Knowing Why

Knowing Why

Fred Wilson of Union Square Ventures gave an interesting talk at MIT recently. He said that "the best time to invest in something is when nobody believes in it but you...You have to totally believe in it and know why.”

Before starting their new venture, which has made successful investments in Twitter, Etsy, Uber and more, he and his partner spent 6 months writing their manifesto on venture capital and the focus they were going after.

After writing that, “we knew why.”

Do you know why in your business pursuits?

The data on the horizon looks promising. But only those that know why will be able to harness it effectively.

According to Boston Consulting Group’s 2016 report titled Why Africa Remains Ripe for Private Equity, “Africa remains ripe for private equity. Diversified growth opportunities abound in sectors such as real estate, infrastructure and consumer goods, which don’t yet boast many investors."

According to the report, private equity investors should consider alternative investment approaches more suitable to evolving markets.

In fact, Private Equity Capital grew from $1 billion USD in the early 1990s to $30 billion in 2016.

Opportunties for gains are abundant among small, midsize, and family-owned companies, some of which are engaged in digital start-ups.

The keys to investment success:

  • Entrepreneurs in Africa need a bit more development regarding their business plans and company management
  • Investors must be ready to provide technical support on growing the business.
  • Teach the entrepreneurs to form partnerships.
  • Investors can often take stakes in existing enterprises.
  • Using “evergreen” funds that don’t prescribe specific exit times. Meaning, work with entrepreneurs on best business practices without demanding a timeline that they can’t control. (Sidenote: this is huge. We were given a forced timeline in our first startup. It caused poor decision making and unproductive conversations with our investors.)
  • Create small, specialized funds that prepare new ventures for buyouts and IPOs.

One of the main keys with this: “At the inception of the decision-making process, analysts should research possible prospective buyers. Identifying future suitors can inform investment options, alternatives and choices, resulting in greater profits and competitive advantages.”

Knowing why and starting with the end in mind is paramount to success in business. And it’s essential to having a chance of survival in business in Africa.

(photo via christopher_griner)