African VCs are a Poison Chalice to African Entrepreneurs.

"Growth models imported from Silicon Valley are not working for most African founders" - Pascal Murasira MD Norrsken East Africa.

Delusions of Grandeur

In all my time on LinkedIn, I have never seen a sentence more Infuriating than the quote above. The fact that VCs even thought they could Import those models and have them work here is mind-boggling and a testament to how dangerous VCs are to entrepreneurs. Imagine trying to build a high-impact business with people who think "User Acquisition Cost" is a useful Metric for evaluating whether a startup must be funded.

African Founders’ biggest problem are VCs. Any business model, marketing and or growth strategies developed outside of the operating environment, especially in Silicon Valley were NEVER going to work because Africa has the kind of structural economic problems that Silicon Valley does not and did not have. Any 8th grader can tell you that!

Reality vs delusion.

Bread, yes, bread, is a R 120 000 000 per month business in Soweto alone, only Soweto! Yet here we are with people who want to Invest Millions of Rands in mobile applications to allow Doctors to consult with patients remotely. Really? Really? That's what we are doing? In a country where the biggest health care issue is access to decent, free, primary health care? 57% Percent of South Africans live below the bread line and are barely able to afford bread let alone a R300 doctor's consultation fee. Unicorn you say? The number of new homeowners (Ownership 2 years or less) whose properties were repossessed increased to 80% in the 13 Months between May 2022 & May 2023. The Reserve Bank and Corporate South Africa have decimated the middle class over the last three years through deadly interest rates and food price hikes. So, even in that segment, it will be impossible for any startup to achieve any scale unless it caters to very basic human needs. ?

The fact that this is the prevailing thought among African VCs speaks for itself. But, more specifically, VCs in Africa have absolutely NO IDEA what African Founders need and want, and they do not understand the economies they operate in. Unless the solutions invested in cater to most of the population, i.e. the 60%+ who are poor, that business will fail!

This is why Tyme Bank and other businesses that offer "Digital banking services" (Bank Zero) will fail. They do not understand the consumers they serve nor do their financiers and as a result, they are solving the wrong problem.

The order of the day

Further to that, VCs here typically Invest based on fads and trends and not based on what makes sense for African businesses and consumers. Fintech in South Africa for instance, is a mature market. South Africa used to lead the world in Financial Services Innovation until a few years ago. I remember going to a meeting with a Potential tech supplier to a bank back in 2009 who was telling us that they had created mobile wallets with bill payment capabilities in 2004 already. There are 101 payments and mobile wallet services, but none of them are interoperable such that there's value transfer capability between providers and you can't pay anything anywhere with your mobile Wallet. These are real consumer problems, not having the 127th way to pay for a bloody fruit juice at a cafe!

But I digress, Real businesses don't get funded here. Additionally, there is no engagement with founders to understand their challenges and thus develop ways to help founders overcome these.

The level of delusion, detachment and lack of empathy is Jarring and you see it as early as the application process when you are told that "Feedback may take 3 - 6 weeks, and when the feedback comes, the extent of it is: "You do not meet our investment criteria, sorry". That's if they even bother responding to you. If you do not have the processing capacity to engage and respond to your applications in a meaningful manner, What the hell are you doing, why are you here?

Above and beyond that, several key Issues make African VCs valueless to African Entrepreneurs. These issues are:

1. Lack of Entrepreneurial Experience: Most VC people have never been entrepreneurs or built a business in the environments they operate in. Typically, they are parachuted in from other markets or sectors. Ironically, it is the same criteria they often use to exclude founders from funding.

2. Prejudiced Funding Practices: African VCs "Fund their friends": If you do not have Big Four Consulting, Big Four Banks or Ivy League Education, you don't get Funding. Problem solvers who live in environments in which problems exist and they are solving, don't get funded because "You don't have 30 years’ experience building solutions that didn't exist before you came up with it".

3. Shocking Lack of Understanding & Empathy: VCs are weirdly and infuriatingly delusional. All VCs primary Goal is to Invest in future Unicorns and yet they have NO CLUE what Unicorn building looks like. You are expected to "work in your business" full-time (if you have a Job, you don't get funded) and somehow, raise the USD 100,000.00 to get your business to the "investable stage", yet, there is NO BUSINESS ANYWHERE ON PLANET EARTH THAT CAN BE STARTED & RUN WITHOUT MONEY, UNICORNs especially. VCs say wild things to entrepreneurs: "Your business isn't mature enough" or "Your team doesn't have any expertise". I don't know any experts that feed on sand, do you? None of the Silicon Valley entrepreneurs must contend with this nonsense.

4. Shocking Lack of Understanding & Empathy II: As a consequence of Parasitic economic systems in Africa, over 60% or more people live below the bread line which typically means that the people who start businesses are breadwinners who feed several families and are the ones who have the best access to education and or opportunities. The expectation that they operate full-time in a business that is barely generating income without any capital support is Ludicrous. Additionally, high-growth businesses, by nature, require full-time attention especially within the first three years because they are pre-profit, and that attention drives them to profitability. How does that happen without a healthy cheque?

4. No understanding of their Operational Environment: Realistically, Practically, Any VC that wants to operate successfully In Africa must also be an Angel Investor. If as a VC you do not understand why that is, you shouldn't & should not be allowed to operate here.

5. The Regulatory Environment: If the VC team is not and does not spend at least 25% - 30% of their time working to change the regulatory environment their Investees operate in, they have no business here. Regulatory regimes in Africa, especially at business inception, make it incredibly expensive to set up a complex business here, i.e. the kind of businesses that become unicorns.

6. Sales: Silicon Valley's Biggest Investor, through sales/procurements, was and still is the US Government. This means that the primary "Value" contribution to start-ups VCs should be adding is ensuring Increased government procurement from Startups. This then mean that part of that VC funding must be in the form of Invoice Financing.

7. Work Experience is a must: 70%+ of South Africa's Youth is unemployed, 70% including all manner of graduates and as a result have no work experience. But do you know what these youth know and understand very well? Economic opportunities in their environments, but, for VCs, it isn’t enough that they understand the problem very well, have paying customers & are profitable. VCs also want these youth to somehow have deep corporate experience and well-qualified teams for these kids to even get R 50 000.00 Which is nothing. This kind of chickenry, Ironically, Is standard practice here, but not In Silicon Valley.

One of the biggest single-label clothing brands in South Africa is an ecommerce business founded, funded and run by young people without a single iota of work experience in the fashion world. One of the fastest-growing couture businesses in RSA is also an eCommerce business founded, funded and run by a young person.

Thankfully, many high-growth entrepreneurs in Africa are choosing to avoid the VC route!

How do we fix this mess? Join the solution, here: https://www.dhirubhai.net/pulse/how-fix-african-vc-alternative-model-sandiso-ncube-jznyf%3FtrackingId=KdskwYWLSa2sjJGvoPHjUw%253D%253D/?trackingId=KdskwYWLSa2sjJGvoPHjUw%3D%3D

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