Alternative VC Investing: Building Stronger Last-Mile Ecosystems to Drive Startup Growth in Africa with David Ogundeko

[00:00:00] You're listening to the Unlocking Africa Podcast.

[00:00:30] And founders who don't have the experience, who don't have the where we are to build without support initially, are very rare. Stay tuned as we bring you inspiring people who are unlocking Africa's economic potential. You're listening to the Unlocking Africa Podcast with your host, Terser Adamu.

[00:00:54] Welcome to the Unlocking Africa Podcast, where we find amazing people who are doing amazing things to unlock Africa's economic potential. Today, we have David Ogundeko, who is founder and CEO of Funema, a last mile impact focused alternative investment company based in Pennsylvania, Lagos and Cape Town.

[00:01:19] Welcome, welcome, welcome to the podcast, David. How are you? I'm doing great. It's sunny. It's a sunny afternoon in Cape Town. And I'm doing great. Happy to be here. Looking forward to sharing my insights into the Unlocking Africa, to the global economy. Fantastic. Thank you. I'm jealous. The weather isn't too sunny here, but... It is what it is.

[00:01:44] And that's exactly... And that's exactly what I said is sunny in Cape Town, because I know it's quite dreary over there in the UK. So just to make you want to move back. Thank you for rubbing it in. You're welcome. It's the least we can do. Brilliant, brilliant. To get us started with a conversation, I was hoping you could introduce yourself and just give us a brief introduction into who David Ogundeko is.

[00:02:12] Yes. So I'm a poet and by design. So obviously that would constitute a problem in the financial sector. And that's why I like to call myself a reluctant venture capitalist. I just, I find myself in an industry that is an antithesis to my values and my principles. But somehow I just have to be here because there's a need for impact. There's a need for doing things differently.

[00:02:42] It doesn't exactly mean that, you know, I have a miscarriage complex. Maybe I do have a miscarriage complex. I'm not even aware of it. But yes, but that's, so yes, I'm a poet. I love working with founders. I love writing. I enjoy the borrows, the three year of the energy of being in the venture ecosystem. And I also enjoy the fact that what we do is very impactful. And yeah, that's why I'm in a very, very brief, brief introduction.

[00:03:11] I like it. So poet, reluctant venture capitalist, which I guess is the reason why you started Funema. But was there a specific incident or moment which was the catalyst behind starting the company? Yes, there is. And actually it's a series of moments of different triggers. But the final trigger was when I was working at SeedStars in 2016, 2017 in Lagos, Nigeria.

[00:03:40] I was one of the MDs hired when they started, when they started at Lagos office. SeedStars were an emerging market investor. They know the 60 emerging markets globally. And they had a venture studio with ideas that they had created. And they were hiring founders to come in and run this, the ventures. And I was hired to be the head of academy to source, to hire and then train and mentor the founders that we were hiring at the time.

[00:04:09] And I think I learned there what was missing because my initial inspiration for what I'm doing happened a couple of years back in 2009 in Accra, Ghana. I think that because I had a business at the time and I did a bit of small business advisory consulting. I started more as a designer, communication design, and then a bit of, you know, creative writing for marketing, be it emails or ads.

[00:04:38] And then I also got into technology, which is building web applications. Back then we called it RIAs, that's rich internet applications. But now it's a different board game. And because when you build online applications, it has to serve a business function. It has to achieve a business objective. And that led me into small business advisory was just more of an accidental entrance or entry rather into advisory.

[00:05:08] And I worked with a lot of, I was engaging in a lot of small businesses then. And I just saw that there was a gap. Business owners then just couldn't afford to get talent. They were struggling with basic functions like accounting, bookkeeping, creating, you know, marketing strategies, understanding technology and how to use the courage to, to, to power their businesses. But these were really small businesses.

[00:05:35] They really couldn't afford to hire the right people that had all of that knowledge. And the idea that came to me then was imagine if these guys could have a team of, which was very, you know, I mean, back then it was just very, now it's like a little bit dumb. But, you know, the first idea is never the best. It just has to keep iterated.

[00:05:52] But what I had in mind, and I thought that the reason why the giants, the 45 hundred companies were big is because they've got like, you know, an army of VPs who could really think strategically and at least think about the business. But small business founders or owners don't have that. They have to do everything themselves. And what I thought then was imagine if they could have a team of people who were young and could do these at a fraction of the cost. That was what I thought.

[00:06:20] But I mean, now it's really, that can't work. What I learned in Safestars is the venture building way. And I thought that venture building could then become an alternative investment into, into farmers because there, there's no need for cash. It can be an exchange of equity for, for expertise. And it can be used to help those businesses grow at least, you know, for the early stage of their development.

[00:06:46] So yeah, that's, that's how I happened on my, my, my career today, what I'm building today. Fantastic. So you've touched on the catalyst, which were a series of experiences, but I was wondering how those experiences, both as an entrepreneur and working in the corporate world have actually shaped the focus and delivery of Funema?

[00:07:08] I would say in a number of ways, and it's more iterative because when, when, when I started Funema, I had a diverse set of skill sets. I understood marketing, I understood design, I understood programming, I understood product development. I understood, I understood financial, basic financial understanding, how to be financial models, especially for, for, for technology status, which is a different ballgame tally.

