Venture Capitalism Is Key To Building Africa's Own Silicon Valley

Last week, Tesla, the American electric vehicle and clean energy company founded by the eccentric technopreneur Elon Musk, surpassed Japanese automaker Toyota to become the most valuable automaker globally

Tesla is an example of a Silicon Valley "unicorn", a private company valued at more than $1 billion, which went on to achieve unfathomable growth post its Initial Public Offering (IPO). Its stock is now valued at $935 per share today, a 5500% increase from its $17 per share IPO offering in 2010. This is all despite the fact that the company has made losses for most of its post-IPO life, only registering an annual profit last year.

Like many other Silicon Valley unicorns, pre-IPO, Tesla achieved its $1 billion-plus valuation not only because of its innovation but also because it had the backing of venture capitalists (VCs) to help it realize its value proposition. Up to date, there are more than 475 unicorns in the world with a collective valuation of more than $1 trillion and when one minutely scrutinizes the investors in most these companies, it is common to find investors who have a "ventures" or "venture group" suffix in their names.

The reason most of these companies who have VCs as investors eventually go on to become unicorns is because VCs are a source of virtually unlimited funding. Like Tesla, yes these companies are immensely innovative and disruptive and also offer unique value propositions but without the bottomless purses of VCs, it would have been extremely difficult for them to reach that $1 billion valuation or go on to implement their game-changing ideas.

For the same reason, Africa's innovators and disrupters, especially in the tech industry, need the same leeway offered by venture capital. The continent has a lot of innovative companies who unfortunately do not have access to enough capital to realize and scale their innovations which have the capability to transform the continent. Of all the aforementioned 475 unicorn companies, only one is in Africa despite the number of uniquely innovative companies in the continent.

The virtually limitless capital offered by VCs gives innovative and disruptive companies the room to make mistakes—which are common and somewhat necessary for most tech startups—without going under. This is what African tech innovators need especially looking at the fact that the continent's tech industry is still relatively new with numerous challenges that are unique to the continent. VCs who believe in these innovations and are willing to invest in them despite the challenges is what will make the innovations not only see the light of day but also scale up.

Most of the globally revered Silicon Valley companies like Tesla, Uber, Airbnb, etc did not become unicorns because they had the best financial statements but because they had funders on their side who believed in the power of their innovations. Some like Tesla went on to be successful share price-wise, even post IPO because their innovations resonated with the common investor and some like Uber did not fare on so well on the stock markets but the common denominator between them is that they became the game changers they are because of venture capitalism. 

There are numerous venture capital firms in the continent and them, not government-led initiatives that are politically motivated, are going to be key to Africa not only realizing her 4IR ambitions but also being able to tackle the continent's many challenges by way of innovation. Like how Silicon Valley VCs believed in the ambitions of all those innovators who went on to change the world with their ideas, Africa's VCs will also need to extend the same belief and trust to the continent's innovators and just like their Silicon Valley counterparts, they too will go on to enjoy the fruits of their faith when those innovative companies eventually go to IPO.

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