The African business ecosystem is showing strong signs of progress. Across Africa and the Middle East, there were 43 M&A deals announced in Q1 2023 worth over $1bn, an increase of 45% compared to the previous quarter.
If founders and CEOs are to reap the rewards of this spike in M&A activity, they need to evaluate organisational structure from top to bottom and consider whether they’re in a position to be acquired – even if fundraising is the priority.
Here are five tips from Victor Basta, CEO of DAI Magister, that will maximise funding and exit values for African founders.
1. Unit economics can make or break a business
Unit economics are a breakdown of how much profit you make on each unit sold, shipped, transacted, or loaned. Investor focus on unit economics intensifies as businesses reach later or larger rounds.
Basta commented: “The challenge here isn’t the concept, it’s the art of determining and presenting unit economics. And by art we mean art – not in the sense of making anything up, but because there are usually many ways to calculate and show this, and how you choose to show it can mean the difference between investor excitement and a polite no.
“In our experience, most African growth companies either don’t calculate these deeply enough, or don’t think deeply enough about how to present them, and very often literally leave money on the table as a result.”
2. A strong CFO is near priceless
Balancing ability and experience will equip businesses with a CFO who can propel the business forward.
“Rarely does a company have a CFO who can act almost as a COO, who can dig into the business, think through how to package, and present growth in a compelling way, and defend their corner in intense due diligence.
“We regularly meet CFOs in the US and Europe who work with multiple growth companies at once, and many would love the opportunity to work in a frontier market like Africa. But very rarely do CEOs focus on the importance of upgrading this function. Particularly in a difficult market, this shortfall kills deals that would otherwise get done.”
3. Corporate marketing is chronically unvalued
African growth stage companies must recognise the value of investing in marketing efforts and leverage this important discipline to drive expansion.
Basta continued: “African companies need to over-market to prospective investors. Distance, complexity, and perceived risk combine to render an African bet as perceived to be “risky” out of the gate for many qualified investors, and the typical African company needs to over-steer to project itself onto the radar screens of capital that lives thousands of miles away.”
4. Engage investors as people
African CEOs must remember investors are not funds, and engaging with as many decision makers as possible can maximise investment.
“If you can reach more of the people who will be in the Investment Committee room (IC), take every opportunity. If not, then build as personal a relationship as you can with the partner(s) who will represent you.
“In a nutshell, if you effectively begin working with investors before a round closes, the probability of a close can shoot through the roof as a result.”
5. Budget double the time to raise
Setting time aside to properly prepare can be the difference between success and failure for African businesses.
Basta concluded: “Whatever timeframe you plan, just double it. This gives you time and space to do many of the things we’ve set out in this note. It may be counterintuitive, but taking extra time up front is a much surer way to build real momentum by term sheet stage.”