[00:07:36] And, and understanding numbers was one thing that I actually learned from Seedsters. We all had to learn to do it. And, and, and, you know, when I started Funema, I brought all of those skill sets to be there, when it comes to engaging founders and helping them think through their business models.

[00:07:51] And at any point in time, I could be hands on in building their brand identity or designing the websites or helping them to think through their development or hands on in also working on this, on the financial model and building the right projections that could have the most capital.

[00:08:09] And so I brought everything to bear initially, but I've had to learn over time that doing everything without being a master, that's key specific skill sets, what's, what's, what's, what's the recipe for failure. So we've, we've had to sort of fine tune what we are offering founders.

[00:08:28] And we had to really take a, take a few steps back and ask ourselves questions, which is what are we really, really good at that adds the most value to, to founders at the early stage without denying them the opportunities to learn to become CEOs themselves.

[00:08:45] Because we also then realized that by trying to do everything for the founders initially, we were denying them the opportunities to grow, you know, make decisions, make bad decisions, learn from that, and use that to make better decisions as, you know, as they're growing the, growing the adventures. So we've, we've, we've limited ourselves to just three key areas.

[00:09:07] And that is just focusing strategy and in operations, which is helping the founders understand the best way to execute and to have a system in place that can make them execute and secure the operations from the team of zero to the team of 20 and 40 and 80 depending. And also financial growth.

[00:09:25] And that is helping our founders get clarity on the market size and the market value, what the, what the unit economics should be like, and using that to drive revenue expectations, monetization strategy, your pricing models, and also understanding enterprise value and how to manage that in terms of dilution through fundraising. The best time to raise capital and when to not raise capital and how to negotiate the terms as well. And those are the three key areas that we decided to focus on. Why?

[00:09:51] Because we believe that the three of them is very foundational to how a business should be structured from ground zero or from time zero. And if they get that foundation right, they can easily scale because we've sort of seen companies that, you know, get into acceleration programs and just to get out, they get the attention, they get the PR, basically to get the, they get the funding, but then the foundation is flawed.

[00:10:18] And when they take all of that resource, which could be for capital introductions to, to, to, to, to, to, to commercial partners or whatever the case is, the growth that comes in, they're, they're not able to, to maximize that opportunity. And then they end up failing.

[00:10:35] And what we're hoping to accomplish, which is why we like to go, why we like to take in companies that are still idea stage, that really are point zero, is to put in place that foundation so that when they then go into programs, acceleration programs, or they receive capital from investors, they can maximize their opportunity properly. They know, they know, they know exactly what to do. And as they're scaling, the foundation is not fault. They can scale successfully and become successful venture.

[00:11:03] So yes, so it's been a series of, when we started, we pretty much applied everything that we knew. And over time, we've identified areas that we're great at, and also areas that would help our companies become great companies without denying the founders the opportunity to become CEOs over time. What you're offering is a, I guess, a alternative VC model.

[00:11:26] Why do you believe some of the traditional VC models maybe are misaligned with the needs of startups on the continent? For me, it's more of a timing issue. It's, there really isn't a misalignment per se, but if your timing is wrong, it is definitely misalignment. And the reason why I'm saying that is, so when you come to Africa, or maybe frontier migrants globally, the dynamics are quite different.

[00:11:56] You've got founders who are founders by necessity and not by choice. Most of the time, at least eight out of 10 founders that you encounter, they couldn't get a job. And then they decide to be an entrepreneur, they found a problem, and now they're trying to solve the problem. What does that mean? It means that they're lacking some fundamental knowledge, you know, deciding how companies, organizations are structured. Puts in place the right systems that can enable venture-scalibre companies. So that is kind of lacking.

[00:12:27] And, you know, when the venture capital industry became a bit more active in Africa, you realize a lot of founders that got funding were either, you know, like we like to call them in Nigeria, just got back founders. The founders that moved back to Africa, or the founders who decided to make Africa their home, but they were not originally from Africa. These were the guys that kept getting, for example, you realize you're looking at a company from Kenya, but you're not exactly the same Kenyans there. Or they're getting other funding.

[00:12:57] So, but that is changing now because now there's a drive for DEI, DEI-focused investments or DEI-sensitive investments. So it's good that that is currently changing. But it also means that there's a problem there. The problem is that a lot of the founders locally don't exactly have high-level corporate experience. So because they don't have that, when they're starting, it makes them the wrong subjects for venture capital.

[00:13:24] It means that their learning curve is much more higher, it's much more steep, and they have, they need time to really understand how to make an organization work. Because a company is basically a system of systems. And if they don't really understand that, then when they take venture capital, they can't really use that capital properly in a way that would amplify growth and provide the kind of hyper-speed growth and venture outcomes that VC funds are looking for. So I think it's more of a timing issue.

[00:13:50] I think the venture capital coming much later on when founders have been able to really understand their business model, that they've really understand the market dynamics. They understand what can get into the product market fit. And they know the best way to get success. And they also know how to replicate that because there's already traction in place. Now, that also constitutes a problem. The problem is, at that point zero, who's going to support the founders? Yeah. Because they still need help, nonetheless.

