Nothing ventured, nothing gained

IF investors intend to wait for evidence that investing in hi-tech in Africa is a sure bet, they will be too late. This warning was a central theme that emerged this week at a conference hosted in Los Angeles by one of the world’s most successful venture capital (VC) companies, Intel Capital.

For several years now, the venture capital arm of chipmaking giant Intel has seen more “exits” — sales or listings of businesses in which it invested — than any of the major hi-tech venture capital companies in Silicon Valley. It has invested a total of $11-billion in more than 1 400 companies, of which 209 have listed on the stock market and 363 have been acquired by other companies.

So when Intel Capital pronounces on the wisdom of investing in a market, the world tends to listen — but it does not necessarily follow its advice.

“All emerging markets follow the same pattern,” said company vice president Marcin Hejka, speaking at the Intel Capital Global Summit.

“I would compare the situation in Africa today with Eastern Europe and Russia when we opened our office there in 1999. GDP per capita and infrastructure development was not much different to what it is in Africa today. There was no evidence at the time that investing in the region could generate positive results.”

But Intel Capital was looking to the future.

“VC was virtually unknown in Eastern Europe, and half our time was spent educating investors and entrepreneurs.

“Now it’s as well understood there as in Silicon Valley.

“It will come in Africa too. VC is a new concept in most African countries. We talk a lot to entrepreneurs and spend time educating potential investors. It has been a similar situation in almost every emerging market we have entered.”

Arvind Sodhani, president of Intel Capital, pointed to another reason start-ups have had difficulty attracting investment in Africa.

“You need an ecosystem of VCs investing, laws governing VCs, entrepreneurs and skilled people willing to work for new companies. Start-ups are highrisk because they might not survive. Not a lot of people want to take the risk of joining a busi- ness that may not be around for long. In California there is a culture of people quitting large corporations to join start-ups, so they don’t have trouble finding talent. In Africa, the culture of working for a start-up is still a difficult one.”

So far, Intel has invested in only two companies in Africa: Ghana-based mobile content delivery company Rancard Solutions, and South Africa’s JSE-listed technology company Altech. The latter is hardly a startup, but Intel saw it as a chance to help address one of the factors holding back start-ups: limited broadband services.

Whoever invests in the continent now is going to be quite successful

The investment in 2011 highlighted just how far South Africa had lagged behind in attracting hi-tech venture capital — Intel had invested in tech companies in 49 countries before finding an appropriate opportunity in South Africa.

But it does want more. “We are looking for young, innovative start-ups, young people developing new technologies applicable not only to local markets but globally,” says Hejka.

“We are great believers in the opportunity in Africa. It makes up 17% of the global population and only 1% of consumption. This is changing as the continent catches up, and we believe it’s creating fantastic opportunities.

“Whoever invests now is going to be quite successful. Whoever is waiting for evidence that investing in tech is the right thing to do, is going to miss these opportunities.”

Arthur Goldstuck is founder of World Wide Worx and editorin-chief of Gadget.co.za. Follow him on Twitter on @art2gee and on YouTube.