Much has been talked about the African VC ecosystem today and how it does and does not compare to Silicon Valley and other mature ecosystems across the world. African VC has barely a decade on her shoulders while we can look back on more than five decades for the US and China and even three solid decades for the case of India. Studying the early days of Silicon Valley makes us see remarkable parallels to the African ecosystem of today and the many things we can learn from Silicon Valley’s grand-fathers.
Silicon Valley in the 1970s
The 1970s marked the birth of Silicon Valley as we know it today. Two industry pioneers, Sequoia and Kleiner Perkins, were born in 1972. During this era, the region was characterized by:
- Skepticism and Uncertainty: The concept of venture capital was still relatively unknown, and many were skeptical about its potential for success. Fundraising for VCs was focused on the few individual and institutional believers primarily investing based on personal relationships with the founders. It was a time of experimentation and risk-taking.
- Limited capital pools: Access to and investment in venture capital was limited, and many investors were hesitant to invest in technology startups believing they could get better risk adjusted returns elsewhere. Fundraising for VCs was focused on the few individual and institutional believers primarily investing based on personal relationships with the founders.
- Limited Global Recognition: Silicon Valley was far from the global tech powerhouse it is today. It operated in relative obscurity compared to established business hubs, and the world was largely unaware of the promise of this emerging asset class.
- Pioneering Entrepreneurs: Silicon Valley was home to a group of pioneering entrepreneurs who were passionate about technology and innovation. Companies like Intel, Apple, and Oracle were founded during this period by visionaries who would shape the tech landscape for decades to come.
Despite this challenging environment, companies like Intel, Apple and Oracle were founded in this period - with handsome rewards for the VC pioneers who founded them.
Parallels with Africa’s tech ecosystem bear lots of resemblance with SV in the 1970s. While Silicon Valley has since become a global tech epicenter, Africa is currently at its early development stages.
- Skepticism and Opportunity: Despite beaming opportunities (stay tuned for our next update to learn more about this!), just with SV in the 1970s, there is still lots of skepticism about whether Africa can produce high returns at scale. This is too often driven by the narrative in the developed world, portraying Africa as a basket case to be helped with foreign aid rather than true commercially oriented investment. Hence the share of VC dollars in Africa is still significantly lower than its share in global GDP, which hovers around 3%.
- Emerging Capital Pools: Historically the gap in investment capital was plugged by Global Development Finance Institutions who were operating under a primarily development mandate. Increasingly, we see commercially oriented investors waking up to the opportunity starting to dip their toes. Although like Silicon Valley in the early days , most of these investments are driven by investor belief in and relationships with the respective Venture Capital pioneers.
- Growing Global Recognition: Africa's tech scene is gradually gaining global recognition, but it has yet to fully capture the world's attention, similar to how Silicon Valley operated in relative obscurity during its early years.
Similar to Silicon Valley we believe this is the time when Africa’s most foundational companies will be created and its Venture Capital icons being built. We have already seen this with the likes of Andela, Flutterwave and Moove and we believe there are many more to come.
Learning from the ‘grandfathers of Silicon Valley’
Now to the most interesting question. What made the likes of Don Valentine or Tom Perkins, often coined the grandfathers of Silicon Valley, so successful and what can we learn for Africa’s VC pioneers?
- Led by former operators: Contrary to common belief, most successful SV pioneers had backgrounds as founders and operators. For example, Valentine previously worked in tech companies and Perkins had both corporate and founder experience. These gave them powerful insight into how to build successful companies.
- Led by conviction, invested early: Investments were made based on deep analysis and conviction on a problem space and suggested solution, often with great struggles to raise capital in the early stages before the opportunities became obvious to others.
- Led by smart de-risking: The SC pioneers often spent significant time with the potential startups supporting them to get to a certain stage at which they considered them investment ready before making an actual investment. This helped them to gain valuable insights not only into the problem space but also into the inner workings of the startups as well as built a foundation of trust between founder and investor.
- Led from within: Even once investing, the VC pioneers worked very closely with the startups lending valuable guidance, networks and mentorship that they themselves acquired in their previous roles.
Building the ‘Sequoias of Africa’ today
We deeply believe that a similar approach is key to success for investing in early stage startups in Africa today. And that is why we are building Future Africa on the same foundations.
- We are led by operators who have successfully built and scaled startups in Africa. We have gained hard earned lessons and networks that help us accelerate the next generation of startup founders towards success.
- Our investments are led by conviction, even when few others see the opportunity. Believe it or not, raising money in the early days for the likes of Andela, Flutterwave and Moove was incredibly hard. Few wanted to commit, many preferred to wait and see, and those who did were rewarded handsomely. We build conviction and deal flow through in depth research of a problem area as a first principle .
- We often support potential portfolio companies long before we invest which builds trust and helps us gain proprietary insights that allow us to assess risk appropriately.
- Once invested, we support the portfolio company hands on, sometimes as far as becoming a part of their team, most often in the earliest stages
Our vision is that more of Africa’s leading founders and operators will be the ones to shift society forward in ways that have not been done before, and that more of us can play a catalytic role as Africa’s VC pioneers - from GPs, to LPs, and other ecosystem players. It’s what our ecosystem needs to accelerate in building transformational businesses at these early stages.
Mia von Koschitzky-Kimani
Managing Partner, Future Africa