[00:14:19] And I think that what we are working at Finema is one of the solutions that can address that, which is providing the founders that expertise that they don't have. Because we do that by design and we also have experience compounding by the number of companies in a portfolio that we've been helping over time. And it just keeps getting better year on year.

[00:14:40] And we can provide all of that knowledge and experience to founders at point zero and shorten the time or, in a way, reduce the learning curve as much as possible. So you have them get the traction needed to then engage venture capital further down the line. It means that, and I was at a summit recently, and it was a round panel conversation on how to get, you know, status ready for venture capital investments.

[00:15:08] And I was kind of evangelizing the idea that that is nice, but there's a fundamental problem. And in Africa, we need more funding options beyond just venture capital. So we need a bit more non-delive capital that has a different agenda, which is catalyzing the entrepreneurship ecosystem to enable economic growth, as opposed to just providing, you know, alpha returns to the office of VC funds.

[00:15:36] Once we can have that, then we have a diverse ecosystem that can then enable VC funds to come in and participate successfully. So if we look closer at some of your solutions or models, specifically your venture building for equity model, why do you think this works in emerging markets? It works because what it does is that it takes away the zero sum outcome, right? Yes. Because there's a tick and a tick and a tick situation. VCs are looking for traction before they can write a check.

[00:16:06] And in founders who don't have the experience, who don't have the where we are to build without support initially, are very rare. So the pipeline already is, there's a pipeline problem. We have more founders who are just brilliant problem solvers. They found opportunity. They understand the problem deeply and they want to solve it. What they don't have is the necessary corporate experience to build a company, but they're really good product managers. They can do that. They can build products, but they can't build companies.

[00:16:36] And business investing companies are not products. So that's a problem. It means that they can't really get the capacity that they need. And for them to get the traction, they need to now have expertise that can build companies for them. But now they need funding to hire those people. So it becomes a tick and a tick situation. So what venture building does, especially venture building for equity, is that it creates an alternative currency for the founders.

[00:17:02] They don't have to worry about raising money to hire the talent that's required. Venture building can provide that expertise. The founders can leverage that expertise to build or at least to go through the proof points required to have a business model that actually works. They can get the traction that they need and then leverage that traction to achieve two things. It's either to get venture capital or they can then, you know, they can understand the market and just keep doing it. They can keep on bootstrapping if they choose to.

[00:17:30] And we've seen that play out in a portfolio. We've got a company's portfolio that are doing way above $20,000 to $300,000 in annual revenue, recurring revenue. And they haven't raised a dime of capital. They've just been bootstrapping year and year. So we see that venture building can also help follow a superstructure where necessary or where it's going to have better outcomes compared to just venture capital.

[00:17:54] So venture building can, because someone needs to pay the price of absorbing the risks that are deeply embedded in these companies and making them investable. And using private equity or venture capital to do that is kind of like an antithesis of what venture capital is. It's not going to do that.

[00:18:16] Grant funding can be useful, but grant, you know, providing capital without knowledge is basically pouring a lot of, you know, gasoline on a bonding bush. It's just going to amplify the problem. But venture building, and if, of course, paired, of course, with, you know, non-dentitive capital, it becomes a really powerful, very cool. So absorb the risks in that, you know, point zero of the entrepreneur's journey and then get them ready for venture capital engagement further down the road.

[00:18:44] I was wondering if we could probably take a few steps back, I think, maybe for those who are listening in terms of your focus is on the last mile impact. Maybe you could kind of give us a bit more detail for those who are listening who don't quite understand what that actually means. Yes. So last mile, it's kind of like a construct.

[00:19:06] What it really means is, I mean, you and I know, and of course, the, you know, we're basically some probably know this. You have the haves and you have the have-nots, right? Like, in any society, you've got, you know, the highly developed areas where the middle class or the 1% are leaving. And then you've got those, you've got the projects, you've got the ghetto areas, you've got the, not exactly very urban, but you're still in the city areas.

[00:19:35] Now, the way people experience technology is not the same experience because they don't have the same access. So, for example, I'm here in Cape Town and it's easy for me to go on a Zoom call and to be on this interview because there's constant power supply. So I don't have to worry about power. And, you know, there's a value chain that goes into making one key event happen.

[00:20:02] But when you go to underserved markets or underserved demographies, they don't have that value chain existing. So if you take a fintech product, for example, that could be like a payment gateway and you take it to, let me use an example. You take it to, say, Joshua Market. You go to My12, right? You have to assume that the merchant there has access to cost and power supply so they can charge their POS system.

[00:20:31] You have to assume that they've got access to internet and you understand how to use that technology in the right way. You have to assume that the merchant can easily access, you know, tech support that could help them figure out how to use a device. They could help them figure out, you know, if the device is faulty, they can get that device fixed. Because without this system in place, your business model becomes dead on arrival.

[00:21:01] So we've seen that there's a systemic failure in underserved markets, which are not necessarily existing in more advanced markets. If I come to Cape Town, I'm not worried about all of those things. Well, it depends on where Cape Town. But you get what I mean. It's something in Nigeria. If you're staying in somewhere like Ukoi in Lagos, you're not really worried about those things because there's some fair level of standardization involved from an infrastructure perspective.

