About the author of this op-ed
Mathias Léopoldie is the co-founder of Julaya, an Ivory Coast-based startup that offers digital payment and lending accounts for African companies of all sizes. Julaya serves over 1,500 companies, processes $400M of transactions and has raised $10M in funding.
Julaya has offices in Benin, Senegal, France and Ivory Coast.
Mathias would like to thank Mohamed Diabi (CEO at AFRKN Ventures) and Hannah Subayi Kamuanga (Partner at Launch Africa Ventures) for their thorough advice on this piece.
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Optimizing for home runs
It is said that the first venture capital (VC) firm was founded in 1946, in the USA. The American Research & Development Corporation (ARDC) became famous for its $70,000 investment in Digital Equipment Corporation, a computer manufacturer, which went public in 1967 at a whopping $355M valuation. Investors taking risky bets on companies wasn’t new, but the computer era put venture capital’s singular “power law” on full display.
A baseball game is an apt analogy to conceptualize how venture capital works. The most exciting play, which also brings outsized returns, is when the ball skyrockets over the fence resulting in a home run.
VC is quite similar, as the power law nature implies that a few investments (<5%) will drive most of a fund’s returns. While the number of home runs in baseball might not guarantee winning the season, it does in VC.
This is why VC is an exciting asset class: sharp skill and experience are necessary, but luck plays a non-negligible role. It is no surprise that, amongst asset classes, VC has the highest dispersion of returns. Participants can either win big or lose a lot.
The African VC ecosystem is young, inching past its first decade of existence. The African internet revolution took a different shape than it did elsewhere: between 2005 and 2019, the share of African households possessing a computer went from 4% to 8%, while other developed economies witnessed a 55% to 80% jump over the same period.
One can’t expect a VC industry to suddenly flourish in an economy where microchip-equipped computer and smartphone ownership is so scarce. The heart of the VC industry is called “Silicon Valley” for a reason.
Another trend, however, calls our attention. Namely, the rise of mobile phones on the continent. Currently, over 80% of Africans own a mobile phone, a figure that reaches close to 100% in some countries. The 2000s-2010s feature phone mass production era is to thank. Transsion Holdings, a Chinese public company, tops the leaderboard in terms of mobile phones sold in Africa, through its portfolio of brands (Tecno, Itel, and Infinix).