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Silicon Valley VC model not suited to Africa

Silicon Valley VC model not suited to Africa

Players in the African start-up ecosystem should not be dismissive of corporate backing as they chase Silicon Valley style venture capital investments according to Vahid Monadjem, CEO of Southern African payments platform Nomanini.

Monadjem was speaking at the 6th edition of the African Financial Services Investment Conference hosted in London, a three-day event focused on investment and related partnership opportunities in Africa.

He said too many promising start-ups and innovative concepts fail to scale and achieve any clout in the African market as a result of being too focused on an unsuitable investment model for the region.

"There is a massive opportunity that lies in the space between the free-flying entrepreneurs (and their VC funders) and the more grounded corporate players. By establishing partnerships or some kind of operational relationship between the two, entrepreneurs can overcome the fragmentation issue by gaining access to established systems, processes and revenue streams - while corporates can leverage the innovation, agility and niche market expertise associated with VC-backed entrepreneurship. Such partnerships will enable promising new businesses to gain the operational reach that is so badly needed, at manageable cost, while simultaneously boosting corporate growth and investment." advised Monadjem.

Monadjem added that the ability of several African corporates to establish a formidable presence in the global arena over the past two decades means there is growing opportunity for start-ups, particularly in the mobile and telecoms space to flourish with their help.

"As we have seen in Silicon Valley, such an (investment) ecosystem requires the development of a common language, a set of established rules or norms, and ways to benchmark the deal-making process."

Offering her perspective on private equity growth and related opportunity, Tanya van Lill, CEO at SAVCA (Southern African Venture Capital and Private Equity Association) told ITWeb Africa that the private equity/ venture capital industry has good growth prospects over the next few years and remains a key contributor to the success of African start-ups even though corporate players also have a role to play.

"There is no doubt that private equity activity is expected to increase in 2018, with primary investment focus being on the food and beverage, financial services, healthcare and agriculture sectors, amongst others. We also expect to see a continued pipeline of good exits, given investments made post 2008/financial crisis that are maturing. The growth in private equity funds under management from R158.8 billion in 2015 to R171.8 billion in 2016 is reflective of a growing industry and an increased interest from investors to invest in the asset class in Southern Africa."

SAVCA's 2017 Venture Capital (VC) Survey of 56 fund managers released late last year found that ICT comprised of a majority of all private equity deals at 27% of all agreements concluded in 2016.

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