[00:21:24] And we believe that technology should be used by everyone, regardless of their economic status or social status or where they stay geographically. So we look for founders who are building solutions that are targeting small businesses in those markets. And then from all portfolio construction, we have a systemic approach. So, for example, if we were to consider a fintech company offering a payment solution to tabletop merchants, for example, and we actually do have a company like that, the company is called Duca.

[00:21:54] We have to make sure that we have another startup that is providing a micro banking solution. And we actually do have one, the company is OSB. And we also have to make sure that we have a startup that is providing clean access to energy. And we also make sure that we have a startup that is providing access to data in a way that is affordable and accessible in those areas. Because we know that for Duca's model to be successful, these are the factors that need to be in place.

[00:22:23] Else, it's going to be a failure. And that's what's happening. That's why we think that many investments in Africa are not providing the returns required because it's a systemic failure that needs to be addressed. And VC funds need to start thinking systemically than to just chasing trends. It's clean tech today. And yesterday it was crypto. And before that, it was fintech. Let's see what's going to come tomorrow. Thank you for sharing that.

[00:22:47] So from your experience, what specifically makes last mile solutions in emerging markets so critical for long-term impact? It has to be critical because, especially in emerging markets, the reason why, if you look at advanced economies, right, we've got retail investors. They didn't just happen overnight. These are the investors that, I mean, we've got institutional investors, right? You've got family offices.

[00:23:16] But you also have retail investors. Like, you know, maybe you're doing quite well. You're top executive in a company or you're medium manager somewhere. And you've got some disposable income and you decide to build your own wealth portfolio, right? You want to invest in stuff. You want to invest in a bit of real estate. You want to invest your money in the money market, in a money market fund. And you give it to an investment bank to manage for you. The problem in Africa is we don't really have enough of those retail investors. Yes, we may have some exchange investors, some PE funds.

[00:23:45] And these are the guys who are really active in the stock exchange. But the reality is that our stock exchange is not as active. It's not as robust from a capitalization perspective as you would look at the New York Stock Exchange. And you find in Africa, the only stock exchange that is really working is the Johannesburg Stock Exchange. Now, we need to change that because if we don't change that, then we can't really have local IPOs.

[00:24:13] We can't really have local wealth creation and wealth distribution. So we believe that. And in Africa, so yes, we've got last-my communities, but we also have people who are kind of locked in and last-my social status. And they can live anywhere. They can either live in a rural area or they can live in a city. But economically, they're already underclass, right? Now, unless we empower those people to grow in a way that they can, over time, have disposable income

[00:24:41] and become active participators in wealth creation, they will never have, you know, the success of like an Uber, you know, a new world kind of IPO here in Africa, which can then create wealth for everyone. So we believe that if we only keep designing solutions that will be used by a certain demographic that is just 1% of the population, then we haven't really started doing anything. It's just basically applying band-aid to a problem or to one without fixing the underlying issues.

[00:25:12] And that's why it's very necessary that we address problems. And of course, I also believe that, you know, venture capital has a limitation. We can't really do everything as much as we want to. So there's also got to be some participation from public infrastructure as well to be involved in this. And maybe we can have a healthy collaboration between private and public players and stakeholders to really address the systemic issues, especially in last-my communities. We need to start making them the last-my and help them grow.

[00:25:39] So I guess a big part of this is about building that robust infrastructure or ecosystem. A big part of that also involves the pipeline of talent and the next generation, which I believe you are also involved in. So how does the Venture Building Institute train the next generation of entrepreneurs? So we actually train venture builders.

[00:26:06] And these venture builders then partner with entrepreneurs and building successful companies. And that is just one outcome that they have. They're going to choose to join the VC firm. And what we've seen as a success beyond just having venture builders who are helping founders to build their companies properly, especially at that zero stage of idea on paper, becoming a product, getting to market change of revenue, and becoming a paycheck to raise capital.

[00:26:32] So we've also seen that the learnings that our venture builders get makes them fantastic candidates for visa funds. We've had, so the first cohort that we had is a three-year-long fellowship, very hands-on and highly massive. And the fellows who were successful graduates of that batch are working in top visa firms. We've got the labor in the Founders Factory Africa, which is now rebranded as Withdraw Collective.

[00:27:00] We've got Tuffumi in Lofty Inc. And we've also got Augustine at Part Tech Ventures. Now, I find quite interesting the fact that visa firms are known for hiring people with Ivy League education or they've got some prior experience, maybe investment banking, or they're working on a VC at Sunnington somewhere. But these graduates were able to get, I mean, these fellows were able to get into these organizations without that kind of pedigree. And they did so fantastically well that I've been getting some feedback,

[00:27:29] I mean, very positive feedback. So that is really, really powerful. And looking at the future, because at the end of the day, we need the right people who understand innovation, who understand what is required to make a company grow, so this is for their truck funding, or be successful in terms of generating revenue. And we're thinking that if we can train more people like that and have them in the marketplace, then founders can be able to successfully engage them. Or visas can also have these fellows who bring in a personal experience

[00:27:59] and can end up making a VC fund understand, I mean, be able to also support their portfolios from an appreciate perspective without even having to hire more people who are industry specialists. So that's my vision of what I see in the long term. And to add to that, what we've also seen that is necessary, especially for entrepreneurs and founders,

[00:28:25] is that they need to have someone who is neutral at the table and on their side. And I'll explain that very quickly. As much as they can have an investor on their board, and as friendly as a VC could be, at the end of the day, the company has to perform. So if the companies are really performing, then there's a bit of tension between the founder and the VC investor.

