This article was contributed to TechCabal by Sapna Shah, partner at Novastar Ventures.
Earlier this year, we hosted our annual investor advisory committee at our Nairobi office. We took the opportunity to visit some of our portfolio and pipeline companies and the customers they serve. For a few years now, with COVID-related travel restrictions, experiencing this first hand hasn’t been easy for our investors and the only way they could appreciate the realities on the ground was via reports and on screen.
The visit reminded me of a few themes that we have seen play out with our portfolio companies and some of the lessons we have learnt along the way about what it takes to successfully build and scale businesses in Africa.
First, the evolution of our market is such that if you’re an entrepreneurial team that wants to move and scale fast, you’re going to need to build many parts of the value chain yourself. Each of our companies has ended up doing things they could never have imagined in adjacent parts of their business model because plug-and-play tech solutions that address a single problem rarely work in contexts where so many value chains are broken. To successfully scale, companies often need to build full stack, end-to-end solutions.
International investors who aren’t familiar with the continent might look at this and say: “You need to focus.” But until our markets are more mature, doing one narrow thing isn’t going to work at scale. The good news is, if the entrepreneurs can figure this out, they’ve inevitably built a strong moat around their company, with high barriers to entry in a market where competition still isn’t too high.
Take NewGlobe, a company transforming learning outcomes for children. When it was opening a school a week in Kenya, no construction company could keep up and it had little choice but to build its own schools. Or BasiGo, Africa’s leading electric bus platform, that has to build electric bus charging and service infrastructure and simultaneously provide a pay-as-you-drive financing option, all in order to revolutionise the public transport sector. Or TradeDepot, which started out thinking it could just build software to connect FMCGs and informal retailers but soon learnt that it had to handle logistics as well—everything from warehousing to deliveries—so the customer could be effectively serviced.
Building end-to-end solutions takes more time, more capital and is enormously complex operationally. It means that when entrepreneurs come to pitch to us, we know if they say they’ll need $5 million for the next stage of building their business, they will likely end up needing much more. And it will take them a longer time to get there.
Managing the larger teams this operational complexity demands is tough. At a middle management and leadership level it requires a lot more multi-skilled generalists. At a junior level, it’s the sheer power of numbers. And while there’s no shortage of people to hire in, let’s say, sales, the success of the business comes from how you then manage the team and inculcate the culture.
That leads me to my second theme: culture. With every passing year, it’s a topic I become more passionate about.
Good systems make a big difference when managing a fast-growing organisation, whether it’s simple checklists, automation or training. But we know the softer side of the culture is equally, if not more, important. We’re increasingly asking our entrepreneurs: how much time are you spending on building culture? What are you doing around hiring, retention, communication? A great example of this working is pan-African healthtech company, mPharma, where Greg Rockson, CEO, has instilled an open feedback culture, creating loyalty among his teams, despite having grown very rapidly into nine countries in a few short years.
When culture goes wrong it’s horrible to watch. A few years ago, one of our portfolio companies scaled its sales team rapidly, but without either the systems to manage the workforce or the culture to create coherence, everything just fell apart.
The sales team in our markets is crucial. Sales here doesn’t happen via an app; most transactions remain face-to-face sales—that’s how most customers still prefer to buy. That means companies need sales teams representing them in communities, and ultimately driving sales. That’s quite different to many Western markets, where customers don’t like this sort of high-touch approach.
In markets where people have less disposable income, a high level of trust in the product or service they are purchasing is required. If it’s a Penda clinic, and I’m going to spend $10 that I don’t have, I need to trust I’ll get the service I need. If I am investing in a bag of fertiliser from iProcure, I need to know the product will work. This trust is built into transactions with sales representatives in the community. The brand and culture lives in these people, and it is what attracts new recruits to the company too.
Finally, co-founder relationships are key. Similar to our VC peers in other parts of the world, we prefer to invest in co-founding teams because of the thought partnership and support co-founders can provide each other. But we’re more pragmatic now: we know that co-founder relationships might not last forever.
If and when there is a breakdown, it’s not only about being there for the founders, but also learning how to spot the warning signs early. You might start to see co-founders going off and focusing on a particular aspect of the business, or doing different things on their own, or connecting less with one another than they used to. These signs can be challenging to discern, but over our years of investment, we are learning to spot the red flags early.
We founded Novastar in 2014 to power an entrepreneurial revolution that transforms African markets and sectors, creating lasting value for the many, not just the few; for people and the planet—for good. Fast forward nearly a decade and VC funding on the continent has grown an astonishing 26x, despite significant global headwinds, demonstrating Africa’s fundamental growth drivers and the resilience of strong businesses.
As one of the first institutional VCs in Africa, we’ve learnt many invaluable lessons about building and scaling businesses that we continue to develop and apply as we look ahead with optimism.
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