BusinessDay 22 Mar 2018

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Thursday 22 March 2018
BUSINESS DAY
African Startups: Of Unicorns, Gazelles
and corporate breakfasts (2)
25
COLLINS ONUEGBU (Guest
Writer)
In most parts of Africa,
the financial system
is at infancy. Venture
Capital and Private equity
are mostly focused
on the things Africa needs
and that are just being built -
from physical infrastructure
we can see, like malls, roads
and railways to manufacturing
and banking. Technology
and services are a work in
progress.
So, is copying the American
model of valuation the
right way to go for Africa? Or
should we create our own
lexicon to manage our own
African journey? This is precisely
the underlying reason
for the Gazelle versus Unicorn
conversation.
If we must stick to valuations
for our own Unicorns,
should we stick to the $1B
America has defined? Or perhaps
reduce the benchmark
from $1B to $100m? Claiming
an American billion and African
billion are not necessarily
the same? Or better still use a
yardstick that measures the
power of the average African
consumer against his United
States counterparts. After all,
these Unicorns will in the end
sell services to individuals
who have a certain capacity
to purchase their services. If
we follow this model, perhaps
our Unicorns could be anywhere
in the same range as
$100m plus or minus $50m.
But let’s discard the Unicorns
and go to the Gazelle
concept. As I said earlier,
private equity in Africa is now
focused on what’s considered
critical and immediate
infrastructure and services
for Africa. These ventures
are backed mostly from the
impact they make on Africa
for delivering basic services.
And they are based on models
proven in other climes. It’s
easy to understand the cash
flow of a new mall that opens
in Lagos or Nairobi, or that
high-rise office building in
Africa’s highbrow neighborhoods.
For a startup, what you can
see is simple: revenue; that
very real measure of customers
wanting and consuming
your products.
Gazelle makes sense if it
focuses on what our level of
investment sophistication
can understand in our part
of the world. So, let’s assume
we are comfortable with the
African gazelle that’s based
on revenue as the measure.
What should this measure
be? If we decide to stick to an
African billion, should the
billion be one billion South
African Rand ($84m)? Or
One billion Nigerian Naira
($2.7m)? Or one billion Kenyan
shillings ($9.8m)? Or
any of the other myriad of
currencies across Africa.
From the currency swings
in Africa, should we assume
the Nigerian billion for instance,
companies from other
parts of Africa will be minting
Gazelles by the hundreds.
And if we assume the South
African billion, companies
from most of Africa will struggle
to get into the band.
I will hazard a suggestion.
I will lean on the Kenyan billion
which is approximately
$10m and suggest that if any
startup in Africa generates
revenue up to $10m within its
first 5 years, we should classify
it as an African Gazelle.
Irrespective of whatever it’s
valued by venture capitalist
and private equity. This will
allow us in Africa to focus on
what’s important to us; growing
companies based on real
value: solving visible African
problems that we can see
and feel and customers can
experience and pay for.
Perhaps when we grow the
ecosystem to a certain level of
maturity, we can develop or
upgrade our measurement
systems to reflect the reality
of that day. My friends in the
African Business Angel Network
and the entire African
ecosystem are free to weigh
in, challenge, agree, and disagree.
But I am sure we can
reach some consensus and
move to more important matters
of supporting startups get
up there.
More important for me
though is the underlying reasons
for looking for unicorns
and gazelles. In the US, a Unicorn
is a sign of the strength
of the American dream; that
you can build something
from scratch and scale it to
the point of becoming a billionaire
by solving a problem
that no one has solved. The
investment community rides
on your back and idea to
make money. Shareholders
pile in at IPO and the ecosystem
benefits, and in addition,
recover from other bad bets
on the startups that could not
make it to IPO stardom.
In Africa, this is not yet
the tale. A few startups are
heading to IPO in Africa. But
it is a tiny trickle. Exit for the
entire investment ecosystem
is not yet fully defined. We will
mature to that in the nearest
future.
So, what are the options?
By minting and identifying
Gazelles who are doing $10m
revenues in Africa and growing,
the investment ecosystem
can support these companies
to keep growing; first,
within their countries, then,
across Africa. And if an Africa
listing is possible in their future,
take them to list in Lagos
or Nairobi or Joburg.