[00:28:51] And what we've seen is that founders then start hiding problems from their VC investors and because they know that they just have to keep on reporting with metrics in their monthly updates. But eventually it becomes a partner that is for the founder and kind of neutral. And they become that confidant that the founder can really learn and trust in. But it just so happens that this confidant also brings in expertise that can address the problems in real time and have the founders move on to the next stage.

[00:29:20] So what role do you believe this type of training and mentorship plays specifically in terms of shaping impactful businesses on the continent? Yes, but a very key role. And it's going to be hard for me to define that in a simple word. But I think that the one thing that is actually missing is talent. On one end, VC funds are looking for more and more talents

[00:29:49] that really understand entrepreneurship. The venture ecosystem is still fairly new in Africa, less than 10 years old, if I'm not mistaken. And the founders, on the other hand, also need to have the right kind of talent that can bring the kind of drive required. But then that talent comes at a cost. Because if I'm a founder and I know that I'm just starting out, I may not necessarily understand marketing.

[00:30:17] Maybe I raise $50,000 tomorrow and I need to hire someone. If I were to hire you, for example, I can't even pay your salary. But you have the expertise that I need. Now, imagine there's a younger person that we've trained to mimic or to have a fair level of understanding of what you do. And they can bring that access. I mean, they can provide access to that kind of skill set to founders without the required capital to establish a transaction. That, I believe, is very powerful.

[00:30:47] And we've seen that once we do this at scale, we've only turned about 40 to about 100. But we want to increase that to over 1,000 at a time. Once we do this at scale, we have people in the marketplace that are just different. And on one end, they can help founders solve problems without the required transactional cost to establish that relationship. And on the other end, they can also help VCs find really good companies

[00:31:15] and manage their investments and relationship with the founders because they also understand VC language and what the businesses are looking for. So that talent gap at the first level has been fueled. But now we're creating something new in society, which is a new player that can bridge the divide between founders and investors. So you've just touched on this with regards to the talent or having talent that understands clearly entrepreneurship.

[00:31:45] So from your experience, what are some of the most critical business skills entrepreneurs need now in emerging markets? Because, you know, these skills are quite dynamic. They change over time. But for now, what would you say are some of the most critical skills entrepreneurs need in emerging markets? I think adaptability is the most critical skill because the world is changing so fast, right? Everything else can be gotten online.

[00:32:13] If the founder doesn't exactly have financial SKUs, there's probably a GPT server that can do that for them. And if the founder doesn't exactly have, you know, programming SKUs, they can use AI to do that, to bridge that divide. But to be able to adapt to new market trends, to be able to adapt to... Because the problem will always evolve over time. And to adapt to that, and to adapt to how the market is changing as well, is a critical skill for the next five to 10 years. Maybe the next five years. I don't know what the next 10 years will be like

[00:32:43] because we've just entered the AI age and now quantum computing. So things are going to change in 10 years. But I think adaptability is the most critical skill that founders need. And how I see venture building, whether it's actually over venture building, contribute to this adaptability is that... The one thing, for them, I would love to do is that we train our fellows on being 10 steps ahead of the founder in terms of identifying problems before they materialize.

[00:33:11] And the one key benefit that we provide, you know, in shoppiness is adapting to setbacks very quickly. We kind of improve their response time and we help them navigate the unknown unknowns much more faster than if they were alone. We've seen that attending exhibition programs, yes, they go through a lot of mental madness or boot camps,

[00:33:38] but it's in addition to the impact of such structures. Why? Because at the end of the day, the market will change. And whatever they might have learned a few weeks prior would become completely irrelevant at that point in time. So we've seen that there's a need for adaptability from the entrepreneur, but we've seen that eventually can also be that extra path of these that provides, that enables adaptability in real time.

[00:34:06] So with the work that you do, is the focus mainly on the impact that you make with the entrepreneurs or the impact of the communities that the entrepreneurs serve as well? Ah, that's a very good question. It's actually multiple stages of impact. Because when I started from Emma, I had to ask myself this question. Do I want to solve these problems myself or do I find people already doing this and they partner with them?

[00:34:35] Because the one thing I'm passionate about is poverty. And I don't like poverty. I really don't. And I think that the one way to solve it is to ensure that people do get jobs. And, you know, the jobs are decent jobs that can provide decent income. And without income, they can be able to live decent lives. But it's not even just that. It's because, you know, back in Lagos, even here in South Africa,

[00:35:04] I've actually noticed that trend. People keep commuting long distances. First of all, in Lagos, you move to the island. Not exactly move. You come to the island on a daily basis because you know that the companies that provide better jobs are on the island. And what you have is a lot of, you know, you've got this mass movement on a daily basis from the mainland to the island. And what that means is that the small businesses or the micro businesses

[00:35:31] in the communities where these people leave suffer. Because if you're on the island and you're working on the island, you probably eat there on the island. You go to restaurants there on the island. So you're spending the money you're making on the island, on the island, as opposed to taking it back to the mainland. Or from a global perspective, taking that money back to what we say and then improving the micro economy in that area.

