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Exit plan for start-ups: ‘Global thinking, local start’
“You have to think global from day one,” urged Zachariah George during AfricArena’s Johannesburg summit earlier this week. Participating in a panel discussion on the secret sauce of exits in Southern Africa versus elsewhere on the continent, the Launch Africa managing partner underscored the need for fail-safe ways to move IP offshore.
George said that start-ups in Nigeria, Senegal, Ghana, Tanzania, and Kenya have typically been successful in moving their IP offshore on day one, and setting up clean offshore structures that attract more investors.
He added that although South Africa has had more exits in the last four years, the value of those exits is significantly smaller compared to Nigeria and Kenya. Entrepreneurs should therefore not to be fooled by what they see, said George, urging them to consider global expansion from the beginning.
George, a leading angel investor, cited fintech companies as an example, pointing out that only a few of South Africa’s top financial technology start-ups have expanded beyond the country. He suggested that entrepreneurs consider partnerships instead of hiring teams and learn the art of sacrificing margin for volume.
Allison Collier, the managing director of Endeavour South Africa, stressed the importance of building relationships with strategic buyers and knowing what’s going on in your industry. She advised entrepreneurs to get to know their competitors and emphasised the need to work together to grow the industry.
Collier urged entrepreneurs to actually reach out to their competitors and have a business conversation about what’s going on in their space. “They won’t see it as a threat. You’ll both grow this industry together,” she said.
Growing locally vs. offshore?
During the question-and-answer session, Nick Argyros, founder of Got bot.ai, raised a question about moving IP offshore. He explained that when his company signed with Launch Africa in 2017, the advice given to them was to grow the business locally first before considering offshore options.
Argyros pointed out that as a South African, he wanted to do business with South African companies, but George replied that entrepreneurs needed to think globally from day one. George acknowledged that he had given different advice to Got bot.ai in 2017, but emphasised that circumstances have changed since then.
“Strategies change, right?” Collier said.
In response to another question, George urged entrepreneurs to keep up with the changing regulatory landscape, particularly in relation to intellectual property. He warned that failing to do so could have severe consequences for their businesses. “Intellectual property is going to be the battleground for the next 30 to 50 years,” he said.
The panel discussion at the AfricArena summit emphasised the importance of global thinking, building relationships, and keeping up with the changing regulatory landscape for African entrepreneurs. As George put it, “If you want to look at an exit, you have to think global from day one.”
Following a question about trends in the healthcare tech space in South Africa, George explained that the healthcare and non-life insurance markets were run by oligopolies, making it easier for start-up’s to work with insurance companies and leverage off their distribution channels. This can help start-ups stand in good stead for exits to corporates.
However, George cautioned against focusing too much on exits, urging founders to prioritise building a strong business and solving real-world problems.
In response to a question about red flags when investing in a start-up, Natalie Kolbe, the managing partner of Norrsken22, emphasised the importance of authenticity and transparency in pitches. She said that when a founder is upfront about the challenges their business faces, it helps to build trust and break down barriers.
Akash Maharaj, an executive in equity finance and investments at Standard Bank, added that he looked for entrepreneurs who understood the risks and could articulate how they planned to overcome them.
Secha Capital managing director Brendan Mullen emphasised the importance of having conversations with entrepreneurs rather than expecting a one-sided pitch. He believes that the term “pitch” creates an unfair expectation for entrepreneurs to tell their story and be knowledgeable about specific decks and sectors.
Instead, Mullen advocates for a dialogue where both parties can share insights and knowledge. He added that Secha Capital, as an impact investor, preferred to have a deep understanding of a company before investing and encouraged entrepreneurs to engage in meaningful conversations with potential investors.
Another audience member pressed the panel about red flags that could put investors off from a start-up. George responded that investors should be wary of founders who “bullshit” and oversold their product without being transparent about potential risks. He suggested that investors should focus on the founder’s ability to execute their vision, rather than solely on the product itself.
The panel agreed that founders should prioritise building a strong business and being transparent about potential risks. Investors, on the other hand, should look for founders who understood the risks and could articulate a plan to overcome them, rather than being swayed by flashy pitches.
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