Why the hunt for an African unicorn is flawed

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The hunt for an African unicorn is a flawed one, and investors would be better off instead focusing on taking advantage of the myriad opportunities the continent has to offer.

That is according to investors speaking at the recent MEST Africa Summit in Cape Town when asked whether the obsession with the African unicorn was valid.

MEST founder Jørn Lyseggen said the hunt for the unicorn was a “very flawed obsession” across the world, including in Silicon Valley.

“There’s tremendous things you can learn from Silicon Valley, but mostly it is being inspired,” he said. “The search for a unicorn is actually destructive, and it is also destructive in Silicon Valley.”

Knife Capital partner Keet van Zyl agreed, saying it was a “bit of a cliche” for people to stand on podiums at events and ask: “where is the next African unicorn going to come from?”

“Obviously I would love to invest in that unicorn, but my view is that we shouldn’t be chasing these binary unicorns. At some point these African companies will get there, but it is a different market,” he said.

“From an African perspective, we build a different type of company to what a typical Silicon Valley company looks like, where you throw a lot of money behind it and figure out the business model as you go along. Because of the scarcity of capital we haven’t got that luxury.”

Lyseggen said investors should instead focus on the huge amount of opportunities ready to be taken advantage of in Africa, and not try to copy other markets.

“What Silicon Valley has is a massive consumer market and a lot of capital, we cannot try to copy it. Anyone that does is going to fall flat on their face. Every market has its unique opportunities, and you have to pursue those accordingly,” he said.

“The opportunities are so big. In Silicon Valley or the US every little opportunity is so crowded. In Africa they are everywhere. If you look at the overall conditions for startups, it is not only capital or expertise, the biggest driver is opportunity.”

Vuyisa Qabaka, founder of Uprise.Africa, said in order to increase the flow of capital into African startups there was a need to normalise what was going on around the continent in the eyes of the rest of the world.

“There is not nearly enough capital coming into Africa because of various things associated with our history,” he said.

“Not enough money is coming in, if more was coming in more people would take risks, more deal flow would happen, and the whole thing would really start mushrooming. And we would get to the point where we could dictate terms of how we want to engage with other ecosystems.”

Qabaka said VCs in the African tech ecosystem needed to do a better job of selling its opportunities to investors elsewhere in the world. For Pule Taukobong of CRE Venture Capital, however, it was also necessary for startups to change their view on capital.

“Capital is just a service. People think about VC as the be all and end all. VC is the same as your accountant, same as your lawyer, its an enabler,” he said.

This was a view shared by Manuel Koser, partner at Silvertree Internet Holdings, who said startups often did not approach raising capital in the right way, and often focused on raising it to the detriment of their businesses.

“A big problem is getting the assumptions right of what is realistic to achieve. Most of the pitches we get have completely skewed assumptions, whether in terms of market size, or how much capital you need, or how you can exit it. I think that’s a very flawed starting point,” Koser said.

“These big companies that raised a lot of money are very often not success stories, the real success stories are those entrepreneurs that took their own money, or took a bank loan, and were grafting away while you were running around trying to raise unrealistic amounts of money.  The best pitches we see are people who are very driven by a problem, put their own money to work, and solve a problem.”

Whatever the problems that remain, Lyseggen is optimistic for the future.

“In terms of capital I think there is going to be a meaningful amount of new capital to be deployed. And there are a lot of people that want to come back to Africa from the diaspora and add to the ecosystem,” he said.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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