And what if a listing is not
possible? A company with
grounded revenue that’s providing
service to customers
should be able to generate
dividend for investors while
they wait for the IPO. In a recent
conversation with Tomi
Davies, we did agree that it
may make sense to change
the investor exit narrative for
our region to include holding
the equity of companies
long enough to recover some
value from dividends. This
could mean, mixing our investment
portfolio to include
traditional companies that
generate solid revenue and
companies that are scaling
with revenue as secondary
immediate consideration.
I will like to conclude this
conversation by putting on
the table the exit options
which we are not promoting
in Africa. When we have
identified the gazelles and all
of us investors are falling over
ourselves to support them
to success, what happens to
the other successful startups
that are not getting attention?
Nigeria is famed to have 37m
SMEs. After 5 years, lots of
this startup will join the band
of these 37m SMEs. Unless
they have already flamed out
and died. It does not mean
that these companies are
necessarily bad nor the ideas
behind them.
Some companies are
driven by great ideas that are
not meant to become large
companies but will grow on
their own to become successful.
In developed markets like
America, these companies
end up as breakfast for the
large corporates and older
companies. When you look
at the books of Google, Microsoft
or Facebook, you see
their acquisitions. It is made
of mostly yesterdays smart
startups who get acquired
and absorbed into the larger
organization to keep them
growing. In fact, I suspect
there are several startups
founders who aim to be the
next breakfast for Google. The
guys that founded WhatsApp
are not complaining that they
were eaten up by Facebook.
It is time the investment
community, the startup
community and older tech
and non-tech firms across
Africa recognize and encourage
this class of exit for
startups whose great ideas
are just good enough to end
up as part of the bigger entities.
We may find this a better
and more realistic exit for
most of the companies that
will never see an IPO and
will never become Gazelles
talk of becoming Unicorns.
But their ideas and services
are needed to deepen the
offering and services in the
African market. For the startups
that never make it to
becoming Unicorns or Gazelles,
joining the Breakfast
Club may not be altogether
a bad proposition.
Innovations & Start-up series
Polycrete Asphalt: An innovation that converts waste to concrete
CALEB OJEWALE
Innovations abound in
different forms, and when
it comes to technology, it
essentially focuses on the
ability of disruptive minds that
seek to evolve the way things
are currently done. Aina Olugbenga
Expiray, who describes
himself as “an Economist,
geologist and civil engineer”,
has in his own way, chosen to
disrupt the way materials are
compounded for construction
purposes in Nigeria. His
innovation, ‘Polycrete Asphalt’,
can convert the piles of waste
generated in large cities like
Lagos into a new source of
concrete. Aina gives some
insights below.
What is Polycrete Asphalt
Polycrete is a cheaper and
more durable alternative to
the conventional asphalt.
Polycrete can be used to make
interlocking bricks, and is a
perfect solution for roads. It
is 20% cheaper and proven to
last up 35years when used for
road construction, a better alternative
to waste eradication
How Polycrete Asphalt
developed
In 2010, Aina was sent on
an exchange programme to
India from Lagos State University,
and was opportuned
to meet some Indians working
on a similar project. Upon
his return to Nigeria, Aina
started sourcing for materials
by contacting friends in India
and doing research on the internet.
This invention has led
to the construction of locally
made asphalt machine.
How much waste is needed
for a given area
4500 tons of waste will generate
enough polycrete asphalt
to cover 100square meters
How is this significant for
Lagos
It will interest you to know
that 45000 metric tons from
total waste generated in Lagos
can be converted to 2km of
road every week.
What is the process of making
the Polycrete Asphalt
84 percent of the final product
is made from waste while 16
percent represents the binding
aggregate. The materials
converted are plastic, polythene
wastes, and silt packed
from blocked drainages or
swept from roads. These materials
are treated through a
process called photodegradation
which reduces the non
biodegradable property of
polymer to 0.5% and the silt
is treated as well. The output
is transferred into the asphalt
machine that processes them
into the asphalt, and moulds
in different shapes and sizes.
Team: Frank Eleanya, frank.eleanya@businessdayonline.com; Caleb Ojewale, caleb.ojewale@businessdayonline.com