Africa, like the rest of the world, is going through a VC funding “winter”, with a capital crunch threatening the survival of many leading startups. But Erick Yong, from Africa-focused investor GreenTec Capital Partners and the Zeitec Investment Office, remains bullish on the African tech space in spite of current challenges.
“The macro dynamics are there, and the talent is starting to increase. This is just a period of transition,” Yong told episode 10 of Disrupt Africa’s “The month in VC” podcast series, released in partnership with Katapult Africa, Hlayisani Capital, and Atlantica Ventures,
Originally from Cameroon, but now based in Germany, Yong launched his first company straight out of business school, exiting after seven years. He then worked for an international consortium, helping to build ventures in Europe and Asia.
“I decided to stop working for others and create a new company, with a focus on Africa. I wanted to go back to my origins and try to see if I could share my experiences in building companies with my fellow founders,” he said.
So, alongside Thomas Festerling, Yong launched GreenTec Capital Partners, developing a concept of investment around “result for equity”, in addition to small amounts of capital. GreenTec started in Anglophone countries, like Nigeria, Kenya and South Africa, before expanding into Francophone markets like Senegal and Ivory Coast. It has made 45 investments.
“We had two investment criteria – it was focused on platform, and essential, be that agriculture, food, water, energy… Platform will be all the digital development infrastructure that was addressing these challenges,” Yong said.
So far, the firm has partially exited six of its investments, and is in the process of exiting another one now. Much of GreenTec’s value is in its venture-building assistance, with the firm operating differently to traditional VCs, and investing off balance sheet.
“Being an entrepreneur I was not really looking for LPs, so we created a certain vertical next to the investment activities that was supporting development agencies. We generated capital with this and then we used the capital to invest into a new company,” said Yong.
He says an investor’s favourite portfolio companies are always the ones performing best at that particular moment, something that could change at any time, but as the current cream of the GreenTec crop highlights Ghana’s AgroCenta, one of its first investments, and a Kenyan walter filtering startup that rapidly expanded and saw the firm exit at 40x return on investment. It usually exits via secondaries, having built an investor network that wanted exposure to Africa.
“Being a venture builder is our biggest value proposition. We invest in helping them restructure their business, helping them find international partners, helping them on different stages of their business in order to grow,” said Yong. “In all our investments we are much, much more operational than classic investors.”
In his experience, what major issues do African founders face when building their businesses?
“One of the major issues for African founders is the environment – level of expertise, the dynamic. We’ve seen in the last years that the market was over-flowed by money, which made the founders lose a little bit of track of what was very important. I think that’s because it’s a quite new environment, and in Africa we’re still trying to find what works in our environment,” he said.
Yong, then, has limited concerns over the current global capital shortage, saying it is a normal stage that was to be expected. It is also not without its positives.
“It’s a very normal stage. It was to be expected. From my perspective I think it’s a good thing, because it forces companies to become better. They are in a challenging environment, they have to become better, and it’s much easier now for investors to see the good companies from the weak companies,” he said.
