Learn, network and secure deals at Africa's largest private equity (PE) and venture capital (VC) event
This conference, known for the quality of its attendees and its superb networking in Africa, was for me all about the first word in its title ‘Learn.’ Between the interactive panels, structured debates, and coffee networking breaks – I have four key learnings:
(1) Importance of Partnerships: The key to a successful future lies within partnership between government, business, and civil society. Governments can provide security legal frameworks macroeconomic environments and infrastructure for the private sector to create economic growth and provide wealth more efficiently given rigorous discipline of the markets. FW de Klerk highlighted the correlation between countries that best promote economic freedom and high per capita income, citing the example of Hong Kong and poverty eradication supported by economic freedom and limited government. Accordingly, the audience widely supported the call for governments to provide investors with the knowledge and confidence in the long-term policies in order to invest (i.e., property ownership).
(2) Impact of 2016 Macroeconomic Shocks: During the two-day conference, there was more than one elephant in the room (i.e., Ebola, Brexit, US President-elect Trump, oil prices, Naira fluctuations, etc.) concerning the macroeconomic challenges of 2016 and prospects for the near future. The consensus was the importance of investing in relationships on the ground to ensure deal flow and manage risk beyond diversification of portfolios. For example, attendees highlighted investment in local currency, engaging local institutional money, collective lobbying about PE as a force for good, and understanding changing environments. Given the volatility of 2016 and the outlook for the future – one speaker reminded the panelist of the Serenity prayer in that you have “the serenity to accept the things I cannot change; courage to change the things I can; and wisdom to know the difference.”
(3) Predominance of Regional Strategy: My favorite session was a debate regarding whether PE firms should have a pan-African, regional, or one-country strategy. Francophone Africa offers multi country regional business, high urbanization levels, currency union with two central banks, and a unified system of law. Whereas the North Africa panel discussed emerging opportunity admits challenges in Algeria with the need to educate investors on perceived vs. real risk operating in the region. On the other hand, East Africa illustrates considerations of regional integration challenges as political and commercial interest do not align requiring strong understanding of diverse regulatory and political interest in each country. Regardless of location, the speakers highlighted the need to be intentional and nuance about the team/fund manager and their knowledge of local context as well as strong alignment of interest especially when operating in family businesses.
(4) Promotion of ESG: Panelist shared varying definitions of CSR and ESG (environmental, social, and governance); all requiring companies to act responsibly based on current (CSR) and future (ESG) expectations. In Africa, there are prevailing negative perceptions regarding PE and whether or not it can be a force for good; accordingly, ESG is a way to demonstrate benefits to diverse stakeholders but it requires education and clear measurement. Building an industry or creating efficiencies can greatly impact the poor; whereas others cite investing in impact to require mitigating risk to achieve scale out providing a better risk adjusted return across markets demonstrating resilience in an environment of crisis. Unfortunately, many noted the challenge of ESG becoming more than a tick-the-box exercise, widely integrated into the approach of GPs and culture of portfolio companies.
As I learn more about the industry, I still hold the following four questions:
(1) How do you build sincere trust with portfolio companies and demonstrate that your engagement is not just about putting money in and getting more out?
(2) Which firms are genuinely interested in building end-to-end, transformed businesses as opposed to making a quick return?
(3) What is the level of leadership training, culture building, and human capital investment for successful transformation?
(4) Is there demand in the market for more partnership between PE firms and consulting firms given the need to not just bring capital but to engage in management advising, strategy development, and team mentorship?