As the African business ecosystem continues to flourish, with significant mergers and acquisitions (M&A) activity in recent times, founders and CEOs must navigate a complex landscape to secure larger funding rounds or successful exits. Victor Basta, CEO of DAI Magister, offers invaluable advice for African growth-stage companies aiming to maximise their funding and exit values.
The African market is on an upward trajectory, evidenced by 43 M&A deals announced in the first quarter of 2023 across Africa and the Middle East, totalling over $1 billion—an impressive 45% increase from the previous quarter. This surge presents a golden opportunity for African companies. However, to capitalise on this momentum, businesses must meticulously evaluate their organisational structures and readiness for acquisition, even if their primary focus is on fundraising.
Victor Basta provides five essential tips for African founders to enhance their prospects of securing substantial investments or lucrative exits:
1. Mastering Unit Economics
Unit economics—an analysis of the profit generated per unit sold, shipped, transacted, or loaned—are crucial for investor evaluation, particularly as businesses progress to later or larger funding rounds.
Basta explains, “The challenge isn’t understanding the concept but rather the art of determining and presenting unit economics. By art, we mean the nuanced approach required—not fabricating data, but effectively calculating and showcasing it. The way unit economics are presented can be the difference between investor enthusiasm and a polite rejection.
“Many African growth companies either don’t delve deeply enough into their unit economics or fail to present them compellingly, often leaving potential funding on the table.”
2. The Value of a Strong CFO
A capable Chief Financial Officer (CFO) is invaluable, particularly one who can also function as a Chief Operating Officer (COO), driving the business forward with strategic insight and robust financial management.
Basta notes, “A CFO who can act almost as a COO, delving into the business, packaging, and presenting growth compellingly, and defending their stance during intense due diligence is rare. CEOs often overlook the importance of upgrading this role, especially in challenging markets. This oversight can kill deals that might otherwise succeed.”
3. Corporate Marketing: An Underutilised Asset
Investing in corporate marketing is crucial for African growth-stage companies. Effective marketing strategies can significantly enhance visibility and attractiveness to potential investors.
“African companies need to over-market to prospective investors,” says Basta. “Distance, complexity, and perceived risk make African investments appear ‘risky’ from the outset. Over-marketing helps project these companies onto the radar of investors located thousands of miles away.”
4. Engaging Investors on a Personal Level
Understanding that investors are individuals, not just funds, and building personal relationships with them can greatly increase the likelihood of securing investment.
Basta advises, “Engage with as many decision-makers as possible within the Investment Committee (IC). If direct access isn’t possible, build strong relationships with the partners who will represent you. Working closely with investors before closing a funding round can significantly increase the probability of success.”
5. Allocating Sufficient Time for Fundraising
Proper preparation time is crucial for the success of fundraising efforts. Companies should budget double the time they initially anticipate ensuring thorough readiness.
Basta concludes, “Whatever timeframe you plan, double it. This extra time allows for comprehensive preparation and strategic engagement, ultimately building real momentum by the term sheet stage.”
In summary, African growth-stage companies seeking to secure larger funding rounds or successful M&A exits must focus on mastering their unit economics, investing in a strong CFO, leveraging corporate marketing, engaging investors personally, and allocating ample time for preparation. By following these tips, businesses can better position themselves for success in the increasingly dynamic African market.