African Market is Big Enough for African Businesses —Muchanga
The Commissioner for Trade and Industry at the African Union Commission, Dr Albert Muchanga has said that African market is big enough for businesses in the continent if properly harnessed. Dr. Muchanga made this known while speaking with representatives of the African Manufacturers Association and Afro Champions comprising Mansur Ahmed, President of the Manufacturers Association of Nigeria (MAN) and Executive Director, Dangote Industries Limited and Edem Adzogenu of the Afro Champions. If African businesses pay more attention to the continental market, churning out top quality goods, the fear being exercised in some quarters that the common market would open doors for foreign goods to crowd out locally produced goods would turn out to be unfounded.
What is more, Muchanga says the African Union Commission has put in place the rules of origin to avert a situation where some people would come with items in a container and just label them Made-in-Africa. “We are not going to tolerate that. With the regime of the rules of origin, there is going to be a very strict monitoring mechanism to ensure that goods traded under the AfCFTA are indeed produced in Africa. The ministers of trade have agreed to that and it is going to the Committee of the Heads of State and Government for endorsement,” Muchanga explains.
The African Union Commission is also working to carry along African countries’ chambers of commerce and industry and the manufacturing associations for effective implementation of the AfCFTA. According to Muchanga, “there will be similar replication of the national manufacturers’ association at the continental level so that we can address all these concerns which are cross- border in nature that impacts on manufacturing. The association is going to be established as soon as possible.”
Indeed, Muchanga says the Heads of State and Government have shown tremendous political will in fostering birth of the AfCFTA. “Today we have 13 ratification and we need 22 for the agreement to be ratified. So, we are short of nine. Our survey showed that close to 12 countries are on the verge of ratifying the agreement. On the average, it has been taking five years for a legal instrument under the AU to enter into force. But this is going to be realized within a year or less. That is a reflection of the commitment that we have.”
Mansur Ahmed, President of the Manufacturers Association of Nigeria, believes “that until we scale up our manufacturing capacity, value addition is going to remain low…. I do not see any problem with the manufacturers’ association working together to actualize the common objective for effective implementation of the African Continental Free Trade Area Agreement.”
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Sierra Leone is Africa’s Best Investment Destination- Koroma
Sierra Leone remains one of the best kept investment secret in the world. As one of Africa’s most stable democracies, having survived a ruthless civil war few decades ago, and recently had a transition from one political party to another political party in an election that was devoid of crisis. The country is open for business, so says the Chief Executive Officer of Sierra Leone Investment and Export Promotion Agency (SLIEPA) Sheku Lexmong Koroma. In this interview with Kelechi Deca, Mr. Koroma highlights the country’s comparative advantages within the West African Sub-region. Excerpts.
How would you describe investment climate in Sierra Leone?
Sierra Leone’s investment climate is evolving as the Government of Sierra Leone is implementing set of reform agendas to create the enabling environment and continuously improve on the investment climate in the country. This includes, but not limited to: taking concrete steps to open up the economy to private sector investments; automating the administrative procedures aimed at reducing the time, costs, and processes for investment entry; fast-tracking the issuance of permits and/or licenses, streamlining land access and clarity on tenure rights to ensure private sector participation; an agreed upon Standard Operating Procedure for the granting of fiscal and non-fiscal incentives; and effective and efficient institutional support, among others.
This is because, as a country, whilst we recognize the massive natural resources we have, we want to translate those from merely investment opportunities to investment projects for both standalone and/or Public Private Partnerships. These factors, together, form a strong basis for the achievement of further significant and sustained growth level in the economy in the coming decades.
Attracting investment is a cardinal objective of this government. What investment opportunities and incentives are in place to attract investors?
Sierra Leone’s economy is heavily dependent on its land endowment. Reports suggest that over half of the arable land is still uncultivated and available for large-scale agricultural production. The country’s underlying investment potentials in agriculture are especially in rice, oil palm, cocoa, livestock, vegetables, tropical fruits, cashew cultivation and processing. Generally, Government is embarking on increasing a sustainable and diversified production of food (especially tree crops and livestock) to ensure food sufficiency, gainful employment and preserving the environment.
The country’s 570-kilometer long coastline with a sizeable continental shelf covering an area of over 25,000 square kilometers is fed by substantial rivers containing considerable marine resources such as shrimps, cephalopods (cuttlefish and octopus), lobsters, demersal fish species, small and pelagic species–all of which have well-established global markets with high prices. Fish farming is an opportunity for investment. The marine sector also presents value addition opportunity for our domestic market and eventually export where there is increasing demand and consumption level for fish and other marine resources. The Government’s policy for the sector is to promote responsible and sustainable fisheries practices and management, improve handling of fish and fish products, and aquaculture development to contribute to poverty reduction and wealth creation.
The mining sector is one of the leading export sectors in the country. Sierra Leone has both metallic and non–metallic gem minerals. Huge investment potentials exist for value addition activities (for instance smelting of iron ore, cutting and polishing of diamonds, etc.) of our mineral resources to ensure optimal benefit to investors and for national development.
There are endless possibilities in the tourism sector given the diverse ecology of Sierra Leone. Its proximity to international hubs and an untapped natural beauty that can rival any location in the world. The country has unique and historic heritage sites for cultural tourism. Huge potential exists in the hospitality industry, especially along the stretch of beaches and other Eco-tourism locations across the country. To support the sector, Government is continuously improving the infrastructure and policy environment to attract more investment in the sector and also to support emerging sectors.
