Magazine article African Business

'It Takes a Lot to Grow Startups from Nothing': The Regional Head of Venture Capital in Africa at the International Finance Corporation, Talks to African Business about His Organisations Work in Supporting African Startups

Magazine article African Business

'It Takes a Lot to Grow Startups from Nothing': The Regional Head of Venture Capital in Africa at the International Finance Corporation, Talks to African Business about His Organisations Work in Supporting African Startups

Article excerpt

Development finance institutions (DFIs) have played a crucial role in African private equity since the 1990s. Prior to that period, DFIs mainly provided loans for government-initiated development projects, but this type of investment struggled to create sustainable economic growth and job creation.

In a bid to tackle the chronic economic challenges that many African nations faced, DFIs expanded into investing in the private sector, with the World Bank's International Finance Corporation (IFC) investing over $25bn in sub-Saharan Africa alone. The organisation has been particularly active in the venture capital (VC) ecosystem, supporting the continent's flourishing tech startup sector.

Around $560m in VC funding was invested in African startups in 2017, a 53% year-on-year jump. To put it in context, only $40m was invested in 2012. The numbers indicate that VC in Africa is moving in an upward trajectory, however, many non-African investors remain wary about entering the market. One of the major concerns is the view that the continent lacks any notable exits, but this does not represent reality, according to Wale Ayeni, regional head of VC in Africa at the IFC.

"It's true that historically exits have been limited in Africa from the tech perspective, but this was because tech was nascent in Africa. Ten years ago, exits were an oddity but now we are seeing an increase in activity," he says.

African fintech company MyBucks was listed on the Frankfurt Stock Exchange, South African computer system iKubu was acquired by GPS navigation multinational Garmin and restaurant tech firm orderTalk was purchased by Uber, to name a few examples.

While instances of notable exits are apparent for those that care to look, some investors remain unconvinced about the opportunities in Africa because of perceived risks, such as poor governance and currency volatility. In such instances, DFIs, such as IFC, play a crucial role in bringing other investors on board by taking on some of the risks.

"[Securing private sector involvement] is an important part of our everyday work because we view ourselves as a catalytic organisation," Ayeni says. "We are happy to take on the initial risks. However, development comes when the private sector is fully engaged, therefore we work nearly exclusively with private sector companies in the VC space, but also engage with our colleagues in the World Bank on the policy side of things."

IFC co-invests with private investors from across the globe, including tech VC firm Partech Ventures, which launched a 100m [euro] ($113m) fund supporting tech startups in Africa in January. The development institution has contributed 15m [euro] equity investment, making it the anchor investor.

Having the IFC as a co-investor provides a degree of security for investors, but even an established institution such as the IFC needs to ensure that it makes wise investment decisions. IFC's VC division ensures a startup satisfies three key criteria before backing a company, confirming that the investee has identified the right market, offers a compelling product and is run by a strong team. …

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