When Standard Bank, Africa’s biggest lender by assets, co-invested $4 million into Nomanini in 2019, the bank hoped the investment would give it access to the startup’s platform for collecting data on South Africa’s informal retail economy. However, the Johannesburg-headquartered bank may have gotten more than it bargained for under the investment agreement: a low-cost retail till point solution dubbed ‘Trader Direct,’ developed by Nomanini, which now allows the bank to add a compelling value proposition. Described as a ‘partnership,’ such corporate interventions (better known as corporate venture capital or CVC) in startups based in Africa are fast gaining momentum. Alex Fenn, who leads technology and innovation at Sibanye-Stillwater, says CVC is now no longer an option — it’s a necessity.
“The enthusiasm is growing fast, fueled by success stories across Africa,” says Mark Kleyner, co-founder and program director at Dream VC, an Africa-focused investor accelerator, during a recent panel discussion on CVC in Africa moderated by Davis Cook, CEO of RIIS, an innovation consulting firm working across Africa, and Audrey Verhaeghe, the CEO of the Johannesburg-based investment firm Anza Capital.
From KOKO, a climate tech company recently backed by Rand Merchant Bank’s venture capital arm, to Lipa Payments, a fintech boosted by Capitec via its CVC arm Imvelo Ventures, this enthusiasm appears to be following a trajectory: it is scattered across different sectors in Africa, with “no one sector leveraging CVC more than the other,” as Martin Karanja, director at the GSMA Innovation Fund, puts it.
“And why would any company want to set up a CVC?” Martin wonders. “Are they doing it just to be part of the trend, or do they have concrete objectives?” Martin, who notes that a CVC within any corporate is essentially a startup in itself, believes a CVC’s success mostly depends on the company’s leadership to direct resources and set up the right team with patience.
“We’ve seen some CVCs that, instead of complementing what other VCs are doing in the market, try to compete, and often they don’t last long,” Martin says.
For Yalena Yang Sun, an investment director focused on new ventures and Mergers & Acquisitions (M&A) at the recently launched $100M InDrive New Ventures, corporate venture capital is mostly ‘a two-way street.’ “We approach our CVC from two perspectives: diversification and reinforcing the core business,” Yalena notes. “Diversification involves integrating our portfolio companies with our core business to add directly to our profit and loss balance sheet at Indrive. The second aspect is reinforcing the core business by addressing its most significant strategic challenges at the right market, time, and topic. These combined efforts support our economic argument and justify the value we add as a CVC.”
Yalena, however, believes some corporate venture capital firms can go above and beyond, as with Indrive New Ventures, which now offers strategic partnerships to startups, enabling them to localize resources on the ground to support their operations, execution, and implementation, helping them achieve their global ambitions. “Leveraging existing infrastructure to support the scale of startups is crucial because it provides them with a shortcut to scaling, something that can be much more challenging on their own,” Davis Cook admits.
But there is some palpable fear among corporate venture capital arms themselves: the consequences that accompany failures. The most biting is perhaps having the curtain drawn on the entire CVC unit, as Coca-Cola bottler Arca Continental recently did with its CVC arm AC Ventures after shutting it down following six years of operation.
“The first step is to do things for the right reasons, understand those reasons, and stay true to the objective without deviating,” says Alex Fenn, whose company’s CVC arm has had to scale back some of its investments. “So, for us, the value generation is in optimizing our core business, rather than just growing the venture. This perspective influences how we approach CVC deal structuring, what we’re willing to compromise on, and the priorities we set,” Alex adds.
While relatively new in Africa, Mark Kleyner insists that ironing out the core objectives of the CVC plays a central role in building a solid corporate venture capital arm that delivers the right value in Africa. “For instance, in a traditional VC setting, your primary goal is to make your limited partners (LPs) happy by making profitable investments, even though many of those investments might fail,” Mark says. “However, in the corporate world, things can be different; you have to understand what the corporation wants to achieve with its CVC. Is it looking to break into new markets, defend its position in a shrinking market, or innovate within its core business? Once there’s clarity on the CVC’s purpose, it’s easier to define the skills needed to execute that strategy.”
Yalena adds that building strong relationships with the right local partners is key to successful CVC execution, as is being physically present in local markets. “We (also) take a data-driven approach to everything we do. I was surprised to find that we have data scientists and AI engineers on our team, building models to help us constantly scan the market,” she says.
However, even where such execution strategies exist, most CVCs often find it very difficult to achieve perfect execution, as seen with Naspers Foundry, the $100M corporate venture capital arm of South Africa’s Naspers, which shut down last year after three years amid allegations, including a report calling out the CVC for having no mandate to support historically disadvantaged people, including people of color.
“Another challenge is ensuring the right people are running the CVC. It’s not a product, so you need people with VC expertise, not just internal product managers,” adds Karanja, who notes that, as a startup, CVCs need to be agile. “If it’s bogged down by the parent company’s bureaucracy, it won’t succeed,” he says.
For Alex Fenn, robust processes and effective communication are even more important. “Internally, being persuasive with stakeholders is key,” he says. “It’s about demonstrating the value you’re bringing to the organization. If you can show impact, you become persuasive, and that allows you to push for the agenda you believe in. Communication, therefore, involves aligning parties, setting up effective channels, and maintaining transparency, which will ensure everyone is on the same page.”
To build effective CVCs in emerging ecosystems, particularly in Africa, Mark Kleyner recommends aligning on the objective and securing the consensus of the board. “Even if a CVC is managing tens or hundreds of millions of dollars, it’s under a lot of pressure compared to the parent company, which might be generating billions in revenue,” he says.
The future of corporate venture capital is bright in Africa, the experts all seem to agree. “While it sometimes takes longer for ideas to gain traction in Africa, once alignment happens, there’s usually a significant surge forward,” notes Mark Kleyner, citing a similar pattern with venture capital, which has consistently gained traction in Africa since 2015.
“In addition, I think we’ll see more local investors in Africa getting involved in CVC,” Martin Karanja adds. “From a corporate governance perspective, I anticipate that boards will be composed of younger members with higher risk appetites, who will be more supportive of CVC initiatives.”
“This is just the beginning,” says Yalena Yang Sun, “I’m eager to see how this will evolve in the next few years.”
Download the Full Transcript of the Panel Discussion at: (https://launchbaseafrica.gumroad.com/l/corporateventurecapitalinAfrica)
