There has been a clear and steep increase in venture investing in African companies. Much like in North America though, the majority of dollars are being invested in a few geographies while large swatches of the continent are getting left behind. Specifically, Nigeria and Kenya attracted more than 80% of the capital invested on the continent in 2019. In general, English-speaking countries are riding the wave of increased investment enthusiasm, while French-speaking countries are overlooked. Maxime Bayen reported that only 4 of the 91 companies that raised more than $1M last year were in Francophone countries. Only 2 were in Sub-Saharan Francophone countries.
There are several different arguments for why this is happening. For one, the Francophone economies are generally not as robust. While about 40% of African countries have French as an official language, these countries only account for 19% of the continent’s GDP. For another, there is a language barrier between these countries and the United States, the traditional home of venture capital.
Whatever the case may be, in a bullish African investment market, Francophone countries may finally have the chance to start closing the gap. Venture Burn reported that Dmitry Fotiyev, Managing Partner at Brightmore Capital even expects investments in 2020 to come into smaller Francophone economies “like Benin, Togo, Burkina Faso, and Guinea.” The question is, will entrepreneurs in these markets be ready?Today In: Leadership
The late Clayton Christensen published research in the Harvard Business Review about how companies can succeed in frontier African markets. He used Tolaram, the company responsible for making Indomie noodles a food staple in Nigeria, as an example. He found that the company had to take over both their upstream supply chain (not just growing ingredients, but also training graduates) and downstream distribution channels to build a sustainable business.
Wiatta Thomas, the co-Founder of AquaFarms Africa (AFA), a Guinea-based agritech company, has seen this play out on the ground. She explains, “What we often find in West Africa is that a new entrepreneur must manage the entire farming value chain, which is difficult and costly,” she said. Costly is especially important to note in a market that does not attract much seed capital. AFA has adapted to the local context by designing a unique business model. “The social franchising concept gives new entrepreneurs a business-in-a box opportunity allowing them to focus on production, while AquaFarms Africa manages other areas of the operational value chain such as site selection, procurement, marketing, sales and logistics,” she added.
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And while traditional venture investing has also overlooked women, this model empowers them. On average, women perform half of all agricultural labor in sub-Saharan Africa, but depending on the country, earn 15-60% less than male farmers. Lower rates of land ownership and access to inputs, including financing, are major contributing factors. In partnership with local NGOs, AFA trains women to become franchise owners of their own AFA aquaponic system.
Political stability, poor infrastructure, high import costs, and low access to talent remain a challenge for entrepreneurs in Guinea. Despite this, Thomas sees benefits to starting in this market. “Guinea is also in some ways the ultimate testing ground for the AFA business model given the relative under-development of the country. Practically speaking, if AFA can be successful in Guinea, the company will likely be successful in most African markets,” she said.
For entrepreneurs looking to attract investment in up-and-coming African markets, they need to understand that the bar will be higher for them, but not unsurmountable. Nnamdi Chiekwu, the chairman of Namdex Group and an investor in AFA said, “What most impressed us about AFA, was not just their ambitious aspirations about addressing food sovereignty in Africa, but rather the analytical rigor that we saw in their financial and operational projections. It did not occur to us that the exact size and weight of maggots for fish feed would be given such detail in a financial model – but it was, and that level of attention to detail encouraged us to invest in the AFA team.”
Innovation can come from anywhere. Entrepreneurs in small Francophone African markets are still fighting an uphill battle, but the pitch of the hill is becoming less steep. Leaders who are mission driven, who focus on the whole value chain, who serve local needs, and who are driven by data have the highest likelihood of success.