Africa the next frontier for private equity, venture capital

The Organisation for Economic Co-operation and Development has said funds raised for private equity in sub-Saharan Africa has more than trebled over the past five years. COSMAS BUTUNYI spoke to the chief executive of the African Venture Capital Association (AVCA) on the state of the industry, the outlook on venture capital inflows in the coming years and the role of her association in writing the success story

What would you consider as the main obstacles standing in the way of African private equity from realising its potential?

The industry is still at its infancy and is still small but growing at the same time. Most of the General Partners in the continent are developing growth capital and we are seeing sector funds coming up. Eventually, we will see the rise of debt funds. I think where we are in Africa is part of the life cycle of the industry. However, as an industry, we still need to communicate a lot. We need to engage entrepreneurs so that they can see the value addition that private equity can bring to a business. We also need to speak to pension funds and break up the stereotypes of perceptions versus reality.

In your opinion, what factors make Africa the next frontier for private equity and venture capital?

There are good stories coming out of Africa; there is no better place to be. Think of the consumer story, population, middle class and you could not find a better investment opportunity. We however need to move the conversation away from political risk. Not that it is not there, but it would not be greater than any other geography.

Impact investment in Africa has been billed as the next big asset class. What do you think about it?

There is a lot of misunderstanding on what it is; some people think it is private equity. AVCA has to give a platform to different strategies and impact investment is a strategy in the same way that infrastructure is and consumer is. At the moment, we are working on collaboration with a foundation to research case studies in impact investment.

What is your association’s contribution to efforts towards unlocking local sources of capital?

Unlocking local capital is a huge responsibility for us. Over the past year, with the Commonwealth Secretariat, Emerging Markets Private Equity Association (EMPEA) and a number of practitioners, we have held a number of roundtables in different parts of Africa for private equity and pension fund managers. This is something that we have to keep doing because the more LPs are trained to invest in private equity funds, the more we allow resources into the community and the economy.

How about engaging authorities and regulators to create a favourable environment for private equity investment?

I want to start engaging with them on issues of impact investing and private equity. I am of the mindset that we need to reach out to everyone so that there is idea exchange. There is a lot of benefit in this.

How else does AVCA hope to contribute to growth of the industry?

AVCA’s long term goal is that we will have a chapter inside Nairobi that will cover all of East Africa, because what we want to be able to give to our members are services suited to local needs. We will look to replicate the same in West Africa. In Southern Africa, we are working on linking with SAVCA to collaborate with them because they have been around for a long time and have a good reputation.  We will do the same in North Africa. The needs will be very different; it will be advocacy, speaking to regulators and government to understand the benefit of private equity and to develop of growth capital to create jobs and efficient companies. The chapters will also be responsible for addressing training needs for GPs such as negotiation skills and financial modeling; as well as LPs on private companies.

Before your appointment, AVCA had been dormant. What were the reasons for this?

AVCA has been around for ten years now but it has had an uneven history. There are many reasons for this and I only know of it anecdotally because am new to AVCA. However, this gives me an opportunity to be forward looking and not to focus on what happened in the past. There are things we are working on that AVCA needs to change. I think we need to be reflective of the same principles we ask GPs to establish in portfolio companies: good governance and good corporate practices. We are putting all these things in place today. Things are different; our board is different and is made of GPs who have deep connections in Africa; and we have a new management team. It does not bode well for the association, the industry, or even public perception and Africa as a whole, when we are not sustainable.

Recently, AVCA signed an MOU with its British counterpart. What was this about?