Category Archives: venture capital

Here is my opening address at the Private Equity World Africa 2011 Conference in London.

I am pleased to be here. On behalf of VC4Africa, I am pleased to welcome you to this conference. We have a nice program today that will see us cover a lot of ground and I look forward to the presentations, the questions and conversations. If anything, today is a platform for exchanging ideas, networking and getting to know one another. So let us take advantage of our time together.

For me, 2011 was a year that ushered in a new period of change for the African continent. What started with a disenfranchised shopkeeper in Tunisia has spread into a social movement that looks to rebalance realities across Libya, Egypt, Syria, Bahrain and Yemen. But what has become known as the ‘Arab Spring’ has potentially found new roots in Sub Saharan Africa too. Maybe the events south of Cairo don’t get the same international news coverage, but we would be foolish not to recognize burgeoning movements in places like Uganda, Nigeria, Malawi and Senegal. The economic inequality, and a growing demand for access to equal opportunity, has shifted tectonic plates that have seemed immovable for decades. Bottom line, 43% of the African population is under the age of 14 and this is a demographic reality that is changing the face of the continent forever.

With the rise of technology, increasing access to Internet and mobile networks, a connected African society is empowered to take a more active role in defining the future & the political agenda moving forward. This is part of a new energy sweeping across the continent as Africa’s growing population’s aspires to rise economically. For many, gains have already been realized as a swelling middle class can now be targeted for business. If anything, African consumer spending power is real and growing. We are looking at the emergence of the very foundations that allow us to invest in the development of new economy.

At the same time, this reality is not new. If anything, Mo Ibrahim, the Sudanese founder of Celtel, was one of the first to demonstrate Africa’s potential early on. I have had the pleasure of interviewing him twice. The success of Celtel was a private equity windfall, but more importantly it laid the ground work for the type of open communication that is starting to dramaticlly transform African societies today.

Created in 1998, we have to remember that Celtel brought mobile phone service to more than 6 million people when there was almost zero land-line infrastructure. The rapid adoption of Celtel’s mobile devices wasn’t only good business, it absolutely revolutionized the way families communicated from town to town, and the way businesses interact with suppliers, customers and employees. It has transformed the way Africans learn about local health care, the way they bank (often for the first time), and the way farmers price their crops. It is this same telecommunications network that is now being used to mobilize our communities and brings them together around important social and economic issues. This is the kind of story the investment community can be proud of. Good business that changes lives.

The deal wasn’t exactly intuitive at the time. In 1998, only two million of Africa’s 950 million people were using cell phones. Furthermore, Africa’s reputation as a place to do business was almost universally negative in financial circles. After a series of “no’s” from banks who were “ruled by misconceptions about Africa,” as Ibrahim told me, he had no choice but to raise capital from private investors. It wasn’t his preferred way to build the business, but the only way. As he explained in an article for the Wall Street Journal: “We had to fund the company through equity. It is a very strange way to fund a telecom company. The equity backing required the company to endure eight or nine rounds of funding, which always involved re-upping from insiders and often slowed down the company’s hockey stick growth.” But without the investors willing to take on ‘major risk,’ Celtel would have struggled to expand so quickly into 10 African countries.

Thanks to this private equity capital, from the likes of Zephyr, Bessemer Ventures and Actis, Celtel was able to put $800 million into licenses, acquisitions and infrastructure. Revenues grew more than 100 percent each year and Celtel rode the wave of mobile adoption as more than 400 million Africans—almost half of the continent— purchased cell phones. With a revenue run rate of $1 billion (and an annual EBITDA of $250 million) Celtel sold in 2005 to MTC Kuwait for $3.4 billion. The company commanded a premium price, in part, Ibrahim has said, because of its good governance. Just as impressive, 100 percent of the company’s more than 4,000 employees are African. But again, the real impact of this company goes much deeper. Indeed, it is the very telecommunications network that now mobilizes our communities and brings them together in ways that potentially rebalance societies across the continent.

I like to think the world of Private Equity and Venture Capital works slightly different in Africa than it might in other parts of the globe. For one example, many great companies in Africa are still owned by a family. Building trust takes longer and we have to spend more time structuring a deal. Many times pieces are missing and careful analysis has to go into a plan that brings the right parts together. Does less competition for these deals allow for more meaningful exchanges? Is it this kind of patience and hard work that helps ensure better returns and greater impact over the long term? Often times holding a minority stake means we have to ‘do more’ to establish relationships with our clients. We have to prove that our insights, advice and management plans have merit based on valid historical track record. For me, these are qualities we should hold dear to our business.

Indeed, with the gains achieved through an entrepreneur like Mo Ibrahim, and the bold investments we made into transformative companies like Celtel, now is the time to welcome new colleagues to the table. Thus far, an influx of new entrants to the market may well increase competition for deals, but it has also made for some compelling exit opportunities. In recent years, the market has seen an influx of international strategic suitors seeking to enter the region by acquisition. These include not only corporations from Europe and the US, but also corporate entities from India and China. Trade exits will become more and more important. And let us not forget the deal that saw Aureos exit its entire portfolio in one fell swoop.

We have to remind ourselves, and our new colleagues, that to be successful in African markets takes time, we build on relationships and on true and shared visions of the future. Indeed, our businesses must benefit the 43% of the population now coming up and rightfully in search of their own. After all, we share the same future we have the opportunity to discuss today.