Our country is blessed with plentiful rainfall and sufficient topographic relief that creates substantial potential for hydro-power generation. It also has abundant sunlight which can seasonally complement hydropower sources, thereby creating strong opportunities in solar power generation. The energy sector offers a number of investment opportunities in terms of direct investment and Public-private partnerships such as harnessing untapped hydro potentials, opportunities for solar power generation. As the country strives to improve it industrial base, especially with the development of large-scale mines and agribusiness companies, overall energy demand is currently underserved and off-takers eventually ready to join the grid.
Sierra Leone offers fiscal and non-fiscal incentives to investors which include tax exemptions, tax deductions, reduced tax rates, tax credits, guarantees and protection of investments. These incentives have qualifying criteria and are legislated. The criteria largely depend on the (sub) sector, investment value and jobs (to be) created. That notwithstanding, the Government can enter into an agreement with investors depending on the strategic nature of the investment.
Many African countries still rely on export of commodities instead of value added processed products, what can be done to reverse this trend?
SLIEPA shall continue to leverage on current Government initiatives and programs in the agriculture, fisheries and light manufacturing sectors within the framework of it short to medium term development plan (2019-2013). As an agricultural-based nation, we have comparative advantage in the production of products in agriculture, fisheries and light manufacturing sectors.
For the agriculture sector, SLIEPA will promote investment for value addition in cocoa to produce chocolate, cocoa powder, coffee, timber products and plywood etc.
For the fisheries sector, SLIEPA will promote investment for value addition to produce sardines, salmon etc.
For the light manufacturing sector, SLIEPA will promote investment to produce products like matches, candles, plastic materials and beverage drinks.
Such initiatives will reduce our import bills on these essential products that we could produce as the Government continues to make the business environment for investors.
What role can SLIEPA play in helping to diversifying the economy?
Advocate for the speedy implementation of the Export Credit Guarantee Scheme at the Bank of Sierra Leone to militate against the financial challenge exporters’ encounter in exporting their products.
Work with stakeholders in the trade support sectors at local and international level to advocate for the establishment of more special export processing zones with the required infrastructure like energy, water and special processing incentives and duties to encourage investment into the zone. Such moves will not only create jobs for the locals but will also contribute towards revenue in terms of taxes and overall GDP growth in the country.
Which sectors of the economy is the government projecting for foreign investment presently?
The Government of Sierra Leone has identified priority sectors it wants to promote and attract private sector investments into. Cluster 2 of the National Development Plan, 2019-2023 speaks to Government’s targets, key policy actions and the strategies to diversify the economy and promoting growth. The sectors include: improving productivity and commercialize the agricultural sector, sustain the management of the fisheries and marine sector, revitalize the tourism sector, establish manufacturing outlets and provide enabling environment to support the service sector, improve and manage the mineral resources, and promote a more inclusive rural economy
Infrastructure is vital to attracting investment. What can be done to enhance infrastructure?
We are aware that infrastructure facilitates growth which the private sector drives or foster. Infrastructure is critical to stimulating economic stability and diversifying the economy. The Government has it in its plan to develop quality infrastructure across the country to support our longer-term development aspirations. Some of the planned infrastructural programmes are to have a stable and affordable energy supply; improved transport facilities to include rehabilitation of roads, reconstruction of major ports, development of rails; improving the ICT infrastructure. This is all geared to connect people to markets.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Between extortion and the sanctity of Petroleum contracts in Nigeria, DRC and Senegal
Investors need to know that their investments are safe and that they will be protected by the law in case the other parties falter on their obligations writes NJ Ayuk.
Last week, a commercial court in the United Kingdom gave reason to a claim by engineering company Process and Industrial Developments Ltd (P&ID), which demands over USD$9 billion from the Nigerian government over a failed gas deal. The decision follows a 2017 arbitration award and turns it into a legal judgement, which could allow P&ID to seize Nigeria’s international commercial assets.
P&ID’s claim is based on a 2010 contract signed with the government of Nigeria for the construction and operation of a “gas processing plant to refine natural gas (“wet gas”) into lean gas that Nigeria would receive free of charge to power its national electric grid,” the company’s website states. Under the deal, the Nigerian government should have provided the necessary infrastructure and pipelines needed to supply gas to the plant. P&ID would build the plant for free and then operate it and commercialize the output for a period of 20 years.
The company claims that over this period it would have earned USD$6.6 billion in profit, an incredible figure that becomes ever more fantastic as the company claims that the yearly 7% interest it is supposedly charging on this capital has now accrued to USD$2.4 billion, at the rate of USD$1.2 million a day, which closes the full amount at a perfectly round USD$9 billion. The whole situation is in itself extremely puzzling. Afterall P&ID, a company created specifically for this project, is claiming it is entitled to the full amount of what it would have gained over a period of 20 years of work, even though that period would not be over for another decade and some. Further, it is already charging interests on capital it would, if the project went forward, it would still be a decade away from generating. On top of that, it has chosen to pursue the matter in a British court, and has a separate law suite in an American court, when the contract was signed in Nigeria, under Nigerian law, and should be pursued in a Nigerian court, as the Nigerian legal team has repeatedly stated.
