
When it can take 6 months to year to raise a round for a startup in Africa, why would you raise small amounts at a time at modest growth rates when you have 6-12 months operating history in a proven market? Sometimes local investors advise modest growth because they are not so knowledgeable or optimistic about pan Africa or global markets and don’t have access to follow on investor networks or are simply risk averse, but often the aggressive stance is needed to create a breakthrough opportunity. Startups are meant to be about growth, especially if you are branding yourself as not a social enterprise and are pitching to the growing number of serious global investors. Yes, global investors are increasing their appetite for Africa opportunities but consistently report that many ventures growth rates are not aggressive enough compared to other emerging markets. Many ventures get turned away for seed capital because the opportunity itself is not large enough to further access larger pools of capital that will get a startup to a position of exit. Startups in Africa operating for a year or so with consistent growth and proven stable teams should be thinking:
– how do I accelerate my growth rate with more capital so the business doubles every 6 months for the next two years?
– How do I expand to multiple countries cost effectively or how do I introduce new products or services that are within focus to further accelerate growth?
– How do I maintain my brand and differentiation in a global environment to compete and tap global capital vs relying on local capital alone?
Answering these questions will likely allow an Africa Startup to start thinking about “Angry Capital” over $1M. Make no mistake Angry capital is not intended for low growth Ventures (emphasis on purpose) or extra pivots for a stalling unproven market, but doubling down to reach aggressive game changing targets that further unlock “growth capital” pools of $10M+.
Ahead of the SuperReturn Africa investor conference next week in Cape Town, many fund managers often accessing billions of dollars of capital set aside for Africa will be asking these sort of questions- it’s one of the most important fundraising concepts startups need to understand when seeking venture capital beyond seed level- the mindset of “Angry Capital” investors. These Investors are not optimizing to not lose money in one venture, they are optimizing for going big or go home in a portfolio of ventures.