25/01/2025
How African countries can enable funding of entrepreneurs and grow unicorns (Part 1)
__Starting with a few basics
A few days ago, I traveled to Davos to attend the World Economic Forum. It's hard to imagine that I first went there over 30 years ago. Sometimes I don’t participate for years; in this case, it had been almost 10 years [although I went briefly in 2019 to announce the Generation Africa GoGettaz competition for agripreneurs].
This year, I primarily went to announce a new initiative called AI for Prosperity and Growth, Africa. I will tell you more about it soon. It was during the panel where I made this announcement that I was asked a question about why Africa does not have more Unicorns. My answer was one I have given many times:
__Lack of to capital.
As I pointed out during the panel - which you can watch here: https://toplink.weforum.org/event-mode/a0PTG0000010A5G2AU/sessions/a0WTG000000W9o92AC/reinventing-digital-inclusion - the key issue in my view is all about shifting the focus from “debt/loans” from banks to “venture capital" from investors. This is how promising innovative young entrepreneurs launch, grow, and scale their [investable] businesses in most countries... except, of course, in most African countries.
In the US and China, for example, the biggest venture capital firms manage much more capital than most African banks!
Now for the let me quickly go over the basics of what I mean when I say "Venture Capital". A Venture Capital (VC) firm is a business just like a bank. However, a VC does not LEND money as banks do, they take risk and INVEST in a company in exchange for equity (a partial ownership stake). What they are looking for is businesses with . They also help entrepreneurs with mentorship and networking to ensure they succeed.
VCs raise their funds primarily from "institutional investors" like Pension Funds and Insurance Companies. VCs are paid through management fees (a percentage of total funds) and "carried interest" (where they take a percentage of profits on the growth of the company). In my next post, I'll tell you more about "institutional investors" that you may not know... In fact you may have one living in your own house!
The VC's main aim is to generate returns by helping -founders and startups grow and scale. Then, when they think the time is right, the VCs generally "exit" and sell their shares, usually to the general public through an IPO. [Some also exit through acquisitions or secondary market sales].
VC firms are businesses which expect that the capital they invested in your company will have generated significant money (returns) for them. Remember, they are not philanthropists! I have written you about this here before.
Mark Zuckerberg, Elon Musk, Bill Gates… all these guys have one thing in common: They were funded in early days by local VC’s, not by banks! Yes, they all had private INVESTMENTS from VCs, angel investors, and strategic investors, not LOANS from traditional banks!
Across Africa, on the other hand, the venture capital ecosystem is weak or non-existent, except in a few countries. But I am NOT SAYING we need foreign VC’s or governments to grow unicorns in our countries. I am saying we need DOMESTIC Venture Capital ecosystems that are well-regulated 1) so they don’t act as predators on young ’s business ideas and IP, and 2) so they protect ' interests. I have been all over the world to study these systems.
I am simplifying VCs here but you can study this yourselves. In addition to the USA ( #1 global VC ecosystem), take a look at the UK (leading VC ecosystem in Europe), China (second largest VC market globally), Israel (highest per capita VC globally), Singapore (strategic hub for Southeast Asian investments). Also take a look at India!
Now what do I mean by a "strong" VC ecosystem? For a start: 1) Supportive and transparent government policies; 2) strong legal and financial frameworks that protect both investors and entrepreneurs; 3) strong innovation infrastructure that supports local innovation...
And you cannot have a properly functioning VC ecosystem that supports entrepreneurs if the Stock Exchange in the country does not allow to do IPOs. The vast majority of African stock exchanges don’t work as a vehicle to mobilize investment capital for entrepreneurs.
The DOMESTIC VC ecosystems that we develop in our African nations must be aligned with the needs of our LOCAL entrepreneurs, support LOCAL innovation, stop predatory investments by all, protect entrepreneurs' intellectual property and also... they must not create endless [bureaucracy] that discourages everyone.
Let's start creating greener pastures for our young unicorns to grow.
We can do this.
I'll talk about a few ideas how in my next post.
What do you think? Let’s talk.
Image credit: KWB-Ubuntu Hope via AI.
