How Venture Capitalists Can Find Winning Startups in Africa
Maro Elias's recent article on Tekedia discusses the dynamics of startups, corporate innovation, and venture investing in Africa, offering insights into identifying promising ventures and navigating the complexities of the African market. The article begins by highlighting the story of PiggyVest, a Nigerian fintech startup, to illustrate how innovative companies often make seemingly random bets based on unique insights. PiggyVest founders recognized an opportunity in the market, where young people were underserved by traditional banks. This example underscores a central theme: successful innovation stems from identifying and capitalizing on overlooked market needs!
Elias contrasts two schools of thought on innovation in Africa: the "copycat model," which replicates successful ideas from developed economies, and the "original thought" model, which focuses on building solutions tailored to specific African market needs. The article also explores the challenges of innovation, particularly the inherent risk-taking involved. Established companies, while possessing the resources, often shy away from bold bets, leaving room for agile startups. The author categorizes innovation approaches into those that double down on existing business models, those that chase trends, and those that think from first principles.
For venture investors, the key is to identify companies poised for substantial growth. This involves understanding which markets to avoid, such as saturated markets where leaders are already defined, and markets dominated by established players (the "Old Guard") who are late to the party. Instead, investors should focus on opportunities that fall into three categories: "Hard Problems" (high opportunity, low competition, requiring strong execution), "Silly Ideas" (non-obvious truths with high potential), and "Wild Cards" (high opportunity, high competition, where winners are yet to be determined).
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Ultimately, the ability to discern potential winners and make strategic investments is what distinguishes successful venture investors.
It is a long read; go for it as it has many nudgets.