The Relentless Need for Exits and Capital

At the African Tech Summit (Nairobi) last week, the UK Department for Business and Trade Africa (DBT) convened a panel as part of its campaign focused on exits and IPOs. The imperative is driven by growing pressure on the African tech/VC ecosystem to achieve exits to raise capital, especially later-stage funding.

Entrepreneurs, innovators, advisors, and investors from local and international spheres discussed the need to better facilitate successful exits for African tech investments in a continuation of productive discussions initiated under DBT Africa’s 2023 campaign events.?

The exit imperative

2023 was a slow year for tech M&A globally, with fewer deals from the biggest players (e.g., as reported in ?TechCrunch) and zero deals in Q3 from Big Tech. Despite this, clear and potentially lucrative investment opportunities continue to emerge across Africa.

Despite the four major markets (Egypt, Kenya, Nigeria and South Africa) all showing a decline in volumes, the conference highlighted growth regions such as Tunisia (spurred on by the Start-Up Act) and Senegal, as well as key sectors like agriculture and clean tech. This is particularly encouraging since fintech and payment platforms usually dominate these events. Meanwhile, Kenya, known for its technological adaptability, presents promising prospects.

To adapt to the global decline in available investment capital, entrepreneurs need to work smarter, become even more rigorous about governance, and focus on exits at the outset when seeking investment. This is especially true for later-stage capital mobilisation.

A panel discussion expertly moderated by Ventures54 Ltd founder Anthony Catt and, later, an intimate soiree supported by TLcom Capital underscored the issue's importance. I participated in the panel, which featured insights from other UK experts actively involved in driving exits, including Ariel White-Tsimikalis, Partner at Goodwin Proctor; Abi Ajayi, Head of Middle East & Africa, Primary Markets at London Stock Exchange; and Simon Olsen, Partner at Deloitte Equity Capital Markets Group.

I’ve tried to capture the critical discussion points here, including highlighting solutions and next steps to pave the way to stronger investments and ensuring exits for long-term growth.

Strategic Planning for Exits

In the last eight years, just two per cent of total exits in Africa have been via IPO. In 2022, PE firms made just seven exits through IPOs. Yet, without an exit, there is no future or later-stage capital.?

The low IPO rate is partly driven by persistent myths about IPOs being challenging and costly. While it might seem daunting with all the jargon and acronyms, these myths are easily dispelled. With the right advice and preparation, IPOs can be done reasonably cheaply, easily and quickly (within three to six months in some cases).

Some VC funds are recruiting highly experienced specialist exit strategists to be able to deliver successful exits. But only some funds can afford this approach. Instead, local or regional African banking advisors can help, and bringing them into the conversation early will be beneficial.

Providers like TLcom Capital, known for its considered investment approach to maximise value creation and profitable timely exits, include exits as an integral part of their methodology.

But that’s just one part. Businesses themselves must be laser-focused on value creation, growth, and exit strategies from the outset.

Capacity-Building

While this seems simple advice, it takes training, knowledge-sharing, and capacity-building to ensure founders are equipped to attract long-term investment.

Few capacity-building programmes currently exist specifically targeted to exits. We need more programmes that offer - where possible - free advice (available from advisors) and that get founders comfortable with terminology, process, and structure so they are most efficient. Founders also need access to digital tools that signal they’re a professional outfit and that can be trusted to execute at scale.

Businesses also need the knowledge to create compelling investment journeys to leverage advantage over their peers. This means an absolute focus on growth, hitting numbers, listening to advisors, and avoiding untimely and unnecessary announcements that don’t conform to accurate progress.

Creating a stronger narrative?

These mechanics need to be supported by a compelling industry-wide narrative that showcases African tech/VC successes, challenges, and long-term potential to attract investors. These can be developed with local insight.

The persistent focus on volumes of funding raised must be balanced by the actual exits achieved and, perhaps more importantly, the trends driving these exits. Doing this presents a great opportunity for the founder to demonstrate the resilience of these investments, which become ‘must haves’ in the markets in which they operate.

For example, who would have guessed that M-PESA would be the de facto way to transact today? Success stories like this are not globally known, but crucially, they emphasise alignment with investor ambitions.?

Call to Action

In light of these discussions, there's a pressing need for collaborative action. In partnership with stakeholders, the UK DBT Africa team aims to convene bespoke working groups to address thematic aspects crucial for mobilising later-stage capital.

We’re encouraging corporate companies, investors with links to the UK, and capital-raising advisors to join these working groups. They will actively work to break down barriers to support later-stage investment (rather than start-up or early-stage investing) at scale and contribute to building the foundations for successful investments and exits.

So, if you’re an advisor or investor active in the African tech/VC value chain and are passionate about continuing to drive change to support the tech disruption and growth across Africa, please DM me to join our cross-discipline working groups.

Your willingness to participate should include readiness to contribute data, research or live working examples of opportunities supporting later-stage investment at scale. Any donors/DFI’s willing to contribute capacity-building funds are also encouraged to connect to help create maximum synergy across the ecosystem.

Conclusion

Reflecting on the success of past events and the collaborative efforts to mobilise capital from the UK into African tech/VC, there's a clear consensus on the need for continued engagement and action. The UK seeks to join in this growth to support its own economy and that of various African markets. By actively participating in working groups and collaborating with stakeholders, we can drive ecosystem-building efforts that benefit all funds and contribute to successful exits and longer-term investments.

Let's work together to seize these opportunities and drive sustainable growth in African tech/VC.

I’d welcome all stakeholders interested in later-stage investment to contact me to discuss how you could best engage with DBT Africa in driving these opportunities forward.

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