When you talk about startups and investments in Africa, only a few cities come to people’s mind. Yet, with the increase in venture capital flowing to the continent, this is beginning to change. Dustyn Winder, the managing partner at akili.vc decided to set up in Kampala.
In this interview, we explored why he made that decision, what Akili is, if they have made any investments so far and their medium-term plans.
At the end, I challenged him to point out a couple of startups in Uganda he would put his money in as well as a little advice to entrepreneurs. If you’re a corporate, a startup or an investor, this is for you. Enjoy.
Malinz: You describe Akili as an early stage or pre-seed fund, right? What does that mean?
Dustyn Winder: It's everywhere from pre-seed all the way to Series C. Though we say pre-seed to series A, this is because we spun out of an existing organization called Prehype, whose shared model gives us the flexibility to participate from day zero all the way to the post MVP [minimum viable product] days of a company.
Prehype is based in New York, London and Copenhagen with a presence in other cities around the world. It is a venture development firm and studio that works primarily with strategic [corporate] partners. Prehype goes to corporates and says, ‘let's go through an innovation workshop, let's identify unique problem spaces that a subject matter expert entrepreneur is equipped to address’.
These problems are traditionally, for whatever reason, hidden or locked off from entrepreneurs. In the case of corporates, it's often a problem that exists within an internal environment that an entrepreneur would never even know about.
And so then, working with the corporate team, we come up with product ideas, recruit an entrepreneur, build an MVP. This is all with the goal of it ultimately becoming a company in which the corporate and Prehype are shareholders and the entrepreneur becomes founder and CEO.
We structured Akili based around this model. We liked the idea of identifying problem spaces and building products that solve those problems but combining it with the financial capabilities of a more traditional venture vehicle.
If we’re making a “venture” investment, it is in either Seed or Series A. Those cheque sizes are in the low to mid six figures USD. We then reserve capital for the purpose of following on in our portfolio companies’ B and C rounds. So when I talk about pre-seed, I’m not generally speaking about investing in existing companies. It's co-founding companies. It’s the Prehype model of structured incubation to turn these products into companies and get them all the way to a Seed or Series A, where we would then likely make a venture investment.
So has Prehype developed any products so far in the East African region?
That's actually where Akili came in. I have consulted with a couple Prehype partners for a while and I was brought in to explore doing business in East Africa due to my background in the region.
Prehype is headquartered in New York with offices in London and Copenhagen. Prior to Akili they had done projects on every continent but Africa.
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So I came on [board] to kind of explore what it looks like to bring the model [to Africa]. Because, again, it's really just a framework, a model, and a network. [But the question was] ‘what would it look like to bring this model to Sub Saharan Africa, with a focus on East Africa.
After talking to a lot of people in Uganda, but also Kenya, South Africa, Zambia, Tanzania, Rwanda, Nigeria, and Ghana, we came to a conclusion that the model makes a lot of sense. It makes sense because its connecting entrepreneurs who are good at building things with clearly defined problem spaces. And we believed that more than product, what matters is pairing a problem or opportunity with the right person or team.
What I understand from this is that where there is Prehype, there is akili.vc, right? So is Akili also in New York, London, and Copenhagen?
Akili is currently in New York and Kampala. Our mid-term plan is to have an Akili presence around the [African] continent. So, basically, venture partners in key [African] startup cities of Nairobi, Lusaka, Cape Town, Lagos as a distributed team.
Because, again, based on this idea of a network of entrepreneurs, we like the idea of having a large geographic network as well. So right now we base out of Prehype in New York and in Kampala as well.
You pointed out that you partner with corporates. And what I understand is that you’re the General Partners and they join as Limited Partners. Why would they join as LPs?
While we personally as General Partners (GPs) believe that there will be liquid venture returns [in the fund], our approach to building a fund is not selling Limited Partners (LPs) solely on this potential. Rather, we sell them on the fact that there are quantifiable strategic returns in making investments in Africa.
Traditionally, most of the “venture” investment going into Sub-Saharan Africa is impact [tagged]. And so we are saying that impact is one strategic area that a corporate can focus on. You know [through] CSR. Then that makes sense in some regards. But there are other strategic interests that a corporate could have.