[00:36:00] So that has been an insight that I've had for a very long time. And it's kind of driving what I do in Phenema. And now Phenema approach is supporting companies. But we have a fundamental drive. And that drive is if the founder is not building a solution that is helping S&M to grow, then we're not interested. Yes, our impact on the founders, Charlie, is to improve their chances of success

[00:36:28] and reduce the failure as much as possible. But it's going to be aligned with our own umbrella goal, which is to ensure that SMEs in that sector are thriving and they can actually grow. Because we have a thematic approach to our investments. We are sector agnostic, but we have a thematic approach because we believe that that would help them become tech-enabled. And once they're tech-enabled, they can become highly efficient.

[00:36:57] They can automate certain systems and processes to increase their throughput and make them more productive. And once they've been able to achieve that, then the next step is to become e-commerce-enabled, which is to be able to target or access a much broader market than wherever they might be targeting. Or they can leverage e-banking solutions and e-payment solutions to make transactions and trade much more seamless and much faster. And at the final stage is last mile, so it's distribution.

[00:37:25] And we look at distribution in two perspectives. There's what we call upstream and downstream. Upstream in terms of connecting to the supply chain or value chain of OEMs, so they can access things like supply chain financing or credit lines or whatever the case is, and reduce the friction between, especially SMEs in retail, reduce the friction between them getting their inventory sorted and actually selling. Because sometimes that can be a left-hand-deer scenario for a small business.

[00:37:55] And then for the downstream part, we're looking at last mile logistics, which is companies hitting that last mile of providing order fulfillment for small businesses. So if we bring this three together, you realize that what we are looking at doing is taking a small business that is doing less than $1,000 a year in annual trade and putting in place the system that can unlock their growth and help them do 10 times that.

[00:38:23] Because our goal is to see companies do over $800,000 in annual service, even closer to $1 million in annual sales. The average, as of last year, the average annual sales of a small business in Nigeria is about, I think, about $80,000 a year. In South Africa, it's about $150,000. And you compare that to an average SME, the average annual sales of an SME in the US, for example, is about $4 million.

[00:38:51] And African-Engine is about $3 million, they're about. Yeah. But you can already see that. That's a huge difference. That's a huge difference. And if small businesses are not growing, then it means that they can employ more people. And even those that they do employ, they can't really provide decent income or decent pay for their services. And if we can't achieve that, then it means that we can't really serve poverty at scale. I agree. I agree.

[00:39:19] I'm a big believer in terms of job creation and real industries and businesses that actually employ people at scale. Because I think, depending on which report you read, it says anywhere between 17 to 20 million people enter the African workforce or labor force each year. So those jobs have to come from somewhere. Yeah, they have to. Yeah. And I guarantee that tech companies are not providing all those jobs. This is a conversation I have quite often.

[00:39:48] Tech is great as a big enabler, but there's certain industries that have the ability to hire at scale. Yeah. So yeah, I guess that's a different conversation we can have for a different day. But I think one thing that I did really enjoy that you said is that poverty is a huge thing that you don't like. So would you say this kind of mission to reduce poverty, create jobs is like your anchor point or your true north

[00:40:16] when you're making those tough business decisions? Yes, it is. And that's the reason why I'm reluctant venture capitalists. Because the more I understand venture capital, the more I realize that it's not designed to reduce poverty. That's not the north side of a VC fund. The north side of a VC fund is to generate returns to satisfy their employees, their investors. That's the bottom line of a venture fund. And that is why VCs are very, very particular about

[00:40:45] who they invest in, the top 1% of all the dues that they review per year, and also very particular about who they double down on. And that is great in an environment that is fairly stable, like in the States, for example, so they're talking about the dues, because the economy is fairly stable. So those countries already have the infrastructure to absorb the shock of failure. And it's not really that bad.

[00:41:14] You have a healthy SME sector there anyways in the first place. But when you come to Africa or all the frontier markets globally, that SME sector is not really as robust as the US, and that needs to be addressed. So I want to serve poverty. And that means making decisions that may not necessarily look fantastic on, you know, as a VC or as an incentive VC. And that's why I am really loved in venture capital, because I know that as much as I don't like,

[00:41:44] not like, as much as I'm not aligned to some of the values of venture capital, I've also realized that it's still a powerful force that can be used to enable innovation at the grassroots stage. Because at the end of the day, VC capital is the only capital that would go into tech innovation that would then solve SME problems. I'm only hoping that in the future, we could have other forms of capital that would come into the grassroots tech space,

[00:42:13] but leverage VC methods from an excellence perspective and not from the returns perspective. What I see happening a lot today, which is actually quite sad, is a lot of angel investors who are trying to act like VCs. Yes. And I'm like, what are you doing? Be an angel investor. Just be an angel. Just, you know. And I think that we need more angels to engage directly with founders very early on.

