The recent listing of JUMIA on the NYSE made many Africans swell with pride. What folks in the ecosystem witnessed was a UNICORN paying off its investors. It is also time to pause and reflect – what turns these startups into mammoths and what goes in as the secret recipe for their success? Which are the next ones in line from the continent?
In a conversation with WeeTracker, Erick Yong, CEO GreenTec Capital Partners [GTC], explains the stages of value creation where a startup needs external support. It’s not always the money that is the most useful, it is the domain expertise that helps startups crack the right business model and create much more significant value for the stakeholders.
Erick originally hails from Cameroon, but since his parents were diplomats, he has done a fair amount of globetrotting. Born in Germany, Erick grew up in different parts of Africa including Kenya, Gabon, Cameroon and Ethiopia.
Soon after finishing his education, he was bitten by the entrepreneurial bug and that saw him build his first company in 2002. He recalls his journey as an interesting one and a successful one too. And he believes he has the reasons to call it a success, because the waste management company that he built started generating profits north of USD 1 Mn within 6 years of operations.
Erick started with a waste management company which developed innovative waste containers that were semi-buried. The product that they developed could be removed easily making it easier for people to manage their disposals. He sold the patent to his partners who eventually sold it to the production company that manufactured the containers. The sell off provided a secondary exit to Erick from that company.
He also recounts how the term Venture Capital was so unheard of at that point in time. He knew only about bootstrapping, fighting and setting the business up. Soon after a successful exit from his company, he worked with consulting companies on international cases, CSR, building strategies. He has also had a stint at setting up VC fund in China and facilitating acquisitions.
In Germany, he came across his current partner, Thomas Festerling, back in 2014 when he was looking to set up his next company – GreenTec Capital Partners. They both wanted to create value for organisations and planned to move to Africa. At this point in time, in Germany, the term Venture Capital was already making waves and multiple funds were rolling out to help startups.
While on one hand, the African continent is buzzing with startups, Erick bumped into the pertinent question of ‘investible startups’. It did not take him long to realise the deal flow problems that a classic VC faces on the continent. And that local investors are visibly silent on the funding zone.
“I am a pure venture builder; an entrepreneur’s entrepreneur,” says Erick Yong.
Erick emphasises that he understands the entrepreneurial cycle too well as he has closely lived all the aspects in the 6 years of his entrepreneurial life.
He has lived the challenges, knows the psychology, the emotions and struggles going on in an entrepreneur’s mind. By helping companies in Africa build itself by becoming the virtual co-founder, he wanted to give back his learnings.
His idea was to create a support entity that would help founders in their operations, be it technology, or business processes. In his opinion, most of the startups wanted cash, but he devised a way through which he could create more value for the founders.
As a result, GreenTec Capital has created a new model that finances the resources and sets the KPI’s of development for a predefined period. Erick feels the best way to actually grow a startup is to become an integral part of its operations.
“We want to address the execution part of the startup and complete operational achievement.”
“We believe in giving them (startups) resources and expertise that will make their business stronger rather than giving money and checking every 6 months on their development,” adds Erick with emphasis.
“And this is not just a random process, we deliberately pick companies that are solving problems and are scalable. We do have immense belief in digital and agricultural businesses. We have a general taste of the market.”
Towards completion of the preset milestones for startups, GreenTec Capital exchanges the resources (primarily-skilled human resources) for equity.
In the words of Erick, the model has been working successfully so far. They have seen great development with Farmcrowdy and Netwookie which are part of GreenTec’s portfolio. To boost the effectiveness of their model, the GreenTec’s team tries to come in immediately after the founder sets up the startup. The team looks at small equities in the companies and work towards building higher valuations.
At this point, Erick adds;
“We always want the founder to remain in control of his company and continue to grow. To have a great exit you have to ensure that founders are always motivated.”
The venture builder explains that the resources can be used for multiple startups, hence their risk is spread well. In the process of involving the GTC team in the operations, they don’t necessarily demand board seats in startups, instead, they gain insights on the business. The modus operandi is to work like an internal consultant helping the startup to grow while gaining insider information on every aspect of the startup.
“Entrepreneurship is a long game; it’s not like a year’s job. GTC has become a reference checkpoint for investors to have a 360-degree view of a startup,” adds Erick.
GreenTec Capital Partners started with two individuals and today; they are a strong team of 14. They have offices in three countries while being present in ten countries in terms of investment. The GTC team claims to have invested USD 1 Mn worth of resources till date.
“We ensure that we pump in enough value in a company so that it reaches a stage where a classic VC wants to put his money.”
So far, the firm has invested in 25 companies out of which 17 of those are still part of their portfolio. Out of these 17 startups, 8 companies have met their KPIs and have raised external capital.
The GreenTec team believes that they have cracked the investment model where equity can be converted into cash to handle the liquidity issues. This year, the agendas earmarked by the venture-building team is to develop local partners who can further their mission and launch their fund.
The GTC team is now focussed on building their Mauritius-based fund which could range from USD 50 Mn to USD 85 Mn. They are in the process of closing their first tranche of the fund and should be in a position to offer a full package to the startups in their portfolio.
Another highlight for the team would be to identify startups aligned with solving the national problems of their respective countries. Partnering with such startups will allow the GreenTec team to contribute to the national priorities and be able to measure their contribution to each country.