Nigeria is seeking an appeal to the decision, but P&ID is not wasting any time in trying to seize Nigerian assets abroad, and it might well manage to do so, at least in part.
Further, P&ID has never even broken ground on the construction of this power plant, which it claims would have benefitted so many thousands of Nigerians. The company has reportedly spent USD$40 million on preparatory work, although it is impossible to attest what that work has been.
Even just looking to the amount spent, work done and compensation sought, the figures seem simply absurd. USD$9 billion corresponds to 20% of Nigeria’s foreign exchange reserves, it would be unthinkable that a nation state would pay that much capital to a small unknown enterprise that invested not but a small fraction of that amount in the country and done none of the contracted work. Further, it is perplexing that a British court would even consider such a decision.
However, this issue represents an important cautionary tale for African governments everywhere. Very few things matter more in the struggle to attract investment and build a favourable business environment that will push the economy forward than the absolute sanctity of the contracts signed.
Investors need to know that their investments are safe and that they will be protected by the law in case the other parties falter on their obligations, as it seems to have happened with the Nigerian government. It is by no means the first time a situation like this happens. Just in March, an international court ordered the Democratic Republic of Congo to pay South African DIG Oil Ltd USD$617 million for failing to honor two oil contracts. This is an unacceptable and unjustifiable loss of capital for the people of the DRC. Particularly taking into account that the loss is incurred because the country’s leaders failed to comply with a contract that could have brought a considerable amount of wealth for the country for many years to come, in both royalties and taxes, as well as help develop its oil industry.
Senegal’s government under President Macky Sall was very smart to avoid this kind of litigation when it was confronted with the issue of the Timis Corporation and its ownership of acreage that included the Tortue field, which is estimated to contain more than 15 tcf of discovered gas resources. If President Macky Sall would have proceeded with terminating a valid contract for the acreage, the Timis Corporation would have engaged in arbitration and would have probably gotten a favorable judgment against Senegal. In the process, the gas fields would have sat dormant and produced no returns for Senegal and its citizens. Sometimes leaders are confronted with tough choices and it takes a profile in courage to find solutions and still respect the sanctity of contracts.
Even with criticism from civil society groups, Equatorial Guinea has honored contracts with U.S. oil companies that many oil analysts believe are unfavorable to the state. This principle has kept Equatorial Guinea’s oil industry stable and US firms continue to invest in new projects like the EGLNG backfilling project with Noble, Atlas Oranto, Glencore Marathon and the state.
African leaders and African nations can not afford this sort of mistakes anymore. If on the one hand, contracts must be respected, protected and followed through, the people in charge of evaluating and signing those contracts must have the project’s feasibility as the dominant reasoning behind any decision. What is the purpose of signing contracts for fantastic projects where there is neither the capital nor the conditions to pull it through. Our economies live out of their reputation too. No investor wants to work in a system where contracts are not honored and where their investments are not protected.
While P&ID’s request for USD$9 billion in compensations seems absurd, companies that see the contracts they sign with African governments, or any governments, disrespected, must have the right to claim compensation, just in the same way that African leaders must be responsible for the contracts they sign and must make sure that situations like this do not repeat themselves. Enough money has been wasted on lawsuits that could be used to benefit the lives of Africans. This is true for the oil and gas industry and in any other industries.
NJ Ayuk is the CEO of Centurion Law Group, Executive Chairman of the Africa Energy Chamber, author of the upcoming book, Billions at Play: The Future of African Energy and Doing Deals
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Tax regime in Mauritius has officially been declared harmless for Mauritius. This is coming from a report released by the Organisation for Economic Cooperation and Development (OECD) on harmful tax practices across various jurisdictions. This news particularly significant international businesses desiring to migrate to Mauritius, amidst the crisis of review of tax treaties by the Mauritian government recently. In a simple sentence, Mauritius is, more or less, no longer a tax haven for foreign companies.
Here Is Why
The report pointed out that the Mauritian “Partial Tax Exemption Regime”, which was introduced in 2018 to replace the harmful “Global Business Licence Regime” is not harmful.
The OECD is a foremost global organisation that is notable for fighting international tax evasion across countries.
The organisation introduced in 2015, Base Erosion and Profit Shifting (BEPS) framework, which aims, among other things, to tackle international tax avoidance, which is facilitated by the shifting of profits from high paying tax jurisdictions to low paying tax jurisdictions.
Since coming into operation the BEPS Project has criticized repressive tax regimes across the world.
Mauritius had been before now badly booked for having harmful tax regimes.
A Look What Just Changed In Mauritius
Under the former regimes operating in Mauritius, the Global Business Licence Category 1 (GBL 1), for instance, granted Holding Companies in Mauritius certain treaty benefits benefits, including an 80% deemed foreign tax credit, which reduced the effective tax rate of such companies from 15% to 3%. Global Business Licence Category 2 (GBL 2) companies granted tax exemption to companies. This literally made Mauritius a tax haven for foreign companies.
By that structure, foreign companies as well as businesses operational in Mauritius profited simply setting up Mauritian Holding Companies with little or no economic substance in Mauritius. By doing so, such companies effectively reduced their effective tax rates to a large extent because of the favourable tax regime in Mauritius.