[00:42:42] I'm not a founder of angel syndicates because it's just a way for them to act like VCs. And I've seen, I've been on angel syndicates, pitches where their VCs just, you know, announcing terms. I'm like, are you a VC or are you an angel investor? What exactly are you doing? Why are you here in the first place? And it makes me really sick to my stomach because angel investors are meant to be that necessary. I would say they are more like frontline capital

[00:43:09] or first responders, if you will. And they have to be more interested in the entrepreneur's journey than having to get 100X in five years. That to me doesn't make any sense. And there's a reason why VCs need 100X in early stage investments because when you now, you know, bring that to the first fund size, that's the only way they can get 3X their fund size. So that's why they have to achieve that. But for angel investors, they don't have those dynamics. It's their own principal investment. They don't have any LP,

[00:43:39] you know, chasing them for DPI on a yearly basis. So they have the way we thought to make more patient investments than VCs. But I'm seeing the greed that is in venture capital tripping down into the angel space. And I'm hoping that that can change very soon. Fantastic. Keeping on the theme in terms of looking at the future, where do you see the most promising opportunities for business growth on the continent? Wow, that is a very interesting question. And I hope I can sound smart enough.

[00:44:10] Keep it as brief or as detailed as you like, David. Okay. How can I answer this without being biased? I would say talent is very key. Yes. Because at the end of the day, we need people who know what they're doing, who are well-equipped and enabled to fill in the gap in industries. We can't have an industry where you can't roll out people. Because at the end of the day,

[00:44:37] the human element is still that sticky driving force. We might decide to really focus on green tech, but the entire value chain requires people to make it flow, to make the mechanism well-oiled at the end of the day. In Africa, we cannot leverage, because if this were like in the US, I would say, oh, obviously it's AI. And the reason why it's AI is because the environment is well-suited for AI. They've got the right policies in place. They've got the right government structure

[00:45:07] that can enable the right policies to be put in place, maybe certain guardrails or patting the hands of CEOs, of AI companies that misbehave. They have that. We don't have that in Africa. And they've got, you know, the data required to really leverage the surplus that AI can enable. We don't have that in Africa. We've not really driven digitalization as much as we should. We still have energy problems.

[00:45:36] We have infrastructural problems that need to be addressed. But I've seen that at the end of the day, there's a limit to how you can sell a tech solution to a startup if the key person making the final decision in that company doesn't even understand what you mean by AI. That already is a problem. So I think talent development is very key and rethinking the entire educational system and structure in Africa will be something I'd like to see over the next five years

[00:46:05] because we need to solve that now. We need to think about how will people in business in top executive positions in companies be thinking 10 years from now because that to me is where the real opportunity is going to emerge where if we can solve the talent problem, then it means that now we've got people with the right mindset in the right places. Then now we know that we can start thinking about solving problems at scale. Everything else, it could be FinTech, it could be Quintech, it could be Clintech.

[00:46:34] If we don't have the right people in place, then we'll always have friction in ensuring that certain solutions can scale. And we don't have enough data and energy to enable AI to solve this problem at scale. It just really wouldn't solve it systematically. Great answer, David. So talent. And you know, this talent has the ability to create new innovations, new trends. Exactly. So with that in mind, are there any trends that you're seeing with regards to

[00:47:03] alternative investment approaches on the continent that you're quite excited about? Yes. And now I'm seeing a bit of non-equity-based investments. For example, revenue sharing agreements. I still think it needs to be a bit more refined. But I'm happy to see that that is becoming a trend because it means that it can open up capital to companies who are doing quite well, but not well enough for venture capital.

[00:47:33] Many of these companies have struggled to raise growth capital, growth financing because they don't have the dynamics to provide, you know, for example, they can't exactly achieve $100 million in ARR in five years. They can get to $1 million, but they can get to $100 million in ARR. And in business, we just take note to such companies. We have a lot of those companies that are doing between $50,000 to $200,000 a year that you can find in Africa, but their growth is capped at that. We have a portfolio company in South Africa that is in about

[00:48:02] between $200,000 to $300,000 a year as a tech company. And we've seen that, yes, they can boost about $100 million in ARR, but it's just an option that you can find companies doing quite well from a financial perspective. But we've seen that a lot of them struggle to raise capital for VCs, especially those that cannot provide venture outcomes in five years or less. So providing an alternative like revenue sharing agreements can help, can open up

[00:48:32] access to different kind of capital to those companies. And we have a lot of them. But if they can leverage that to grow, that can also open up job creation because the more they grow, the more they have to hire people. You know, if ARR doesn't disrupt that, but they want to have to hire people and that can, I think that is interesting. I would like to see more of that. Even we are thinking of exploring that in the near future. Fantastic. Looking at the future, you know, the next, say, five years time, what changes do you think we will see

[00:49:02] to traditional startup investment practices on the continent? Well, so I've seen that, if not, we've seen a lot of venture studios emerge, right, in the past two years. Ever since we've got the VC, should I say, busts, if you will, since, you know, the cryptocurrency, you know, bust. So I think that in the next five years, we're going to find more venture studios, you know, designed to solve systemic problems.

