Building The Entrepreneurial Base In Africa by [email protected]
J. Eric Wright discusses the challenges and opportunities for entrepreneurs in Africa.
J. Eric Wright was headed for Wall Street until he decided to take a year off in Africa. That short jaunt has stretched into nearly three decades on the continent — and led him to his life’s work. Today, Wright is chairman of Africa Venture Partners, a venture capital and private equity firm based in South Africa, and director at the Picasso Group, a private investment and project development firm in the U.A.E. focused on energy, agriculture and real estate ventures in emerging markets. [email protected] spoke with Wright about the challenges and opportunities for entrepreneurs in Africa.
An edited transcript of the conversation follows.
[email protected]: In recent years, Africa seems to be having this upsurge of entrepreneurial energy. From your perspective, what are some of the biggest opportunities for entrepreneurs in Africa today and why?
J. Eric Wright: I think the biggest opportunity for entrepreneurs is in the consumer space. The past 20 years or so, there was a heavy investment in infrastructure that’s allowed entrepreneurs to emerge and not require as much capital to build out infrastructure, which really was difficult for entrepreneurs to participate in.
Now that a lot of that infrastructure has been built, particularly in the communications space, a number of ventures are now coming online and many MBAs are coming back home as a first choice of employment. In previous years, their first choice was to go to London or New York and work for Bain or McKinsey or a big bank. Now they’re looking at starting their own businesses back home, many of which are in the consumer space.
“One risk that entrepreneurs face in Africa … is a lack of early-stage capital.”
[email protected]: What are the biggest risks that African entrepreneurs face and how do they differ from those that may confront entrepreneurs in other countries? How can those risks be mitigated?
Wright: I think one risk that entrepreneurs face in Africa that is a challenge for all entrepreneurs, but may be even more difficult in Africa, is a lack of early-stage capital. Oftentimes, entrepreneurs have a great idea and they’ll start off with a bit of their own seed capital if they have it, but it’s very difficult for them to find the next stage, and they may run out of funds before they’re able to really get traction.
A lack of early-stage capital both at the seed stage and the Series A stage would probably be the first thing that I would raise. Their regulatory challenges in terms of getting businesses off the ground can be a challenge. It depends on the country. I think the third is the depth of management talent. There are great entrepreneurs, but we still must fill the mid-level management and provide more training, more education at that level. That really impacts businesses as they begin to scale. That’s a challenge, certainly if you compare to the U.S., but I think there are similar challenges with many emerging markets as well.
[email protected]: Take us through your Africa journey.
Wright: I graduated from Wharton in ’92 and at that time, Africa certainly wasn’t a sexy, hot place to start one’s career after business school. I was going to go work for Morgan Stanley in New York and I thought, ‘well, I’ll just take a year off and try to do something totally unrelated to the traditional mainstream MBA track,’ and ended up moving to Ghana.
I wanted to go to an English-speaking country, which was a huge mistake, because I should have gone to a French-speaking country and learned the language. I wanted a country at that point that was politically stable and had some economic indicators that were very positive, and at that point in time, there were very few. Ghana was a standout in the early ’90s and had recently had a democratic election, which went well. I decided to go there, in part because of a couple of classmates who encouraged me.
Once I got over there, I created a partnership with the MBA Enterprise Core, which had been sending MBAs to Eastern Europe in the late ’80s and had not sent anyone to Africa. I approached them about a partnership for Africa, and they used me as a guinea pig to see if the program would work there. After about six months there, I decided to start in investments with a Ghanaian guy that had been living in the U.S. for about 25 years. He was a partner at Deloitte and Touche and had an interest in starting an investment bank.
We built that investment bank and today it’s probably the second- or third-largest investment bank in Ghana. From there, I started thinking about a more long-term engagement and career in Africa. I thought maybe a year isn’t enough, and I started looking at South Africa. This is now ’93, and the pending elections in South Africa were scheduled in ’94, so I began looking at how do I get to South Africa? Fortunately, within probably six to nine months, I landed in South Africa and worked for Citigroup in private equity for a number of years. We did a number of deals in the telecommunications space when there was very little infrastructure and built out a lot of the mobile networks. I then left Citi in 2000.
“As an entrepreneur … having a strong understanding of leadership skills and HR skills is very, very valuable.”
[email protected]: What is Africa Venture Partners and what is your investment strategy for Africa?
Wright: Our strategy has historically been around the mobile telecom space. After leaving Citi, we invested in a few of the big mobile operators that became very successful. I left in 2000 to join a dot-com when everyone was leaving big companies in the U.S. and elsewhere, and we raised $10 million for a company called Africa.com. We attracted a very, very talented team. Practically every venture capitalist wanted to back us.
There are great comps in India and China that were $6 billion and $7 billion evaluations, respectively, and they basically had a PowerPoint deck and we put ours together and thought we were worth $1 billion. Many on the Street were saying that they would IPO us at a $1 billion. Many of the large VCs in California wanted to see us. Unfortunately, a few months in, the dot-com boom crashed and we had to go back to the drawing board, but the cash was running out very rapidly. We ended up folding the company.
But the nine months there was the best business education that I’ve ever had on multiple levels, primarily on the people side. When I was at Wharton, I didn’t take very many HR-related classes. As an entrepreneur reflecting back, I think it’s the single biggest skill that one can have, and it’s under-valued by many people in business school who are looking more at the quantitative or strategy-oriented courses. Once you’re out as an entrepreneur and you have to motivate and manage people, having a strong understanding of leadership skills and HR skills is very, very valuable.
[email protected]: What is your assessment of the landscape today for venture capital and private equity in Africa? How