These countries have mutual tax agreements with Mauritius through which several foreign companies could previously claim enormous benefits
But All That Has Just Changed
To take care of that, Mauritius discarded the GBL Regimes in 2018, introducing a Partial Exemption Regime. This new regime provided for an 80% tax exemption on specified passive income of Global Business Corporations (GBCs) in Mauritius.
Consequently, under this regime tax credit is preferred to an exemption because it saves tax on dollar per dollar basis, as against tax savings at the effective tax rate.
Hence, with this new regime, GBCs paid some tax in Mauritius on their global income.
This is what OECD has considered in declaring the Mauritian Partial Exemption Regime not harmful. OECD noted that this new regime effectively meets with the OECD’s standards.
Another Key Feature In the New Partial Exemption Regime Is Requirement of Substance
Under this feature, companies in Mauritius must meet the substance requirements to enjoy the 80% exemption.
Some of these requirements include that a GBC, for instance, must at all times, do its major income generating activities in, or from Mauritius, that is they must employ (either directly or indirectly) a reasonable number of suitably qualified in Mauritius persons to carry out the core activities.
Again , the GBC is expected to have a minimum level of expenditure proportionate to its level of activities to benefit from the new tax regime.
Again, the Mauritian government recently announced that the Mauritian tax laws would be amended to stipulate conditions that must be satisfied where a company seeking to enjoy the Partial Exemption Regime outsources its core income generating activities.
These conditions include that:
The Company must demonstrate adequate monitoring of the outsourced activities, the outsourced activities must be conducted in Mauritius; and
The economic substance of service providers must not be counted multiple times by different companies when evidencing their own substance in Mauritius.
However, these changes have not been passed into law yet.
The fallout of this move will be that many of the structures currently set up in Mauritius and claiming treaty benefits on the basis that they have tax residency certificate may now have to take a look at the structures again.
So, many of the Mauritius structures may get challenged in Mauritius itself and several existing structures will be forced to increase the substance requirements within Mauritius for them to continue getting the tax benefits, experts said.
In simple terms, the consequence of not being considered tax resident in Mauritius is that the company would not benefit from the numerous tax advantages that obtainable from running its business in Mauritius. So, it is not a case of claim benefit from Mauritius, but do business in your home country. You have to manage your business in Mauritius before you claim the benefits.
Mauritius is a tax treaty jurisdiction and has so far concluded more than 42 tax treaties which are in force with the countries listed above.
Again, businesses that have always relied on Mauritius for tax planning purposes should now begin to seek relevant professional advice. This is because there may be an urgent need to restructure their Mauritian entities to ensure that they meet up with the new substance requirements.
Charles Rapulu Udoh
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
We’re working to bridge Africa’s infrastructure gap– Kanayo Awani
For Africa to compete in the global market there are several issues that need to be urgently addressed. Experts have identified Africa’s yawning infrastructure gap as a great impediment to its development efforts as almost every other issue related to the state of infrastructure. To this end, there has been calls for the continent to bridge this gap to enable it unleash its development potential. One organization that is at the forefront of this effort is the African Export-Import Bank (Afreximbank). Afreximbank in collaboration with sister pan African development finance organisations consider infrastructure as a critical factor for unlocking the continent’s trade potential, thus the need to make it a priority.
This much was reemphasized in a chat this correspondent had with Ms. Kanayo Awani, Managing Director, Intra-African Trade Initiative who says that Afreximbank acknowledges that infrastructural deficit has been hindering Africa-to-Africa trade and is working round the clock with other partners to bridge the gap.
According to Ms. Awani , the Bank is using three broad instruments to address the challenge of inadequate infrastructure on the continent to boost intra-African trade. She says the instruments are trade and project finance; risk guarantees as well as providing trade advocacy and advisory.
“Some of our initiatives are around industrial parks development and if you go to our booth, you will see a picture of an industrial park in Cote d’Ivoire and that project is meant to actually deal with infrastructure challenge so that manufacturers can just go there, set up and don’t worry about amenities,” Awani says.
She adds that Afreximbank is also working on an infrastructure study to identify the trade-carrying infrastructure across the continent. “Infrastructure is a big problem in Africa; there is no doubt about that. But, we think that the current stock of infrastructure is carrying just over a trillion volume of trade,” Awani says.
On the challenges of putting together the Intra-African Trade Fair, she says although it was not an easy task, the organizers were driven by their conviction that it was the right way to go and so the challenges eventually turned out to be opportunities for them. “Right now, there are about 1,100 exhibitors. The interesting thing about this trade fair is the complexity and comprehensiveness of the programme we have put together. First, it is a trade show and exhibition. Secondly, conferences are running alongside the trade show to deal with some of the opportunities available for intra-African trade,” Awani says.
Awani is glad that Afreximbank has enjoyed tremendous support from the African Union (AU) and the Government of Egypt in mounting the trade fair. According to her, the AU has been a driving force in marketing the fair within its policy framework and bringing together ministers of trade who are also holding their conference alongside the trade fair. On the other hand, the host — Egypt — represented by the Export Development Agency (EDA) of the Ministry of Trade provided excellent facilities for the fair. “Beyond facilities, they have provided immense support, including security among other soft infrastructure for this fair,” she says.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
The received wisdom in Silicon Valley is that raising more capital from startups VC (venture capital) in larger and larger rounds is an essential part of the formula for success. But is this idea supported in the data?
