The Next Frontier London: The Year of the African Scaleup

Thea Sokolowski | Sunday, February 11th, 2018

“There are 3 things the continent needs: 1 – cash; 2 – access to networks; 3 – mentorship and bringing people together; expertise alongside knowledge of the problems to be solved.” – Tomi Davies of African Business Angels Network

“We live in a distributed world. Talent is everywhere. We mustn’t underestimate that so long as we have a decent internet line, we can connect the world.” – Nicole Anderson, Partner at Redsand Partners

On Thursday, 8 February, leaders in the investment space gathered at SHACK15 Hub in London to discuss funding in Africa and what it takes to successfully scale on the continent, at our latest The Next Frontier event, in partner with TLA Africa.

MEST was joined by experts including Tomi Davies, Co-founder and President of Africa Business Angels Network (ABAN); Nicole Anderson, Managing Partner at Redsand Partners; Paris Petgrave, Founder at Rareseed Capital; and Timbo Drayson, CEO of OkHi, who shared his own fundraising and scaling story in a fireside chat with AB2020’s Akosua Annobil.

Timbo Grayson and Akosua Annobil discuss OkHi

Timbo Drayson of OkHi discusses the significance of inclusion and his fundraising experience

 

The evening kicked off with a discussion between Akosua Annobil and Timbo Drayson. Timbo discussed the motivation behind OkHi, a physical address system launched in Kenya, and his experience fundraising when the company launched.

Why OkHi

“It takes basically three phone calls for a driver to actually find you,” Timbo said of his impetus to start the company. “People have died purely because the ambulance couldn’t find them. This is a huge problem with massive impact.”

In terms of the mission driving the product: “Our mission is two words: be included.”

The platform works by creating a physical address system, complete with photos of the entrance to help guide anyone looking to find it, and this is tied to the resident’s phone number, which serves as their identity. “Give everyone with a mobile phone number a physical address. GPS helps you get close, but then a photo provides an accuracy point to tell people they’re in the right place.”

Why smart money is key for African startups

When OkHi was first fundraising, Timbo discussed his choice to avoid emotional connection by skipping friends and family and seeking out “smart money” from the beginning. “We wanted to get money from people with expertise either in the market or building businesses. Through our network we were able to get some amazing angels.”

In terms of growth, Timbo cautioned about scaling internationally too fast – which is often driven by investors. “People often think that if they can enter another country and do the same thing, they’ll grow. But there’s probably more growth you need to find locally first.” He stressed the importance of getting the model and ‘playbook’ right, before you expand into new markets.

African accelerators, the importance of expertise and why MEST is different

After discussing problems he saw with some initial incubator programs on the continent, Timbo briefly touched on the month he spent on the ground with MEST in Ghana. “I see MEST as different,” he said. “The education was there, and that’s what we all need as first time founders. I saw too many accelerators at the time jumping on the Y Combinator bandwagon, but giving bad terms with no expertise. I’m a big fan of MEST because of the expertise and investment in people.”

Tomi Davies, Nicole Anderson, Paris Petgrave at TNF

Nicole Anderson and Tomi Davies, moderated by Paris Petgrave, discuss the investment climate in Africa

 

Here are some key takeaways from the expert panel discussion on African scaleups and fundraising:

Angel investors in Africa face challenges from networks to investment education, to government support

ABAN in particular was started to address 3 things Tomi and his team saw as a vacuum on the continent:

  • To facilitate the creation of angel groups and networks, for every African city
  • Educate local people on the continent as to how to be good or smart angel investors
  • To engage policy makers to facilitate investment efforts on the continent

 

The span of investment interest is seeing an upward trend, in terms of asset class, size, and access through platforms

“There is a better spectrum of entry points into investment,” Nicole stated. “What’s encouraging for me is the world is looking for an entry point – both companies coming into the continent and rising stars finding a great platform to shine. The world wants les friction; any investor wants to go the shortest route.”

Paris added, “The door is wide open for investors to come into the continent.”

 

There are a number of challenges that need to be addressed when it comes to finding talent for companies at all levels

According to Tomi, we need to address:

  • Coherence in terms of what the need is: what is the need, and who is looking at the space to determine what that need is?
  • Research in the diaspora va local: we don’t have SFA R&D outside of South Africa. Nothing is happening in terms of research outside of SA
  • The problem sets you’re solving: are they city-based/local, regional, country-wide, continental or global?

“Dominate locally before you expand. Shining examples are MTN and Protea, both coming out of South Africa.”

 

There is massive potential for the crypto and token economy space on the continent; beyond access, it’s about wealth creation

“We’re seeing a fundamental shift in how fundraising will take place, because of blockchain and token economy models. The token economy is a micro economy based on a bartering exchange of a digital token. It can be used for financial exchange, but it can also capture values. We’re moving to public interest in investing in causes that they truly believe in,” Nicole explained, diving into the story behind Wala who seeks to use blockchain for financial inclusion.

“The important thing is that communities now can take control of the funding process, rather than very costly, very aggressive VC structures. I’m a huge believer in the good of crypto. Crypto is the biggest story for Africa’s inclusion. It’s not just about access; it’s wealth creation.”

Nicole referenced a recent blog post in which she dives further into explaining what the token economy is.

 

Any African founders looking to blockchain as a resource for raising capital needs to have a blockchain strategy and understand the economic model behind it.

“You need to build an economy on a blockchain,” Nicole advised. “Then you need to understand the economic model behind token utilities or the asset-backed nature of tokens. That becomes the proof point that this token is going to grow in utility in its virtual environment. Then you need to understand the token economy model. Then it’s pretty easy.”

“There’s a promise blockchain brings to the party that I think serves Africa well,” Tomi added. “Our single biggest challenge, which enables corruption is transparency, or the lack thereof. The promise of blockchain is exactly that.”

“Africa is culture; ignore it at your own peril.” – Tomi Davies, ABAN

 

In terms of exit strategy, acquisition is taking priority, or no exit at all. The world is gravitating toward annuity rather than big bang theory.

“The desire to go public is waning globally,” Nicole said. “What the giants used to return to investors was massive, and now you look at Twitter, etc and the return is nothing. It’s costly to become public; the destination IPO is fading. Technology has moved to such a distributed landscape of innovation. If I was betting, I would say exits are more about acquisition than anything else.”

Tomi noted the Western misconception that will not happen in Africa. “I think the whole concept of exit is fallacious on the African continent. What you can expect to start to see, rather than unicorns, is gazelles – companies with 20% month on month growth. Those are the investments I constantly look for. I’m not looking for that large scale payout but annuity returns.”

“Corporate venture is very interesting for Africa because it’s patient capital. VCs have a very different investment thesis. I’m not very positive, barring a handful, about VCs being successful on the continent,” Nicole said.

The Next Frontier African Scaleups in London

Keep an eye out for additional The Next Frontier events across the diaspora in the coming months, as well as our upcoming Funding Africa series. Like us on Facebook to stay up to date.