The rise of venture capitalists in the African market has significantly impacted business approaches and narratives, especially in terms of mode of operation and financial strength.
Over the past decade, Africa has been acknowledged as one of the fastest-growing venture capitalist markets globally, and this trend does not seem to be slowing down anytime soon. Venture capitalist (VC) firms act as the financial foundation for African startups, allowing them to concentrate on cash flow management and profitability.
The Role of Venture Capitalists in Organization
The structure or roles of a venture capitalist firm may vary depending on the firm, but a majority have theirs roughly broken down into three positions:
Associate Analyst
Associates in a venture capitalist’s primary objective is to provide solutions and answers in areas that include finance, business consultation on the business, and many more. They conduct analytical work, including the firm’s portfolio, business models, industry trends, and sectors. As much as they do not directly impose opinions on the firm, they provide the best intellectual and analytical presence.
Principal
This category watches out for and identifies investment opportunities for the business. The principal pushes for negotiation terms for both acquisition and exit. They follow the partners’ track, ensuring a symbiotic goal. That is, the startup business wins, and the partner wins. They approve deals, occasionally sit on decision-making boards of portfolio companies, and generally represent the firm. The principal is a mid-level professional overseeing the smooth running of business operations.
Partnership
Venture capitalist firms take the form of limited partnerships. This is a mode of practice where external bodies or investors invest in VC finance to sponsor the start and maintenance of the business. Once a promising company with potential growth has been identified, the investors (including partners) invest for a reasonable equity rate.
How Capitalist Venture Influences Business Narrative in Africa
As stated earlier, one remarkable way venture capitalists are changing business narratives in Africa is by providing financial support, investing in startups, and providing necessary resources for growth.
While most developed countries and nations experienced a recession in the past ten years, Africa gained a commercial market increase mainly driven by the technological revolution and a high infrastructure investment rate.
African startup revenue statistics highlighted Nigeria and Kenya as the central attraction spots for African Venture Capitalist investment, with $307 million and $305 million raised in 2020, respectively. Egypt is also a significant player, with $269 million of funding recorded in 2022, while South Africa had $259 million.
Furthermore, Rwanda has positioned itself as a hub for East Africa and enjoyed great success, with $126 million raised in 2019. Unfortunately, the pandemic halted its impressive progress, which dropped 91% to just $11.6 million last year.
Another report has shown that venture capital investment growth in Africa demonstrates the evolving nature of external financial inflow to the continent in the past ten years. It explained and indicated that foreign investment surpassed official development’s value.
With this economic outlook, Africa’s economy, with its excellent business potential, makes it an increasingly attractive destination for investors and business owners seeking high-profit interest with long-term impact.
3 Common Ways Venture Capitalists Are Supporting African Startups
Below are some of the three common ways VCs are supporting African startups and changing the business dynamics in Africa.
Provide mentorship and support
Aside from providing funds and support to startups, venture capitalists also provide mentorship and consent to these companies, including access to networks and resources to help them succeed. This includes connecting startups with experienced business leaders who can guide and advise in their growth journey. It prevents them from common pitfalls and assists them in navigating the challenges they face as they grow.
Create exit opportunities for founders
Another exciting way venture capitalists are changing business narratives in Africa is by creating exit opportunities for founders and investors. Exit, in this context, is a medium that allows the investors to pull out of the investment. This includes the fold-up of a startup to a larger company or the initial public offering (IPO) of a company’s stock on a public stock exchange.
Recreate Better Business Models
Finally, venture capitalists are driving the development of new approaches and business models better suited to the African market and that address local needs. By investing in startups, VCs aim to support the problem-solving metrics startup companies have envisaged and laid down.
Some of these include companies developing new technologies, such as mobile payment systems, to make it easier for people to access financial services and developing new business models, such as e-commerce platforms, to help small businesses reach new customers, payment, and banking channels, amongst others.
TL;DR
- Venture capitalists (VCs) are changing business narratives in Africa
- They are pushing African startups to the spotlight
- Africa is one of the fastest-growing venture capitalist markets globally
- VC firms provide the financial foundation for African startups, enabling them to focus on cash flow management and profitability