Where is this data coming from?
When looking at the world of tech startups, there has been a clear trend toward more and more jumbo-size financings from startup VC s.
In what might be called foie gras’ing, the number of rounds sized $100M and above to US startups nearly tripled between 2016 and 2018.
Investors of various types have fueled this trend, including hedge funds, sovereign wealth funds, mutual funds, and other asset managers.
But SoftBank Group’s Vision Fund in particular has come to embody this new normal.
The fund, with over $100B in capital, has rained money on startups across categories, from real estate (WeWork and OpenDoor Labs) to insurance (Lemonade) to bioengineering (Zymergen). SoftBank’s stake in Uber was an eye-popping $7.7B (pre-IPO) bet.
As Softbank and others plunged in, $100M+ mega-rounds became allmost routine.
“Rather than having [SoftBank’s] capital cannon facing me, I’d rather have their capital cannon behind me, all right?”
— Uber CEO Dara Khosrowshahi
Meanwhile, traditional VC funds are getting bigger and bigger, feeding into this cycle of capital abundance and lavishly funded startups.
Leading VC Sequoia Capital, New Enterprise Associates, and Accel have all announced record $2B+ funds in the last 12 months. Sequoia’s new $8B fund will be 4x larger than its previous biggest-ever vehicle.
To better understand whether Silicon Valley’s capital enthusiasm is grounded in reality, we used CB Insights data to analyze more than 500 VC -backed US tech companies that have seen $100M+ exits since 2013.
We compared low-raisers (less than $100M in VC) and high-raisers ($100M+) in terms of their valuation at M&A, as well as their performance at IPO, shortly after, and over the long term.
Key takeaways
After IPO, the most highly funded startups tend to underperform those who raised less.
In fact, the companies that raised the most almost uniformly struggled to create long-term growth.
Plenty of companies that raised <$100M have seen top exits.
The biggest exits, backed by the deepest-pocketed investors, are returning less and less as foie gras’ing becomes more common — and more extreme.
Exceptions like Facebook (both lavishly funded and successful) tend to get most of the attention due to survivorship bias.
How raising money affects long-term company performance
Silicon Valley has many success stories involving companies that raised relatively little.
To get a long-term perspective on how these two kinds of companies performed, we took a low-raise ($100M in total funding or less) and high-raise ($100M+) cohort and analyzed their short- and long-term stock performance.
Overall, low raisers outperformed high raisers, and saw a median increase in post-IPO value of 263% — compared to an only 64% median increase for high raisers.
For example, 6 out of the 11 highest valued high-raise companies — Snap, Groupon, Dropbox, Zynga, Lending Club, and GreenSky — have registered a negative change in value since their IPO. For companies that have seen an uptick in value, growth has been limited: Twitter and Zayo Group Holdings have seen growth of less than 100%, while DocuSign has only done slightly better.
But among the low-raise cohort, it’s a different story.
Six of the 9 most highly valued startups at IPO that raised less than $100M — Veeva Systems, Palo Alto Networks, ServiceNow, Tableau Software, Splunk, and Ubiquiti Networks — have tripled their valuations since going public. ServiceNow’s value has increased nearly 1,900%, while Ubiquiti Networks’ has increased roughly 800%.
Low raise companies are relatively common in top exits
Given the assumption that more money equals bigger outcomes, you might expect to see a ranking of top tech exits be completely dominated by companies that raised hundreds of millions in funding.
But, among the 50 companies with the biggest exits since 2012, 32% raised just $100M or less.
This low raisers group includes companies like Veeva Systems, which went public at a $4.4B valuation with just $4M in equity funding — making its biggest investor Emergence Capital Partners a 300-fold return on investment.
It also includes WhatsApp, which raised only $60M before its $22B purchase by Facebook in what was the largest-ever acquisition of a VC-backed company at the time.
Most of the biggest IPOs, though, still belong to companies that raised large sums of money, Facebook being the biggest example.
The biggest exits are returning less and less
Today, it’s not just Sand Hill Road investing big in startups — it’s SoftBank with its $100B Vision Fund, sovereign wealth funds like Saudi Arabia’s Public Investment Fund, investors like Tiger Global Management, and banks like Goldman Sachs.
Despite writing sizable checks, these latecomers have not always been able to reap the huge returns of years past. While valuations are bigger than ever, multiples are not, because the biggest exits today are creating less value with the money.
One measure of how well a company is able to turn its investors’ capital into value for shareholders is the ratio of money invested into the startup to its valuation at exit — or the company’s efficiency.
Startups are highly efficient on this metric if they can take in little money on their way to a big exit — such as WhatsApp or an Atlassian. Less efficient companies, like Snapchat or Cloudera, raise large amounts of money but can’t produce a proportionate return.
Over the last few years, the amount of money being raised by startups in the US has grown to staggering highs. Exits have gotten larger too. But the capital efficiency of the huge tech exits has taken a big dip, especially since the relatively halcyon days of 2013–2014.
Since 2013, multiples are down among all exits from $100M to $1B+ in size, but the biggest exits have been hit the hardest.
Today, medium-large exits ($500M to $1B) have higher efficiency than $1B+ exits. They had an average return of 8.9x in 2018, just below their 2013 ratio of 9.7x.
