HOST: This episode we’re looking at a different type of investing in Africa. It’s not the traditional venture capital model. But an approach championed by one of America’s biggest business icons. And it’s helping small grass-roots businesses in Africa.
LUNI LIBES: the VC model is just fundamentally the wrong fit for Africa. You have to do something different.
HOST: Venture capital firms typically invest in start-ups because they expect to make a profit when a company is sold — usually within ten years. But does that timeline actually make sense in the African context? American investor Luni Libes doesn’t think so.
LUNI: I like to go and dig into the history. So how old is venture capital? Where’s it come from? It feels like it’s been around forever. And in reality, it’s been around since 1962. And if you look at where does, how does venture capital work and where does it work and where does it not work? Really, it only really works in two places in the world, San Francisco and New York. And the fundamental reason is that VCs only make money when the companies that they fund get acquired. So if you look at Africa, that doesn’t happen. There are almost no acquisitions in Africa of venture or private equity funded companies. Handful a year in a continent that’s bigger than the US and Canada and Europe and India combined. It’s a humongous place with over a billion people. And there are fewer acquisitions than in the city of San Francisco. And so the VC model is just fundamentally the wrong fit for Africa. You have to do something different. And so I looked around to figure out, well, what are the other options?
HOST: As CEO and founder of the investment company Africa Eats, Luni Libes is betting on a different approach from traditional venture capital — and it seems to be working. The 23 active companies in Africa Eats’ portfolio generated $44 million in revenue last year, a huge jump from just $1 million when Libes launched the firm. But he has no intention of selling these companies, unlike a typical venture capital fund. Libes credits the inspiration for his atypical funding model to one of America’s most successful businessmen.
LUNI: There aren’t very many popular options, but there is one highly successful investment company. In fact, the most successful public investment company of all times, the seventh most valuable public company on the in the ah stock exchanges in the US, it’s called Berkshire Hathaway.
They just celebrated their 60th shareholder meeting. Warren Buffett, the longtime chairman and CEO of this company, just stepped down. And one of the fundamental ethos inside of Berkshire Hathaway is that if you find a company that you like and you buy some or all of it, the best holding period for that investment is forever. It’s not about buying it now, fattening it up and selling it off to somebody else. It’s about buying it now, giving it the resources it needs to continue growing and then holding it. So we took that learning and applied that to investing in these SMEs, these small enterprises in Africa, and it’s working. So we’re there to provide them the support they need. We’re there to provide them as much of the capital as we have to support their growth. But our intent is never to sell them. Our intent instead is just to collect these companies, help them keep growing and add more and more and more to the portfolio each year so that when we hit our 60th anniversary, we’ll probably have 100 to 200 companies in our portfolio and they will be earning a collective few billion dollars in annual revenues.
HOST: One of the small businesses that Luni Libes has high hopes for is Tanzanian cereal brand Golden Pot. They process maize into cereals and ready-meals and sell their brands on the local market.
HAIKA MTEI: We are in over 10,000 retail stores, supermarkets, general trade, and local kioskis in Dar es Slam, and about 2,000 in Arusha. And in general, in all cities, which we have our presence, we have over 15,000 shops. About our revenue, our turnover last year was around $2.4 million dollars. We are hoping we’re on track to at least double it by the end of the year.
HOST: That’s Golden Pot CEO Haika Mtei.
HAIKA: Currently we are working with over 1,800 farmers who aggregate maize, wheat and soya, which we use in our day-to-day production.
So we have the leading brand in cereal, the local leading brand. We compete with imports, by manufacturing delicious, nutritious and affordable ready-to-eat foods.
HOST: Before she started Golden Pot, Haika was working as a maize trader. Unpredictable maize prices got her thinking: could she take advantage of them as an entrepreneur? In 2019 she applied to be a Mandela Washington Fellow, an exchange program run by the U.S. Government.
HAIKA: To me, it was one of the best training I’ve ever had because I understood more on ground, as we went through different places, different things. to see how America builds industries.
We were able to talk to different people, to different investors, to different founders, to different owners telling us about their journey, inspiring us. So I came back home really fuelled.
HOST: And that’s when she applied to Luni’s start-up accelerator called Fledge.
HAIKA: This is why I was able to write my proposal to Fledge and I won. It was a proposal and only a few people were chosen.
HOST: Luni says it’s harder than getting to Harvard because it is worldwide, but I was among them. So it’s the exposure I got from Mandela Washington Fellowship, the training.
HAIKA: I saw real life, how people are running their businesses in America. And to me, I thought that nothing is really impossible.
