The Ideal Approach to African Venture Capitalism

In mature venture capital markets, VCs typically fund and advise startups founded by independent entrepreneurs, with a focus on scaling companies that already demonstrate proven market traction. However, for a variety of reasons, this model has faced challenges in Africa. Some of the key issues include:

? Startups often lack investment readiness.

? Low purchasing power of customers, particularly for B2C startups, reduces the level of traction they can achieve.

? Founders may struggle with structuring companies and implementing sound corporate governance.

? A limited number of clear exit opportunities that do not involve bankruptcies.

The Venture Studio Model

Venture studios, also known as startup studios, operate by creating new companies from scratch. Unlike traditional VCs, which invest in existing startups, the venture studio model builds and launches startups in-house. This approach has shown promise in the African context. Venture studios like Founders Factory, Rocket Internet, and Flourish Ventures have been instrumental in building and scaling startups tailored to the continent’s unique market dynamics, addressing challenges in sectors like fintech, healthcare, and edtech.

For example, Founders Factory, with support from corporate investors, has helped create companies like KOA, a digital savings platform for African consumers, and Locumbase, which connects medical professionals with healthcare facilities in need of temporary staffing. Rocket Internet, through its Africa-focused ventures, built companies like Jumia. Although Jumia is now a standalone business, it initially benefited from the venture studio model.

Private Equity Meets Venture Capitalism

An article by Amon Munyaneza titled “Why Silicon Valley Doesn’t Work For Africa And What To Do About It,” shared by Damilola Obidairo of 8thGear Hub and Venture Studios, introduced a thought-provoking “PE meets VC” approach to venture investing in Africa.

Both the private equity (PE) and venture studio models involve actively managing and supporting businesses, though they typically operate with companies at different stages. PE generally focuses on mature businesses, restructuring or scaling them to improve profitability before an exit. Venture studios, in contrast, focus on the early stages, building companies from the ground up.

The Role of Accelerators

Accelerators play a crucial role in the venture ecosystem by preparing early-stage startups for rapid growth, often within an intensive program lasting a few months. They offer startups mentorship, networking opportunities, and sometimes a small amount of seed funding in exchange for equity.

During these programs, startups receive guidance on refining their products, understanding their markets, and scaling operations, which significantly enhances their chances of attracting larger, follow-on investments from venture capitalists. Accelerators effectively bridge the gap between a concept or prototype and a venture-ready business, positioning startups for faster growth and making them more attractive to investors.

In an emerging market like Africa, accelerators also play a key role in skill-building and capacity development, crucial given gaps in business experience and limited resources. By connecting founders to global networks, accelerators expose startups to best practices and help them gain visibility with international investors. While venture studios build companies and VCs fund them, accelerators act as a launchpad, accelerating startups’ paths toward funding and market entry.

Expanding Venture Studios and Accelerators in African Secondary Cities

Focus on Nigeria’s South-South and Southeast Regions

In Nigeria, innovation is thriving, yet the tech ecosystem remains heavily concentrated in cities like Lagos and Abuja. This concentration leaves the south-south and southeast regions, despite their economic and cultural significance, underrepresented and underserved in terms of venture support and capital. These regions are home to vibrant communities facing unique challenges, from energy and environmental issues to healthcare and education gaps in rural areas. By expanding venture studios and accelerator programs into these regions, we can unlock new potential for localized innovation and economic growth that directly addresses regional needs.

Opportunities in Secondary Cities

Establishing venture studios and accelerators in Nigeria’s secondary cities offers venture capital (VC) firms a unique opportunity to drive impact while diversifying their portfolios. These cities are rich with untapped entrepreneurial talent, individuals passionate about solving local problems but often constrained by a lack of resources and support. By investing in venture studios, VC firms can work alongside founders to build startups addressing local challenges, such as access to clean energy, improved agricultural practices, and digital healthcare solutions. Accelerators further support this process by preparing early-stage startups with mentorship, resources, and a pathway to sustainable growth.

Investing in secondary cities positions VC firms at the forefront of a trend toward decentralized innovation, fostering a more inclusive tech ecosystem that doesn’t rely solely on established urban hubs. The payoff isn’t just financial; it includes being part of a wave of regionally relevant solutions that can inspire other investors and tech ecosystems across Africa.

Unearthing Hidden Gems

The south-south and southeast regions are filled with potential “hidden gems”—founders with innovative ideas and a deep understanding of local challenges. However, without connections to markets and investors, these innovations may not reach their full potential. By establishing venture studios and accelerators in these areas, we can link founders with the necessary resources, networks, and mentorship to scale their ideas beyond regional borders.

A well-resourced venture ecosystem in secondary cities would not only drive economic development in these regions but also reshape the narrative of tech and entrepreneurship in Nigeria. This shift could transform underrepresented regions into vibrant hubs of innovation that attract talent, capital, and partnerships, ultimately fostering region-specific growth.

The Call to Action

For venture capital firms, the path forward is clear: expand your reach, invest in emerging talent pools in secondary cities, and help shape a tech ecosystem as diverse as Nigeria itself. By doing so, we can provide founders across the nation with the tools they need to thrive, and in turn, uncover the next wave of groundbreaking African startups.