Venture capitalism (VC) is a modality of investing that took root in Silicon Valley in the mid-2000s and has been extending its reach to global institutions ever since. Venture capitalists are typically formed as platforms for strategic investments in startups to take the startups to market and foster their rapid growth within the industry. VC firms often have rounds of investments, and with each progressive round, their investment in the startup usually increases. While venture capital is an excellent way for a fledgling company to make its debut in the U.S., it is not the same in Africa.

Hiruy Amanuel, a former angel investor in the United States, knows these differences exist on more than a contextual level. Mr. Amanuel has seen how the culture of venture capitalism embodies a need for fast-paced results. On a continent that has just started its foray into the technological world, venture capitalism doesn’t work well.

The rise in importance of technological advancements has certainly given way to numerous tech startups in Africa, most of which are privately funded or seeded through companies that are deeply instilled within Africa itself. In pursuit of helping Africa establish its voice and its technologies, Hiruy Amanuel has co-founded Gebeya Inc., a startup which endorses the talents of African designers, web developers, and programmers introducing them to a global marketplace. Gebeya also trains locals in Ethiopia to help them hone their skills in the developing IT sector. There isn’t a time crunch to produce profits; instead, time is given to developing the mission of helping Africans prosper, curating the processes, and repairing the current infrastructures.

Venture capitalists, on the other hand, seldom have an interest in slow growth that leads to gradual increases in profit. Venture capitalists look to invest in companies where they foresee an almost immediate return on their investment through subsequent investment or acquisition. Africa is too young on the tech startup playing field to expect high capital to yield high returns quickly. Unfortunately, modest financial success is not enough to interest early stage investment from venture capitalists. Adversely, there are billions of dollars laying around for late-stage African tech companies.

Emerging markets such as those in Africa are not so scalable yet and do not offer venture capitalists the returns they seek. Competing with developed markets internationally places a further setback in the eyes of venture capital. In an emerging market, the nourishment of a co-founder or CEO who is invested in making the business thrive is the modus operandi. “Finding capital partners who will invest their time as well as their money in your company is paramount in Africa,” stated Mr. Amanuel.

Ultimately, there may come a day when the traditional venture capital model works in Africa, but in a market that is in its infancy, the preferred method of investing is private funding. Finding smart money early on instills a great sense of responsibility for both the startup as well as the investor. The business lifecycle is spurred by the change in an emerging market, and great emphasis needs to be placed on supplying the required training, capital, and motivation for returns and furthermore to keep the business operational. Traditional venture capital firms, at this stage in Africa’s development, won’t get the returns they desire and this is why they won’t be able to find suitable early stage companies in the present day African technological climate to fund.

About Hiruy Amanuel:

Hiruy Amanuel is an investor that is dedicated to developing the IT sector in Africa. Based in East Africa, Mr. Amanuel has co-founded several tech companies, including Gebeya Inc., which is involved in increasing opportunities for Africa’s IT professionals through capacity building. Hiruy Amanuel is helping bring the best of African tech-talent to the world and impacting countless people’s lives on the way.

Content retrieved from: https://medium.com/@paul_johnson7782/innovative-investor-hiruy-amanuel-explains-why-the-traditional-structure-of-venture-capital-2fd3612007a2.