[00:49:31] They may not necessarily, it's going to be quite different from traditional venture capital, but I think that they can solve some systemic problems that some VC firms will be a little bit reluctant to investing. So I think that's going to be more of a trend. It also means that all our VC firms will start thinking about having a hybrid model where they could be acting as venture builders to support their VC investments because the African environment cannot provide

[00:50:01] a hands-up approach to writing checks. You've got to be hands-on to ensure that the entrepreneur can truly maximize the impact of that capital. So I think more VC firms will start exploring hybrid models where you can have venture builders. And I'm actually quite excited about that opportunity because it means that you know, Freedom of America can be well positioned to meet that demand in the market. We've been doing this for about eight years and we only get a better year on the air. So in providing the talents that can support these studios and VC firms will be quite

[00:50:30] interesting to explore. Fantastic. I guess that was going to be my next question in terms of where do you see yourself through NEMA in five years' time? How will you be contributing to this kind of alternative investment practice or space on the continent? Yes. So I really, really, I'm very passionate about human capital investments. Either in the form of investing to develop talents or investing talents into business models, I mean, to support business

[00:51:00] models of founders. And I think that this is grossly undervalued in the ecosystem. Why? Because founders tend to only value cash. So you're going to write in a check, okay, you're fine, it's okay. But when you have someone who is hard-iskewed on your board or as an advisory partner or as a strategic partner, that is the value that compounds year and year and goes beyond your runway.

[00:51:29] Capital can only finance in a long way. And once the money is finished, that's the end of the use of the capital. And yet you still have to go right in terms of the investor anyways. So I'm hoping that the relevance of venture building as a different form of investments would grow year on year and people would start seeing that as the first point of contact even before raising capital for their businesses. And I'm also seeing that as AI would keep disrupting the technological landscape, we'll start

[00:51:59] having much more smaller teams in tech startups. But then the founders would still need a key partner to help them think through the problems. And I'm thinking as venture builders were trained properly we'd be able to do that. And we're already thinking about that because we want to start with being above contributing to make it accessible to people. And once we have a fellow who's trained then they can partner with pretty much anyone to build a business. So the value of the human and it's not a bit artificial

[00:52:28] the value of the human spirit should not be ignored. And I'm hoping to uphand that notion that clash is king. I think that the king makers who are people at the end of the day, should also be honoured and brought to the table and their voice should be conceded beyond cash. As people, we often have quotes, mantras, African proverbs or affirmations that keep us going when times are challenging or when times are

[00:52:58] good. Do you have one that you can share with us today? Well, I want to exactly say it's an African proverb. It's well known. It's a very, very popular proverb. And I think that when the going gets up, it's going. There's a song about it. I was going to say, there's a song in there somewhere. Yeah, there's a song about it. It's just that it's very hard building a business.

[00:53:28] And it requires, I mean, you'll go through a lot of problems, like real life issues. I have lost a lot in my own journey. I've even lost a marriage. In my journey of pursuing my dream. And if we don't have the resilience required to remain focused, it's easy to quit. But then the question is, how does one become tough? That's also an open question. I think having the

[00:53:57] right network or community of people, of resources, of ideas, and also having a strong faith background, a foundation ladder, can help you remain, can give you strength even when you're weak. And you can borrow toughness even though you don't necessarily have the capacity to be tough at that point in time. So it's everything else still comes down to, can you pay the price of adapting

[00:54:26] and staying true to your love star, regardless of what may come your way? And that really is the fundamental question. And when you look at highly successful businesses today, Open Air for example, they believe in something over 10 years ago and they had to believe where no one else believed from a public opinion perspective. And even Jensen of Nvidia, I think it's about 20 years before they became one of the most valuable companies

[00:54:55] now. But when they started, they were not really that valuable, right? So it took a kind of personality and resilience from Jensen to endure through thought situations and thought scenarios and not to give up. Because if he gave up, imagine how the world would look like without Nvidia. So it means that the advancement that we have in AI today, in supercomputing, will not really have these advancements now. We'll have to wait a few more years before we get there.

[00:55:25] So I will say when the going gets tough, the tough gets going. But if you're not tough by nature, build a community of resources and people on ideas that you can borrow toughness from when you just don't have the capacity. I see we don't have the capacity. There's a meaning like that. I love it. Thank you for that, David. Thank you for coming on the podcast today, your journey, insights into venture building, impact investing,

[00:55:54] transforming emerging markets through sustainable, entrepreneurship. And it's also very clear that your mission goes beyond business and capital. There's a very social people-centric element to it, which is great to hear and understand further. So yeah, thank you for your time today and thank you for just joining us and sharing your insights. Thank you. I should be thanking you. This was fun. It was a bit more fun than I anticipated. I'm not sure what you were anticipating,

[00:56:25] but I'll take that as a positive. Thank you. Thank you. I really enjoyed it. Thank you so much for the time. And as I suggest this chat, this is really, really rewarding. Thank you. Chats in. Thank you to everyone who has listened and stayed tuned to the podcast. If you've enjoyed this episode, please subscribe, share, or tell a friend about it. You can also rate, review us in Apple Podcasts or wherever you download your podcast. Thank you and see you

[00:56:54] next week for the Unlocking Africa podcast. to You