So, rather than spending tens of millions of dollars setting up a branch and a subsidiary and exploring these things, why not make - in comparison - what is a relatively inexpensive investment and become an LP [with Akili]? You get the same kind of strategic benefits and market intel that you would get by yourself.
In some cases, those strategic benefits are CSR and impact. But in other cases, they are identifying deal flow for potential mergers and acquisitions, or identifying B2B customers and potential strategic partnerships.
Since you are based in Kampala, is your current focus on corporates in Kampala?
No. The reason why I am based in Kampala is personal and somewhat strategic. We are focused on East Africa [as a whole]. But the reason why I am based in Kampala as opposed to Nairobi is twofold;
First is the unique selling point. Any VC that has a presence in East Africa is in Nairobi. Secondly, I have been in Kampala back and forth for a decade now. It is where my personal networks are. It is where I feel most comfortable.
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[But when it comes to our target corporates], we are primarily focused on multinationals out of Europe and the USA. [But also] increasingly, we are trying to talk to Chinese companies. That's not by very selective choice. It is more of that's where we found the most traction. We haven't found the African corporates [that] have much interest in this. However, if any end up reading this and are interested, by all means, reach out.
Obviously, Safaricom has demonstrated an interest in making these kinds of investments. But they are already doing it in various ways. They have their innovation center, they invest in funds and have developed products on top of M-Pesa.
MTN, out of South Africa, has made a lot of investments and has funded investments. But these are primarily really big cheques at later stages. At the earlier stage, we found that those companies generally are interested in partnering with startups but not so much at putting significant capital on the line.
When do you think akili.vc will be actively making investments? 6 months time?
We are just trying to move forward on the business streams that we have, partnering with corporates on product development, incubation, accelerations, and more traditional consulting engagements. But yes, we are targeting for 6 months. We are actively having conversations quite literally every day. Currently, we are working with various partners on different forms of deal flow.
We have only one investment thus far. It was actually made before the official formation of Akili. It's a drone company, though based out of the USA. But it does most of its work, currently, in Sub-Saharan Africa.
You have been here for a decade. Are there some startups that you have put your money or would have put your money in? As an individual!
I have only made one angel investment in my life and it was in the USA. [But] there are certainly startups that have been interesting [here]. [Though] most have been in the last few years.
There is Xente. It is very interesting. ClinicPesa is one we have been speaking with and Matibabu.
Then there are companies that are now in the market that you would not necessarily think of as startups. Like Ezeemoney. I think that Ezeemoney is an interesting opportunity because I don't think most people think of it as a technology startup. That's a good thing because that makes them approachable.
They have an analog world physical presence but are able to scale through digital products. They run on technology. They are a technology-enabled business. And I think there is an opportunity for companies like Ezeemoney to partner with companies that are more pure technology plays and really use the advantages of the kind of traditional brick and mortar boots on the ground type of businesses with the scalability of digital businesses.
Do you get people sending you pitch decks to run through?
I get them every day. One of the things that is the largest frustration for me and the ones that are not going to get past the first step are those just following the crowd and the trends. Just because someone is doing something in their business does not mean everyone should follow on and do that.
Similarly, I think that many entrepreneurs expectations are a bit off when it comes to fundraising, and they don't fully understand equity. I have met entrepreneurs who do not care about equity at all and that's a red flag. Because I want you to want the equity in your company. That means you believe in its potential for real scale.
But again, others care too much about equity at an early stage. They will fight over one or two percent. It's not worth it. Valuations, in the beginning, mean nothing really. If you are pre-revenue, valuation is just what someone is willing to pay you. It’s based on speculation.
Don't get caught up in equity to an extent of protecting your equity the same way you would if someone was trying to write you a $20,000 cheque for 50% of your business. That's ridiculous. Don't do that. All in all, don't focus so much on the micro, focus on the macro and building a real business.
What advice do you have for entrepreneurs?
Do your research before you reach out to somebody. I often get pitched by people with startups that don't at all fit with anything we are looking to do, and it's not that they are always even bad businesses. Sometimes they may be quite good but they don't fit within what we have said we do and [what we do] is out there on the internet. Do your research.