[Benjamindada.com] Why founders should ignore the noise and focus on the fundamentals

Efayomi Carr shares lessons for African startups from Apollo and Flutterwave, potential solutions to their challenges, and his long-term vision as a venture capitalist.

Article originally posted on Benjamindada.com

Efayomi Carr has had the most multifaceted career one could ever ask for, transitioning from his role as an associate at Boston Consulting Group to becoming the chief financial officer at Lori, and now serving as a Principal at Flourish.

In our interview with him, we discussed lessons for African startups from Apollo and Flutterwave, potential solutions to their challenges, and his long-term vision as a venture capitalist.

How Flourish Ventures differentiates itself from other VC firms 

Flourish Ventures has made headlines recently by securing a $350 million injection of fresh capital. This remarkable success can be primarily attributed to their distinctive model, setting them apart from conventional firms.

Efayomi explains, “At its core, Flourish differs structurally from other funds as we operate as an evergreen fund. This means we don't adhere to the typical fund cycle where investments must be made and exited within set periods to return capital. Unlike traditional funds, we have no fixed timeline for our investment schedule. This flexibility allows us to exercise patience, as we are not bound by the need to exit investments within a specific timeframe.”

He further elaborates on how this unique approach is particularly beneficial to African startups, saying, “Our approach is particularly advantageous in the African context, where startup companies often follow a different timing and cycle. It's common for these companies to require more time to reach scale and achieve a successful exit. With our evergreen fund structure, we can keep investments on our books for an extended period, allowing us to observe how they develop and providing our portfolio companies with the time needed to mature. This flexibility is a key asset, aligning with the unique challenges and timelines faced by African startups.”

Flourish Ventures' evergreen fund structure not only differentiates them in the competitive venture capital industry but also positions them as a partner uniquely equipped to support the diverse needs and trajectories of African startups.

Deep dive into Flourish’s investment strategy 

Efayomi provides a glimpse into how Flourish plans to deploy its newly acquired capital by outlining its standard investment strategy. “Our primary focus is on companies in the Seed to Series A stages that have already proven their product-market fit, indicating strong customer demand. Once we decide to invest, our evaluation shifts toward assessing the potential for scalability. This evaluation involves several key steps.”

He then proceeds to detail the steps of their investment strategy. "First, we rigorously analyze the addressable market, examining its size and the realistic potential for the company to capture a significant share of it. It's important to note that in certain African countries, certain markets may be too small to support specific business models due to limited customer base and capital resources.

Second, we conduct a thorough examination of the competitive landscape, especially in industries with protectionist tendencies, like telcos or banking in Africa. If a business model involves displacing well-established incumbents, especially in sectors with oligopolistic structures, we raise concerns.”

He adds, “Finally, and perhaps most importantly, we scrutinize the team. We look for a combination of meticulous attention to detail, essential for navigating the intricacies of success, and a broad strategic perspective that enables scaling and adaptation. The team's ability to discern both the finer details of success and the broader strategic plans is of utmost importance. While these three factors — market assessment, competitive landscape, and team evaluation — hold significant importance, we also consider various other factors in our investment decision-making process.”

How Flourish engages with its portfolio companies 

Shedding light on how Flourish Ventures's team works with its portfolio companies to uphold its mission, Efayomi articulates, “Our approach is collaborative. We prioritize working closely with founders to understand their needs and address their challenges by leveraging our resources and experience.”

He goes on to provide further insight into their strategic approach, stating,  “Additionally, we set priorities based on our extensive experience working with companies through different stages of the startup lifecycle. This involves a collaborative effort to align the founders' goals and mission with the key markers for scaling that our experience has identified.”

The overarching objective, as emphasized by Efayomi, is to “foster an open conversation and ensure alignment between the founders' vision and our collective understanding of a successful trajectory.”

Apollo and Flutterwave: Flourish’s standout investments 

Since its inception in 2019, Flourish Ventures, an offshoot of Omidyar Network, has made significant strides by backing 71 startups spanning five continents.

Zooming in on its involvement in Africa, Efayomi shares noteworthy success stories and gleans key insights from their journeys. “Among these notable success stories,” Efayomi points out, “stands Flutterwave, a leading fintech startup that transformed digital and online payments across the continent. It's a testament to our early investments in disruptive ventures that have breathed new life into stagnant industries. Conversely, within our later-stage portfolio, we have companies like Apollo, which extends credit, advisory services, and insurance to farmers. Over the past year, they have reached a significant milestone, impacting the lives of 200,000 farmers, a commendable feat that addresses a pressing challenge.”

Efayomi elaborates further, highlighting the impact of newer investments like Apollo. “Apollo,” he explains, “illustrates the potential for disruption in sectors that were long bereft of technical innovation. With Kenya alone boasting four and a half million smallholder farmers, the magnitude of the challenge across the continent is immense. These companies not only offer vital services but also harness emerging trends such as climate finance and artificial intelligence, using satellite imagery to support farmers during adverse conditions.”

Flutterwave and Apollo serve as examples of different stages within Flourish Ventures' portfolio. Flutterwave represents their earlier investments, sparking revolutions in established industries, while Apollo signifies a more recent investment making waves in a space that originally lacked technological innovation.

Key lessons from Apollo and Flutterwave

Sharing valuable takeaways that budding and existing founders can glean from these success stories, Efayomi shares, “For aspiring or current founders, there are several key points to consider. Firstly, aim for a sizable market if you seek huge success. Secondly, ensure your product is attuned to the timing of market demand, as both Flutterwave and Apollo have demonstrated.”