However, the average multiple on $1B+ exits has fallen from 16.1x to 6.9x — a 57% drop in just 6 years. That’s the difference between a company that raised $500M selling for $8B and the same company selling for just $3.45B.
Overfunding is evident in the data
Among venture capitalists, asset managers, and startup founders, there has not been much questioning of the idea that more capital is always a great thing. And its proponents justify what they do by pointing to their most visible, public-end result: the eye-popping returns from companies like Facebook.
What gets lost in most analyses are the M&A deals that return a tiny multiple on money raised, or companies that take on hundreds of millions in venture capital and then perform badly post-IPO. The duds get passed over as the Silicon Valley myth is further burnished by outliers like Facebook.
Despite the exceptions to the rule, many companies out there do seem to be overfunded, including:
SandRidge Energy ($3.6B at IPO, raised $870M)
GreenSky ($4.3B at IPO, raised $610M)
Zayo Group Holdings ($4.5B at IPO, raised $825M)
And this kind of overfunding is growing. A total of 12 of the top exits in 2018 raised more than $200M, compared to the 7 in 2017 and 3 in 2013.
The problem today is that more and more investors are getting in on the explosion of returns that technology has seen over the last decade. And at the same time, as institutional investors funnel unprecedented amounts of capital into the space, startups are showing signs of being unable to turn that capital intro greater value — with the worst effects at the top end of the spectrum.
The Silicon Valley love affair with mega-rounds needs reexamination. As much capital as possible and as quickly as possible is not only a bad formula for a great exit — it’s downright dangerous when viewed through the prism of long-term success in the public markets.
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Vista Bank: A commitment to visionary banking in Africa
The banking landscape on the African continent literally experienced the dawn of vista a few years ago, following the establishment of Vista Bank. The fast-growing financial institution which prides itself as “a new bank for a new generation” is one institution that is bent on helping African start-ups and businesses across borders and geographic divides. According to Mr Simon Tiemtore, founder of the bank, who is also the Chairman and Chief Executive Officer of Lilium Capital, the institution decided to support the African Export-Import Bank (Afreximbank) in mounting the trade fair as part of its contribution towards boosting intra-African trade.
Clearly, Vista Bank is committed to Africa’s transformation. Its mission is to build a world-class pan-African financial institution that promotes financial inclusion and fosters economic development of the continent. The bank’s vision is to make banking and insurance an integrated service to satisfy its customers’ financial needs and create value for all stakeholders using superior market knowledge, operational excellence and a culture of integrity.
In addition, Vista Bank is focused on maximising the opportunities in its respective markets to become the financial institution of choice through innovative banking and insurance products. This is why the board, management and staff of the bank are working tirelessly to “make cutting-edge digital banking solutions accessible to everyone” and “discover visionary banking.”
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Multiple currencies, threat to AfCFTA —Simon Tiemtore
Mr. Simon Tiemtore is the Founder, Chairman and Chief Executive Officer of Lilium Capital, an Africa strategic investment company with targeted sectors of investment in Financial Services, Energy, Hospitality, Agro-processing and FCMG. In this interview with KELECHI DECA, he talks about the prospect of the AfCFTA, SMEs trade finance and the prospects of diaspora banking among others. Excerpts:
How would you describe the African banking landscape?
The banking landscape in Africa is quite interesting because there are lots of opportunities. We always talk about finance and infrastructure gaps and I think banks are seeing an opportunity and providing the required financing and tapping into the market. Banks can’t do it alone and I don’t think any African bank has the financial muscle to fund the gaps alone and so, we do it in partnership with other financial institutions and Afreximbank is one of them.
One of your key markets is SMEs. How risky is doing business with SMEs?
We love SMEs and it is our bread and butter because 95 percent of our economies in Africa are made up of SMEs. The remaining five percent, which are large corporate, predominantly operate in the extractive industry because we are heavily commoditised economies such as in oil and gas and mining. So, these large corporates typically come with their own finance, which is long-term and so, we focus on SMEs.
I do believe the future of Africa is in SMEs and we just have to find better ways to work around, restructure them and restructure their credit.
You recently launched Simon Bank, a digital bank targeted at migrants. Why?
The diaspora today is the single largest source of flow of funds into Africa with about $70billion. Globally, the remittance market is a $660billion market and about $220billion comes from the US and $60billion comes to Africa on a year-on-year basis. Regardless of the immigration policy of the West, it is growing. Our aim is to capture the diaspora market with Vista Bank in locations we operate as we currently do by providing them with products that they can tap into and capture the remittance that they are bringing home. So, Simon Bank is the first digital diaspora bank and it covers the diaspora community because we are also targeting Hispanics, Filipinos, and Asians.
How much of trade finance do you engage in and to what extent would the AfCFTA boost trade in the continent?
We are doing a lot of trade financing. All we are trying to do now, especially in those heavy commodity-trading countries, is by providing letters of credit, pre- and post-export finance, and working capital for transformation. Afreximbank has been an ally by providing us with a line of credit for Guinea and The Gambia.
With multiple non convertible currencies all across the continent, how would trade integration work smoothly?
