Silicon Valley investors should bet on Africa's potential not exit history

Yesterday, three individuals from Africa's tech and startup space were on a panel Disrupt San Francisco in Silicon Valley. The team comprised of Tayo Oviosu (Paga), Ken Njoroge (Cellulant) and Fope Adelowo (Helios Investments Partners).

Jake Bright, a TechCrunch contributor with a focus on Africa, moderated the panel [VIDEO]. In the half-hour session, he asked questions about the challenges and opportunities in Africa.

One of his questions was about why Silicon Valley investors should pick interest in the continent. Despite the fact that there's no history of exits in form of IPOs.

"To somebody like a hardnosed VC from Silicon Valley, what would be the case to invest in Africa?" Jake asked.

All pointed out the market potential as the key value proposition.

"I think simply growth," Fope said. Adding that "electronic transfer in Nigeria has grown by over 70% year on year in the last 5 years."

"That number is phenomenal and you can see that happening across other sectors. That's the value proposition whether you're in Africa or looking at investments in Asia, you're looking at growth."

Tayo Oviosu also said that the market potential is there. Though only those who are looking at playing the long-term game will benefit. "The markets are so ripe and young for a long-term play," he said.

Citing an example of Tim Draper, one of his earliest angel investors. Now close to 10 years down the road, Tim hasn't yet got a return on his investment. Though Tayo said that Tim's investment has achieved a double-digit return to-date.

"I know we have more than 20x his money based on our last valuation and we will tell that story of the kinds of exits," Tayo said.

Ken Njoroge, whose company has raised the largest amount so far this year, also pointed out the same by making reference to some of their recent figures.

"Last year, we processed about $2.5 billion and this year we are on track to process about $5 billion of payment volume in our network," Ken said. "If you look at what investors look at, which is the size of the market and the quality of the teams. It is sheer market size."

Yet, despite the opportunity, there's a multitude of challenges that African founders face.

"The macro environment that African startup founders face would make the toughest silicon valley founder cry and give up immediately," Jake pointed. Giving an example of a time when he visited Tayo and electricity went off. "I am thinking of one time when I first met Tayo in his office in Lagos and the electricity just went out," he pointed out.

Tayo also added that main challenge across many African countries is infrastructure. "Talking about electricity, we now have a 24/7 call center, that means we are running a generator," he said.

Despite, the infrastructural challenges, if one can brave them, there's the opportunity to make good returns.

"But what I say to people is that if you look at MTN, which is the largest mobile telephone company on the continent, they have the base stations and each has two generators. Yet they make $2 billion in profit just from Nigeria," Tayo said.

Also read: Nigeria’s Paga closes a $10M Series B(2), looking at global expansion

Aside from infrastructure, there are other challenges that are existent in the African market for startup founders. This includes the lack of a fully-formed ecosystem as well as the informal mentoring.

Though Tayo pointed out that it is better than now than it was a few years ago.

"Because those of us that actually started 10+ years ago are now giving back," Tayo said. "But a lot of those things make it very challenging to really run your business."

Jake brought up the issue of corruption citing the startup battlefield incident.

"I saw there were African startups in the battlefield yesterday that were grilled on corruption," he said, before asking if there's a way corruption has impeded the three's ability to succeed.

"No, it hasn't, at all," Tayo said. "We've done business, we have never paid a single bribe," Ken added.

Amidst all the challenges, the panel pointed out the difference between the startups that make it and those who don't.

Ken said that the "few businesses that survive have very very high-quality teams because it is that much more difficult an environment."

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