HOST: It’s that same mindset that helped Luni found his start-up accelerator and devote himself to investing on the African continent even though he’d never done it before:
LUNI: Fledge is this accelerator for impact companies that grew to be a global program. training and investing in thousands of companies, investing in hundreds of countries on every continent but Australia.
And that included about 30 investments in Africa, little more than two dozen in food and agriculture. And they were the ones that were not finding funders. They were not finding the growth capital because it doesn’t exist.
It’s very rare in Africa. So that then triggered me to go and find a way to fund these companies. I wrote a business plan called Africa Eats.
Part of that business plan is helping start-ups to grow. African businesses are often faced with far greater challenges than American founders. And the industries they’re working in are often far less developed. Let’s go back to Haika.
HAIKA: The benefits of Africa Eats to Golden Pot, there’s so many. First of all, it’s the mentoring we get from the Africa Eats team.
When I joined Africa Eats, I did not know so many things about business, how to run a business, how I just knew what I wanted to be, but I did not know how to run a business.
So with Luni, with Africa Eats, he has several sessions that he does with us, teaching us on different things, on how to run a business and everything. And so that is one of the things that he has assisted in helping us grow.
Then apart from that, with Luni, it’s easy to get emergency funds, you know, like you don’t you don’t have long waiting hours, like days, months, maybe you want to fulfill something, then it’s easy to get loans from them as opposed to other venture capitals. Apart from that, again, Africa Eats is patient and knowing we are startups and knowing when we are growing and trusting the process together with us without pushing us to maximum limits that we collapse.
So they’re just really patient with us and with our growth. They have been with us throughout the journey, especially Golden Pot.
HOST: Many African business owners are trying to build sustainable companies that will generate income for years – unlike the VC model which is typically to build something in order to sell it. This requires a different approach – one that Luni Libes is pioneering in Africa.
LUNI: And so the way this looks in real life is that we write small checks. So we find out what they need next, and we work with them on that plan, and then we write a check of that size.
And typically if a company’s doing 30, 40, 50,000 in annual revenues, that check is $50,000, and then they’ll double in size and they’ll need 50,000, 60,000, 70,000 of operational capital, so we’ll provide that, or they’ll need a $60,000 truck to move stuff around, we’ll provide the capital for that.
And then it might be some processing equipment and it kind of just inches its way forward year after year, every nine months or so. And the next thing you know, we have a company doing over a million in annual revenues.
HOST: And what about their expectations as an investor? Do they want their money back?
HAIKA: So with Africa Eats, at the moment, they have a stake but we’re not giving dividends because we’re not profitable yet. So they’re really patient to wait until the company grows and that’s when they can get their stake. To me, it’s important because again, I can focus more on building the business and building the empire because I know that we have a very patient investor here waiting for us to grow then but can take it off from there.
HOST: Plans for the future?
HAIKA: What we are building, we are building a brand, a household brand that is nothing like what we have in Africa, nothing like we have in Tanzania. So it means we are building a client base, that It can take time to understand the product and the meaning of the business, but at the end of the day, it’s going to be the go-to-go brand.
HOST: And there are so many growing businesses with lots of potential like Golden Pot all over the continent. Back to Luni
LUNI: There are hundreds of thousands of other entrepreneurs who have little companies earning 25, 30, 40 thousand dollars a year that could be earning a million dollars a year if only they had the capital and the right support.
HOST: But what’s in it for investors? Is their money tied up for years? As soon as the portfolio companies are big enough, Luni Libes lists them on the Mauritius stock exchange.
LUNI: And now our investors can leave whenever they want. They don’t have to wait 10 years. They can hold it for 60 or 100 or whatever if they want, or they could sell it tomorrow.
HOST: What’s needed is investment. But many investors are daunted by Africa, Luni says. But they shouldn’t be.
LUNI: Most people think it’s scary. most it’s It’s just so far out of the normal day-to-day investing they do that they just don’t. And in fact, what I’ve found is that it’s no different than investing in U.S. companies, that the risk that I’ve seen, the number of companies that have failed in my accelerator portfolio in Africa versus elsewhere is the polar opposite. Far fewer failures in Africa than in the States or in Europe. And there’s a few different reasons why that’s true. But the main one is that the opportunities are so much bigger, that the competition level is so much lower.
HOST: Africa Eats is just one example of American financing models being adapted for the African context. Investors may find Africa a more fertile investment space by looking beyond the standard VC model, to alternative models like Africa Eats and Berkshire Hathaway.
And Golden Pot is benefiting from this different investment model. It’s just one of the millions of small and medium sized businesses in Africa that need a different kind of support. Investors have countless ways to engage with Africa — and the potential they’re tapping into is nothing short of limitless.