I believe for any economic zone to be successful, it is must deal with the issue of multiple countries. It is hard if you have over 30 currencies. Trade between, say Guinea and Gambia, becomes difficult. Guinea has its own Franc and Gambia has its own Dalasi. Trade between buyers and sellers in these countries cannot be done in their currencies but the dollar or euro. So, if you look at the three countries from where you operate, trade is difficult despite them being in the same West African Monetary Zone. So, if you talk about a free trade agreement and you cannot trade from a currency standpoint, there is a flaw. So, it needs to be sorted out. But I also believe there is the need to build infrastructure that supports exports. We have the right policy to support trade in the continent, but we need to focus on execution more.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
San Francisco is hallowed ground for tech entrepreneurs. Every year thousands of founders travel to the city, set on starting the next unicorn. However, while the birthplace of Twitter and Uber certainly can provide connections, investors, and talent to help entrepreneurs take their businesses to the next level, it’s also an extremely difficult ecosystem to survive in. To start, living costs are incredibly high. According to SF Gate, studio apartments in the city rent for an average $2,500 per month. On top of that, businesses face challenges such as retaining top talent, as well as competing with other startups for investors and office space.
In my experience, founders who aren’t from the United States can struggle if they don’t find the right organizations, events, and connectors fast. At the end of the day, San Francisco is an expensive place to tread water. With that in mind, here is a brief guide to the San Francisco startup ecosystem for international entrepreneurs planning on making a visit to the city. A view of San Francisco’s downtown
The city’s support networks
A good starting point for an international entrepreneur new to San Francisco is Galvanize. The co-working space and coding boot camp has a café that’s open to the public, and it’s earned a name for itself as a startup hub thanks to the well-curated events that it regularly hosts. Other places to check out include the first floor of the LinkedIn skyscraper, CoVo, Rocketspace, and SaaStr’s co-selling space. World leading accelerators including Y Combinator, The Founder Institute, Techstars,500 Startups, and Plug and Play are all either based in San Francisco or are very close by. Any startup fortunate to receive acceptance into one of the programs receives opportunities thanks to the curriculums and networks the accelerators offer. There are also international government-backed programs such as Desafia, formerly known as Spain Tech Center,Nordic Innovation House, Swissnex, Apex-Brasil, The German Accelerator, and Business France that are designed to help companies with soft landings when moving to San Francisco. For founders from Latin America, PuenteLabs offers a network of mentors to help LatAm entrepreneurs break into the US market via San Francisco. Aside from helping founders new to the region, many of these organizations also offer their own acceleration programs. For example, Business France recently closed applications for the next batch of its accelerator Impact USA, which accelerates the launch and growth of French companies in the United States and Canada. Nordic Innovation House, meanwhile, runs its TINC acceleration program for founders from Norway, Iceland, Sweden, and Finland. Entrepreneurs from the United States often benefit from existing connections from schools such as UC Berkeley or Stanford, as well as their professional networks. The local community is generally open to ‘paying it forward’ and helping others out, however warm introductions still do help.
Events
In San Francisco, a quick visit to sites such as Eventbrite and Meetup reveal hundreds of events each day. Foreign Startups Mixer and Pitch, for example, happens every second Monday and was specifically launched to help entrepreneurs lay roots with the support of veteran international founders. Katja Kotala from Business Finland recommends founders do research and find the most strategic events and conferences for their specific industry. For example, if you work in health tech, check out Health 2.0. If you are an AI startup, Bootstraplabs could be well worth the visit, in particular given the growth of this space. This past week Softbank announced its $108B artificial intelligence fund, and earlier stated its intention to invest in AI in the city. Jim Benton, CEO of Y Combinator-backed Apollo.io, part of the city’s recognized AI and data ecosystems To find industry-specific events and speakers that can offer the right connections, I recommend signing up for the Startup Digest newsletter, earlier founded by Chris McCann, or Gary’s Guide, founded by Gary Sharma. Throughout the year, there are large scale conferences such as TechCrunch Disrupt in October that offer a great deal of value, in addition to Launch Scale, founded by serial entrepreneur Jason Calacanis. When it comes to events, Maria Neau from Impact USA recommended signing up to VC newsletters to see where investors are spending time.
Talent
San Francisco wouldn’t be what it is today were it not for the steady flow of tech talent from places nearby such as Stanford and UC Berkeley. The fact that Hewlett Packard, Cisco, Intel, Yahoo!, Netflix, Paypal, LinkedIn, YouTube, Google, Instagram, and Snapchat were all founded by graduates of Stanford drives this home. However, while there are a number of local universities that foster innovation, the area remains a hard place to hire. According to a recent report from the Brunswick group, more than half of those surveyed in the Bay area say it’s harder to find and recruit talent now than it was a year ago. The same survey highlighted that 41% of 18- to 34-year-olds planned to leave the Bay Area in the next year. Coding boot camps can be found throughout the area, with notable organizations including Galvanize, General Assembly, Product School,Hack Reactor and Codify Academy, to name a few. While it might be expensive and competitive for international companies to hire from these universities, there are still ways they can benefit from them. Berkeley’s Skydeck Accelerator and Stanford’s StartX program are both widely respected for bridging the gap between founders, enterprises and the next generation of tech talent. For those wanting to keep their eye on new innovation coming out of these institutions, it’s also worth checking out Stanford’s BASES Competition and Cardinal Ventures. UC Berkeley SkyDeck Executive Director Caroline Winnett and its fund’s Founding Partner Chon Yang
Government support
Founders from outside of the United States will likely have more luck looking for government support from their own countries, rather than locally in San Francisco. Local authorities in the city have increasingly been leaning away from large tech organizations, with new laws and taxes. This being said, one organization worth mentioning is GlobalSF, a private-public initiative supported by the City of San Francisco which assists international businesses coming into the city. The organization has specific teams for Latin America, China, and the rest of Asia.
