During my time at global early stage seed fund, 500 Startups, I’ve led deals in agriculture marketplaces in Indonesia (iGrow), global workflow management software from Brazil (Pipefy), and even education or sewing marketplaces in “emerging markets” like the MidWest of the United States.

500 Startups has a culture of looking ahead to emerging markets, so I was encouraged to follow my investment thesis that there is massive opportunity in thinking ahead.

There were many haters, especially when I became interested in West Africa:

“These markets are too early.”

or,

“There’s no downstream capital for these companies.”

Initially, I was worried about whether I would be stranding these companies or whether it was too early for 500 Startups.

Over the last eight months, we have invested in four companies in South and West Africa through our accelerator program: Sweepsouth, (B14), KudoBuzz (B14), mVendr (B16), Podozi (B16), and just recently accepted SureGifts in Batch 18, one of the fastest growing loyalty technology companies in Nigeria and Kenya.

This piece is about what I learned investing in these markets, and why I think all serious investors should learn and be aware about what’s happening on the African continent.

Geeks On A Plane 2016 will be in Africa, so there is an amazing opportunity coming in March.

Here’s what I learned.

1) Why go to West or East or South Africa in the first place? The Future is African.

This stat that blew my mind: “Sub-Saharan Africa will have a population boom from today’s 900 million people to 2.4 billion by 2050, with almost half of the world’s children being on the continent by 2100.”

There are 54 countries in Africa with unique individual cultures that are all geared for massive economic growth – 50% of the people on the continent are 19 or younger.

I read this right before my trip, and my mind was blown. There were talks of startups like Paga, ACE, Jobberman, Jumia, and increased funding:

“$400 million in VC funding for African startups in 2014. More than a billion dollars will be invested in Africa by 2018.”

Trends in “M-commerce”, B2B for growing SMEs, fintech, big data, and more have been covered in great pieces like this one from I-Dev International. But, you have to go. There’s nothing you can read in a book that will prepare you for feeling the energy and innovation building in the ecosystem, and we international tech investors have a lot to learn.

2) Mentorship is more rare than money, and foreign investors and entrepreneurs can add immense value.

Meltwater Entrepreneurial School of Technology – a two-year entrepreneurship funded school that finds and invests in entrepreneurs from Nigeria, Ghana, and Kenya invited me to visit after I made an accelerator investment in a graduate company called KudoBuzz, a SaaS tool for e-commerce companies.

I was blown away during my time giving a guest lecture and spending time with the entrepreneurs at MEST. What also blew me away was that Jorn, CEO and founder of multi-national SaaA company Meltwater, spends time every single quarter mentoring young entrepreneurs.

It’s his time, not just the considerable capital Meltwater has invested, that makes MEST an amazing addition to the ecosystem.

At 500, the main areas we were able to help the startups were around understanding the fundraising process.

From our South African founder of Sweepsouth, Aisha Pandoor, called Sweepsouth’s experience in San Francisco in the accelerator a “game-changer for SweepSouth in the level of mentors and the network we’ve had exposure to, both of which would previously have been quite far out of reach for a startup based on the other side of the world.

As one of the first services marketplaces in Africa, it was hard to find local founders and mentors with enough experience to provide meaningful advice, and this is a conundrum for other disruptive African startups.”

3) The challenges are real, but they can be overcome (with time).

Last batch, I led our first accelerator investment in a Nigeria-based company called Podozi, a beauty e-commerce company, going after the exciting African women market who spends five times more on beauty and hair than other ethnic groups and will continue to grow.They had graduated from Savannah.vc, a Nairobi-based incubator.

My thesis around Podozi was around my conviction about the growing and interesting beauty market in Nigeria and across the continent, and in the founders, Teniola and Wale. Building an e-commerce beauty brand like Sephora will be challenging, but someone will win in this market. I believe Teni and Wale have the conviction and experience to win. However, their journey will be full of challenges.

Not only were there challenges with logistics, basic office management, and recruiting – the dropping value of Nigerian Naira made tracking metrics complicated and disheartening for them.

Then, there was the bleak downstream capital situation. Clayton Bryan, in the SF office, helped me connect Wale to local angels, as well as explore more downstream capital sources for African-based companies in the European VC scene in London, Dublin, and other hubs.

There are super early stage programs like MEST, Savannah Fund and then growth funds, but very few options in between, which is why Podozi and other startups must focus on revenue and growth until they reach the stage they can access capital in their markets or foreign investors.

Four months after making the bet on this team, I watched Teniola (TeniBeauty to friends) pitch at Demo Day stage with confidence.

3) Focus on founders – experienced founders are beginning to emerge

Since downstream capital is challenging to close in the ecosystem, so it makes sense to filter for scrappy founders and innovative, clever business models who can be more cashflow generating if they haven’t raised locally.

Other accelerators are beginning to take notice. While I was at MEST, I also had the chance to coach three Ghanaian and Nigerian women, all-technical team, building a social app for African hair calledTress. Nine months later, they were accepted into the YC fellowship program, and today they are raising a seed round to grow faster.

I’m very excited about the team that is joining me in San Francisco this coming week for the launch of Batch 18 – SureGifts. The founders are ex-Jumia (one of most successful e-commerce brands out of Rocket Internet) early team members and have already raised capital. They have already proven they can expand out of their local market and have scaled from Nigeria to Kenya.

These are the types of founders that we are getting at 500 Startups now, since we have been investing, learning, and building relationships and reputation early.

4) Community is key.

Many programs and accelerators in emerging markets are early and still figuring out how to provide value in their early ecosystems.

Many “angel investors” aren’t used to investing in technology startups and come from real estate or private equity, not operating backgrounds, which can create problems between the local investors and entrepreneurs. It’s another example where money is less valuable than mentors and experience.

Our role is to support and identify the best credible and local investors to co-invest with, as well as to provide perspective and mentorship to entrepreneurs on the ground. Even if your fund does not support international investments, you can begin to make the relationships.

Distrust between local investors and entrepreneurs can be complicated, but as foreign investors we can provide perspective about the importance of fair practices and terms for early stage technology investments, as well as encourage communities of entrepreneurs to share information, help each other, and build sustainable communities.

Trust is hard to build, but after my experiences with MEST, She Leads Africa, and other great organizations, I am confident these communities can become sustainable.

5) Just go and learn for yourself.

If you’re an early stage investor and have any plans to be a part of the emerging economies globally, you’re missing out if you continue to ignore (or overlook) the African markets – the only color we care about as investors is green.

Foreign investors can provide a lot of value through mentorship and spending time helping entrepreneurs who are solving problems in their communities.

I urge other investors to pay attention to what is happening on the African continent, from Lagos and Accra to Nairobi to Johannesburg.

Come join us at GOAP and find out for yourself.

Additional Resources:

MEST
Savannah Fund
She Leads Africa
African Business Angel Network (ABAN)
VC 4 Africa
Nest.VC – Aaron Fu
Ingressive.co
Draper Dark Flow
Singularity Investments – Lagos
Seedstars (lives in Lagos)

West Africa

Next, Final Frontier: Lessons Learned Investing in West & South Africa