Angels hunting unicorns in Africa will be disappointed, and are better off leaving the “mystical animals” to Silicon Valley.
This is according to Keet van Zyl, partner and co-founder at South African VC firm Knife Capital, who was speaking as part of a panel discussion at last week’s African Angel Investor Summit in Cape Town.
He advised angel investors in Africa to avoid an obsession with funding potential unicorns – startup companies valued at US$1 billion or over – and instead focus on gazelles – startups that have seen strong revenue growth over a sustained period.
“I think if you are hunting unicorns as an angel you are going to be disappointed. There is a lot of conversation about who the first African unicorn is. The one differentiator we have is that we actually build early stage companies, we don’t build hype and dust. Our startups have some substance. The guys are maybe growing a bit slower, but they are growing. Focus on sustainable companies, and eventually some of them will attract enough attention,” van Zyl said.
“We can leave the mystical animals to Silicon Valley and we will focus on what we have here.”
He said African angel investors needed to be part of the solution to issues in Africa.
“Governments are not going to create the jobs, we have to do that ourselves. People often forget that Africa, especially places like South Africa and Cape Town, are actually perfect test markets for solutions,” van Zyl said, adding this was the case because there were both First and Third World issues that needed addressing.
“That creates the platform where we can create startups that don’t only solve African problems but also global problems,” he said.
According to van Zyl, some of the success stories and ecosystems in Africa are “a bit overhyped”.
“Entrepreneurship does not happen in a vacuum. That is why the ecosystem is important. Every hub can find what is missing within an ecosystem and become the glue between government, big business, small business and angels,” he said. “But you have to work together. In the end it is a bit of a science. Every single ecosystem has issues in that department, some are just more developed at putting that together.”
Lexi Novitske, principal investment officer at Singularity Investments, was on the same panel, but took a slightly different view to van Zyl on whether it was worthwhile chasing unicorns.
“When investors are expecting four times their capital back, we need to make sure there is at least one company that is going to cover your portfolio,” she said.
“Maybe billion dollar companies are not what we are focusing on, but I think we will have some that will go close.”
She did, however, say there were dangers in too much money being pumped into African companies at an early stage when they are not ready.
“I think there is a risk of too much capital on a Silicon Valley scale coming in, too much capital that pushes up valuations too high. And that pushes us back a couple of years, so we need to be careful,” said Novitske.