March 23, 2020

Creating Pariti

Wossen Ayele

Last month, Partech Partners published the 2019 Africa Tech Venture Capital Report, which showed that over $2 billion flowed into African tech startups in 2019, up 74% from the previous year. Though a substantial figure, it is still a drop in the bucket that is the global venture capital industry. Consider that in 2018 alone, VCs, mostly from more developed markets, invested in over 500 rounds of financing of over $100 million each.

As global VC pours massive amounts of capital into unicorns and continues to invest in the next millenial-focused DTC product or dog-walking app, I wonder: what if more was allocated towards solving some of the major challenges facing communities in places like Ethiopia, where my family is from? It’s true, we should not fetishize entrepreneurship as a panacea for the ills of the Global South. Not all problems can be solved through entrepreneurship and innovation; we need stronger domestic institutions, a more equitable global order, redress for historical injustices and much more in order to realize the world that we want.

However, if harnessed properly, billions of dollars of risk capital can yield transformative results. Breakthroughs in education, transportation, internet connectivity, financial technology and other areas have the potential to create tremendous wealth and materially improve the living conditions in emerging markets. In The Prosperity Paradox, the late Clay Christensen and Efosa Ejoma write:

“What if much more of the $143 billion spent on official development assistance in 2016 was channeled to support direct market-creation efforts … Imagine how many markets could be created; imagine how many Tolarams, Nollywoods, M-PESAs, and other new-market creators could emerge; imagine how many jobs could be created.”

To a certain extent, the market has responded to this opportunity. In Africa, compared to more developed startup ecosystems, a much greater proportion of this capital has gone into these market-creating innovations, which also present massive upside opportunities to investors. According to the report by Partech Partners, more than half of total investment went to companies in fintech and off-grid technologies and other market-creating sectors.

Over the past several years I’ve become convinced that this presents one of the most effective ways to drive actual economic prosperity in emerging markets is to harness the power of innovation and entrepreneurship. (It also is the one arena where I feel best positioned to participate.)

With this in mind, the question I set out to answer is in how can I drive value in the emerging startup ecosystem so that it can better realize it’s potential. Over time, I came to a few broad conclusions about what was happening in Nairobi, where my co-founder and I both reside, and across Africa more generally. There are a great number of entrepreneurs working to tackle massive problems. The reason why many of these entrepreneurs are struggling to gain traction is not that they don’t understand the problem for which they are trying to solve, or that the solution that they are developing is unviable. In many cases, the major bottleneck for success is a lack of access to execution talent and capital.

A startup founder entrepreneur in Accra or Kampala doesn’t have access to people with strong global business experience. Contrast this with someone launching a company based in New York City which is teeming with talent working at corporates, consulting firms or financial services firms. These founders also have limited access to investors who are putting to work large pools of risk capital.

When we first started Pariti, we identified the problem and built an advisory business using freelancers to fill this gap. We realized that while many accelerators are able to give advice, many startups need more than advice; they need someone to execute. The key insight that we had is that by pairing freelancers with technical skills with those who have deep market expertise and can guide the deliverables, you can dramatically bring down the cost of advisory services, unlocking a layer of the market that was previously underserved. In the long run, more companies will be prepared for the investment process and from the investor perspective, the universe of “investment-worthy” opportunities will expand, not only in Africa and eventually across all emerging markets.

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