Introduction
At the moment a person drops some money into a startup as a form of investment either at pre-seed, seed or series A, he becomes a partner to that organisation in building and creating change.
Just like every beneficial partnership, the partnership agreement will include details of the capital contribution of each partner, the percentage of ownership, how profits and losses are distributed, the rights and responsibilities of each partner, how disputes will be resolved etc.
In the startup ecosystem, however, there is a lot of uncertainty and unknowns in building a new company. As much as a startup needs investments for growth and scale, it in equal measure needs a venture builder – a person or organisation who is skilled with building businesses, an organisation that can help innovative businesses launch and scale fast – effectively shortening time-to-market and gaining traction way ahead of competitors.
The model is different to traditional venture capital. Venture capital firms as they are not operational organisations. They invest in promising teams and business ideas that meet their criteria. On the other hand, Venture Builders are very involved with the management of the operation
Why VCS should be venture builders by heart.
Venture building and venture capital are two sides of the same coin. While venture capitalists invest in opportunities, venture builders help create those opportunities. While Africa needs these huge financial resources, each funded opportunity has a higher chance of success and returns with a venture builder.
Africa is an emerging market. Currently seen as one of the fastest growing markets in the world, it was recorded that there were about 1100+ investors in 2022, 70% of which were incubators, accelerators, pre-seed and seed investors. It is much harder to raise a larger fund in Africa and even at that, the smaller funds have a large, ripple effect compared to the same investment of that amount made in more mature climes.
In essence, while it is attractive to pour a small amount into Africa and get great returns, venture capitalists must look beyond the business of investing and add additional value to these companies. The world of startups is one where many times the founder is learning on the job – having little background on what works and what doesn’t. The lack of sufficient knowledge makes it harder and slower to reach success. A venture-building approach allows investors to nurture innovation by actively collaborating with startups, providing mentorship, sharing industry knowledge, and helping them navigate challenges. This fosters a culture of continuous learning and growth, vital for long-term success.
It is never enough to just invest, especially in a climate like Africa.
Whereas traditional VCs can contribute their dollars and dash off (if they want to), venture builders have a vested interest in startups and their communities. Generally, Investors should read, learn and understand the ecosystem they are investing in. It not only mitigates the risk of their investment, it creates a mutual understanding between both partners as the investor has a background of investing in startups and what challenges they face. Taking it a step further is venture building. Understanding business models, knowing what can or cannot lead to a drastic change, and having expertise in business development. The most effective investors (effective meaning money that creates visible value) are those who are founders by heart or even ex-founders in real life.
For the investor, it is important that your portfolio generates returns for you and the LPs. Success cannot be left to chance. By being deeply involved in the startups they invest in, venture investors can ensure that the startups are focused on building sustainable, scalable businesses that create long-term value. This approach aligns with the investors’ interests and ensures a profitable and impactful portfolio.
Lastly, the African startup ecosystem needs it. We need more than investors who pump in money. We need venture builders and investors who can lead and guide a company to success. With Africa emerging, the challenges faced by founders are enormous and difficult across the board. Venture investors acting as venture builders contribute to the overall growth of the startup ecosystem. They provide a blueprint for success, attract more investors, encourage knowledge sharing, and help startups mature into industry leaders. This, in turn, boosts the attractiveness of Africa as an investment destination.
Conclusion
Africa is still referred to as Day 1 – meaning it is emerging and there is much work to be done to improve the startup ecosystem. While it is clear that we need more people to invest, Africa also needs more investors who understand the impact of every decision made by that startup. Africa needs more investors who also invest their time to develop the startup. We need more investors who know how to build teams, can identify market opportunities, can develop products, have some legal background, can leverage their network and ultimately contribute to those otherwise seamless details that actually make a startup. Day one for Africa points to the strong need for generalists, who know a lot about the different sides of this coin.
At Nubia Capital, we are more than investors creating a portfolio of African startups. We are partners, and venture builders by heart to all our portfolio companies. We believe in creating the future of the planet through innovation and we are never laid bak in giving much more resources at our disposal to make this happen.
