TLDR:
Key Points:
- Africa’s venture-backed unicorns have faced challenges in maintaining their status, impacting customers, jobs, and the ecosystem.
- Venture capitalists investing in African startups need to prioritize profitability over rapid growth and resilience over speed to ensure long-term success.
In the article “Getting the value out of venture capital,” Sabrina Dorman, Co-founder and CFO of ZUMI, discusses the challenges faced by Africa’s venture-backed unicorns, such as ChipperCash, Jumia, and Swvl. These companies have struggled to maintain their unicorn status, leading to layoffs and down-rounds which negatively impact customers, jobs, and the overall ecosystem.
The traditional venture capital model of demanding rapid, exponential growth does not always work in the African context. Africa is not a single economic zone, and expanding across borders requires new partnerships, APIs, logistics, and compliance with taxes and licenses. Scaling in African venture-backed tech is complex and can lead to operationally burdened businesses. Therefore, venture capitalists must shift towards favoring profitable growth over rapid expansion.
Additionally, African businesses operate in environments with frequent economic shocks that disrupt plans. Capital injections meant for fast growth often absorb these shocks, emphasizing the need for resilience to capture return on investment. By aligning on long-term value and focusing on sustainability, African startups can withstand economic shocks without being overly reliant on external capital.
The article suggests that a “spray-and-pray” strategy, where investors bet on one billion-dollar unicorn out of many initial investments, is not suitable for Africa. Instead, a sustainable funding philosophy prioritizing slower but more likely-to-succeed ventures offers better returns on investment. By nurturing the next generation of African unicorns through sustainable funding practices, African investors can create a self-reliant ecosystem of valuable businesses on the continent.
