We took a small group of VestedAngels to Kenya in December to allow them to meet with our two portfolio companies in the country (Mobius Motors and Umati Capital) and some of the entrepreneurs, investors, journalists and government officials that are playing an active role in the country’s economic growth. The objective of the trip was to allow each VestedAngel to form their own opinion based on what they saw and heard, gain insights about the problems that need to be resolved, learn more about the obstacles impeding the growth of early-stage companies in these markets and leverage that experience in the future when making decisions about investing in Kenya and other markets like it.
Peter Braxton, one of the VestedAngels on the trip wrote blog posts to describe his experience — you can see his post here.
Prior to taking the trip, one of the questions we regularly asked ourselves was: how do we get prospective investors to view the opportunities we see in developing countries through our lens?
The trip showed us that the most compelling way to get others to see things through our lens is to allow them to experience it firsthand. Let them meet with the highly-educated entrepreneurs who gave up lucrative opportunities abroad to return to their native countries to build a company that addresses a glaring need in the market. Let them experience the thrill of seeing a company that’s “disrupting” a market by slightly tweaking tried and true strategies and technologies that are already being employed elsewhere. Help them understand how the regulatory environment impacts the operations of businesses and hear whether fraud and political/social instability is as pervasive as they assume. Show them the effect that lack of access to capital is having on scalable ventures. And, perhaps most importantly, let them truly connect with the people and see that they have the same needs, desires, intellect, capabilities and drive as those that they interact with back home each day.
No matter how many times I’ve heard the words “no, this is too risky” or “I don’t invest in developing countries” (or the many other variations of rejections), there isn’t an iota of doubt in my mind about whether we’ll be able to deliver competitive returns to our investors by investing in early-stage companies in developing countries such as Kenya, Ghana and Nigeria.
Educating investors about the story behind these emerging markets is a major part of the equation for us and other investors in developing countries. We need investors to understand that the FIERCE (Fraud, Instability, Expropriation, Regulatory, Currency and Enforcement of Contracts) risks they’re concerned about are frequently overblown and can often be mitigated. To take advantage of the opportunities, investors must challenge the negative perceptions they have of the regions where we invest and instead view these markets as ripe for growth. Investors should understand and appreciate how deploying capital to these countries can serve as a catalyst for transformation and mutually beneficial wealth generation.
History, logic and recent trends reinforce these points.
In the 1960s, the period immediately following the end of colonization in much of Africa and Asia, Singapore, Hong Kong, South Korea and China each had GDP per capita equivalent to that of Kenya, Ghana and Nigeria. After the Korean War, South Korea was one of the poorest countries in the world and one of the largest recipients of aid.
The economic divergence that has occurred among these countries since the 1960s is clearly illustrated in the following graphs.
There are several (complex and intertwined) reasons why this occurred. I won’t go into specifics here but the consistent themes appear to be: increased agricultural productivity, growth in industrial production and manufacturing capacity, and, eventually, continued economic growth driven by the services and information technology sectors.
The time for an investor to “catch” South Korea, Singapore, and Hong Kong at the beginning of their extraordinary growth trajectory was almost 40 years ago. At the Milken Institute’s Global Conference in 2015, Scott Minerd of Guggenheim Partners described the opportunity to invest in Africa as investing in “Asia in its early days.” He explained how he missed the opportunity to invest in China in 1991 (before China’s economic growth began to take off) and how western investors should not let the “peculiar” conditions in many African countries deter them from investing in those countries.
Would you refrain from investing in publicly traded stocks in the U.S. simply because you were burned as an investor in Enron? I doubt it.
The message we consistently preach to our VestedAngels is that those willing to swim against strong currents of public perceptions today will reap the benefits of Africa’s growth tomorrow. We also encourage them not to let one bad experience taint their view on investing in these markets. Would you refrain from investing in publicly traded stocks in the U.S. simply because you were burned as an investor in Enron? I doubt it.
I encourage anyone who is skeptical about whether they should be investing in countries like Kenya, Ghana and Nigeria to travel to those countries, meet with as many entrepreneurs as possible and get varying perspective on these markets while there. If you walk away with the opinion that there are no good investment opportunities in these countries, or that investing in these countries entails risks that cannot be mitigated, then you’ve done your homework and are making an informed decision based on your experience. However, if you decide not to invest in these markets without the benefit of experiencing them firsthand, I believe that you risk missing out on the growth of one of the last economic frontiers.
We look forward to sharing this authentic, enlightening experience with other VestedAngels and interested individuals.