Moving Beyond VC in Africa
6th Sept 2021
There is a recurring narrative with technology in Africa known as "leapfrogging". The idea is that Africa was so far behind in certain infrastructure that developed nations had built, that the introduction of modern innovative and disruptive technologies worked well in Africa and leapfrogged (or just skipped over) the construction of incremental infrastructure. The narrative is mostly commonly used to refer to the introduction of mobile networks that leapfrogged wireline networks in achieving relative ubiquity as the method of internet access across the continent. It's also used to describe mobile money, preceded by the use of airtime minute top ups as a form of currency transfer that bypassed banking systems. Given the tremendous incumbency of centralized legacy infrastructure in developed nations, and the relative lack of it across Africa, leapfrogging has and will continue to be an important trend in the development of African economies.
Despite the existence of leapfrogging, there is another narrative that is also prominent in African economic and technology discussions. That is the appropriation and application of developed nation models, particularly regulatory models, in African contexts. Probably the most well known example of this is in the area of banking and financial services. Modern banking systems were created by and for Western markets and contexts (though deriving much legacy from a long history of credit and finance from around the world, particularly the Islamic world of the middle ages). When European colonialists set up banking infrastructure in Africa, they applied banking charters and regulatory systems imported from their home countries. Many of those institutions are still in place. The addition of local African banks did not change the use of Western models of banking. Of course, banking in developed nations has strict identity and reputational requirements that help to create stability and prevent fraud. Those that don't qualify under these standards are called the unbanked. In Africa, most people are unbanked. The failure of banks to adapt to the fact that most prospective customers don't qualify for traditional banking has led to an explosion of alternative financial services models, microfinance, non traditional lending, and now, fintech startups.
New models that fit African contexts now exist and are being continuously created that will better serve Africa now and in the future.
Similarly, since we created Akili, we've argued that the traditional VC model is not built for Africa (you might notice that it's increasingly under fire in the US and Europe as well). If you've seen the news on tech in Africa over the last 6, 12, and 18 months, though, you know that VCs are indeed pushing their way into African startup funding. That trend will surely continue, driving up valuations on a small number of African startups and pushing them to potentially unrealistic outcomes.
At Akili, we've thought deeply and deliberately about the best way to construct an investment and venture building model tailored to Africa. The spray and pray model has a variety of flaws, not least of which is its ignorance of the difficulties of building a business in Africa, of businesses that don't currently look venture scale, and of problems that are critical but don't exist in the few markets that investors covet. But perhaps most of all, it simply has a different mission, generating the best possible return and shipping it out to investors, rather than, for Akili, building long term wealth and economic growth and solving critical problems in Africa.
Structurally, one of the consequences of our model, compared to VC, is the optionality to think flexibly about short versus long term value and growth. Rather than requiring all our ventures to grow to venture scale, one dynamic that we're increasingly interested in, is engineering short term liquidity from our portfolio, to compound and diversify our balance sheet and portfolio. Betting, and then waiting, on a future outcome, is often less helpful than generating the balance sheet to diversify in the short term. We bet on ourselves, our team, our network, our expertise, and on Africa. Those are the bets that we know will succeed. We're excited to share these strategies as they bear fruit in the weeks, months, and years to come.