Funding
Vitaly M. Golomb, Managing Partner at GS Capital, published an interesting yet bleak article last year titled Dear Foreign Founder, Don’t Come to Silicon Valley to Fundraise. In the article Golomb outlines the challenges international founders face when they go to Silicon Valley with unrealistic hopes of raising VC funding. While nearby Sand Hill Road is still iconic, a recent report from PwC and CBS Insights highlights that in Q1 of 2019, VC funding in the New York area increased sharply to $4.5B, a 110% increase over Q4 of 2018. Funding in Silicon Valley fell 19% to $4B. VC activity is still higher in the Bay Area than any other ecosystem in the world, and deals have been getting larger. However, local investors are increasingly doubling down and tripling down on safer bets. This isn’t good news for international founders, who have a steeper climb to show traction and build trust within the U.S. market. If they do want to raise locally, early on in their U.S. journeys, they should look for VC funds which specifically work with international founders. For example, Unshackled Ventures is a fund specifically for immigrant founders. HIVE Ventures is a seed-stage investing firm that focuses on funding Armenian entrepreneurs. There are VCs that also focus on US as well as international investments, for example blockchain fund Proof of Capital and Nexus Venture Capital. However, considering the increased risk aversion of local VCs, it is important international founders are realistic about the time it takes to raise money. Many suggest it may take six months to a year for founders to develop relationships and to build enough trust from local investors. It’s important that founders have enough resources during this period. Often when I meet international entrepreneurs I recommend they apply to programs such as Y Combinator and 500 Startups because they do provide a level of social proof. SF-based startup Bonsai, one of the 65 graduates in its Y Combinator batch
Conclusion
Despite challenges, San Francisco continues to be the most important city startup ecosystem in the world and the best place to scale high-growth technology companies. However, international startups aiming to mark their place amongst tech giants need to approach the city strategically. This means being realistic about whether a company has gained enough traction to expand into the US market and determining if it has the resources for its first year in the city. Taking the leap requires time as well as energy to build connections. Otherwise, international companies often can’t expect to facilitate fast enough growth in the city.
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
Africa Check in conjunction with Facebook, expands its local language coverage as part of its Third-Party Fact-Checking Programme.
Facebook’s reality checking project depends on input from the Facebook people group, as one of numerous sign Facebook uses to raise possibly false stories to certainty checkers for survey
Facebook), today with Africa Check reported that it has included new neighborhood language support for a few African dialects as a major aspect of its Third-Party Fact-Checking program – which surveys the exactness of news on Facebook and expects to decrease the spread of deception.
Propelled in 2018 crosswise over five nations in Sub-Saharan Africa, including South Africa, Kenya, Nigeria, Senegal and Cameroon, Facebook has banded together with Africa Check, Africa’s first free certainty checking association, to grow its neighborhood language inclusion over:
Nigeria, in Yoruba and Igbo, adding to Hausa which was at that point bolstered
Swahili in Kenya
Wolof in Senegal
Afrikaans, Zulu, Setswana, Sotho, Northern Sotho and Southern Ndebele in South Africa
As indicated by Kojo Boakye, Facebook Head of Public Policy, Africa, stated: “We keep on trying huge interests in our endeavors to battle the spread of false news on our stage, while building strong, sheltered, educated and comprehensive networks. Our outsider reality checking system is only one of numerous ways we are doing this, and with the extension of neighborhood language inclusion, this will help in further improving the nature of data individuals see on Facebook. We know there is still more to do, and we’re focused on this.”
Remarking, Noko Makgato, official chief of Africa Check, said “We’re excited to grow the munitions stockpile of the dialects we spread in our work on Facebook’s outsider truth checking program. In nations as semantically different as Nigeria, South Africa, Kenya and Senegal, certainty checking in neighborhood dialects is imperative. In addition to the fact that it lets us actuality check increasingly content on Facebook, it likewise implies we’ll be contacting more individuals crosswise over Africa with confirmed, believable data.”
Facebook’s reality checking project depends on criticism from the Facebook people group, as one of numerous sign Facebook uses to raise possibly false stories to certainty checkers for survey. Neighborhood articles will be reality checked close by the confirmation of photographs and recordings. In the event that one of Facebook’s reality checking accomplices distinguishes a story as false, Facebook will demonstrate it lower in News Feed, essentially lessening its dispersion.
Kelechi Deca
Kelechi Deca has over two decades of media experience, he has traveled to over 77 countries reporting on multilateral development institutions, international business, trade, travels, culture, and diplomacy. He is also a petrol head with in-depth knowledge of automobiles and the auto industry.
Charles Rapulu Udoh is a Lagos-based Lawyer with special focus on Business Law, Intellectual Property Rights, Entertainment and Technology Law. He is also an award-winning writer. Working for notable organizations so far has exposed him to some of industry best practices in business, finance strategies, law, dispute resolution, and data analytics both in Nigeria and across the world.