“Lastly, assembling a team with relevant experience and industry networks is pivotal. In the cases of these successful startups, the founders boasted backgrounds closely aligned with their respective products, melding engineering expertise with an intimate understanding of credit or payments (Flutterwave) and agriculture (Apollo). Thus, having the right market, impeccable product timing, and an experienced team constitute critical elements for success within the startup ecosystem.”

The threefold mountain to climb: Regulatory, capital, and macroeconomic hurdles

The African startup ecosystem, like many others, is not devoid of its fair share of challenges and hurdles. Efayomi, an active participant in this ecosystem, deeply understands these challenges and explores potential solutions for startups and stakeholders.

“I believe we can categorize the challenges into different levels. The first pillar revolves around regulatory barriers, especially evident in Africa with its 54 different countries. Navigating complex and often opaque regulations, including the challenges of business registration due to issues like domestication and intellectual property, can be daunting. Many businesses find compliance easier by relocating their headquarters to places like Mauritius or the U.S.”

Continuing his analysis, he goes on to note, “The next significant challenge is related to capital, particularly at later stages. While there is ample capital available for early-stage investments and growth, securing funding becomes increasingly challenging in later stages. Africa faces a scarcity of exits, with IPOs, M&A transactions, and private equity buyouts being the most common. These avenues require sophisticated and long-term capital pools that are currently limited in the African context. Evaluating an opportunity requires a clear understanding of the potential exit scenarios.”

Efayomi then delves into the third major challenge, which revolves around the macroeconomic environment. “The third major challenge is the macroeconomic environment. Many major markets in Africa are experiencing macroeconomic volatility, whether it be currency depreciation, political instability, inflation, or other disruptions. This volatility affects businesses, especially those dealing with foreign-denominated debt.”

Assemble, collaborate, diversify

According to Efayomi, addressing these challenges requires proactive approaches. As he elaborates, “Collaboration with governmental bodies is of paramount significance, as vividly exemplified in the success stories of companies like Flutterwave and Apollo. Active involvement in shaping legislation and regulations creates a positive ecosystem that not only benefits companies but also enhances the overall quality of life for citizens.”

Efayomi further emphasizes the value of diversification as a key strategy for resilience. He observes, “Diversification is another key strategy. Successful companies, including Flutterwave, have expanded into multiple markets, providing a buffer against inflationary pressures and other macroeconomic challenges. Diversification enhances attractiveness to external lenders.”

Lastly, Efayomi spotlights the role of assembling the right team and investors as an essential component of addressing these challenges. He remarks, “Assembling the right team and investors is essential. Successful companies have brought in experienced advisors with diverse backgrounds to navigate challenges and set effective strategies for scaling. Creativity and proactiveness are crucial in planning and managing risks, both externally with stakeholders and internally by building capacity and expertise.”

How to overcome financial crisis 

Sharing his insights on how he steered Lori through this crisis, Efayomi reflects, “At that juncture, we faced a genuine crisis. Two of our core businesses came to an abrupt halt due to the sudden closure of cross-border operations, notably between Kenya and Uganda. It was a difficult time, and the major advice I can offer is the importance of returning to the fundamentals.”

He continues, “In the startup world, especially in the context of raising capital, it's easy to get swept up in the fervour of rapid growth at any cost. However, the crucial questions that we must address are, 'Are we making money? Are our customers content? Do we have a solid cash position?' These are the bedrock questions that startup founders should consistently focus on. What do we genuinely need to achieve success? What are the low-hanging fruits that can be swiftly implemented?

Above all, maintaining a crystal-clear vision of our goals is imperative. If our objective is to achieve profitability as swiftly as possible, then let's wholeheartedly commit to that goal and eliminate distractions.”

Overall, Efayomi believes minimising the noise and focusing on the fundamentals is the ultimate way to overcome financial crises. “The key lies in minimizing noise and honing in on the fundamentals. By executing this strategy and articulating it effectively, investors are more likely to comprehend and exhibit patience during times of crisis.”

Trends that could shape the African ecosystem in 2024 and beyond

Efayomi identifies exciting sub-sector trends that have the potential to significantly shape the African startup ecosystem in 2024 and beyond. He points out, “There are a couple of sub-sector trends that are poised to exert a profound influence on the startup landscape. Firstly, the surge in climate finance is a noteworthy development, with substantial capital earmarked for deployment in the African energy sector. Sectors like renewables are expected to draw substantial investments, attracting innovation-driven funding.”

Expanding on these trends, he highlights the growing adoption of Artificial Intelligence (AI), stating, "Another influential trend is the expanding adoption of AI. While AI has already demonstrated its transformative impact on startups in established markets like the US, its influence is anticipated to grow significantly within the African context.”

Furthermore, Efayomi anticipates a surge in mergers and acquisitions (M&A) in the coming months. He notes, “Many companies may face challenges in securing capital expeditiously, leading to a convergence of synergies and collaborative initiatives. This is likely to result in geographical diversification, facilitated through M&A activities.”

Efayomi’s long-term vision 

Efayomi concluded the interview with an optimistic outlook, expressing his long-term vision as a venture capitalist (VC).

“I entered this space with a strong belief in the potential of entrepreneurship to address Africa's challenges effectively. My long-term goal is to work alongside and support entrepreneurs who are actively tackling significant problems, he said. “By leveraging my experience, financial resources, and other assets,” I intend to empower these entrepreneurs so that they, in turn, can create a positive ripple effect in their communities and beyond.”