Interview with Stephen Dawson, co-Founder of Jacana Ventures

At VC4Africa we are always looking to profile investors in the space. Especially the individuals and organizations that target the SME (small and medium sized enterprise) segment and take a ‘human centered’ approach to their business i.e. putting people before capital. Today, we had a chance to connect with Stephen Dawson, the co-founder of Jacana Ventures.

What first got you involved in the African space?

“After university I spent two years in Madagascar, teaching English. I guess it has been in my blood ever since. When I co-founded Impetus Trust (which is the UK pioneer of venture philanthropy) ten years ago, I was keen that we should include charities tackling poverty in Africa as part of our remit. That has gone well and we support the Fairtrade Foundation (very much a social enterprise model) and Camfed (girls’ education in Africa). However, I was keen to find other ways that would have a real impact on the root causes of poverty. That means economic development and, above all, jobs and support for local entrepreneurs.”

What is it about the African opportunity that draws your attention?

“It is the mixture of the enormous need, in terms of extreme poverty, and the opportunity because of the wide open market and great local talent and resources. From a personal viewpoint (and I suspect this is true of others involved with Jacana) it is hugely satisfying to be able to use skills and experience developed over many years in Europe and apply them in a completely different environment. At the same time we are learning about a fascinating continent and meeting some inspiring local entrepreneurs.”

Taking a bit of a historical view, can you reflect a bit on recent developments in the sector?

“There is a great deal of talk about impact investing but this is nothing new: the Development Finance Institutions have been investing for financial and social returns for decades. What is new is individuals, foundations and charities taking an investment approach, rather than a charity approach. This is the exciting part because some of these investors also bring considerable knowledge and are prepared to roll their sleeves up and provide hands-on support as well as cash. If these investments can start to demonstrate satisfactory returns, the whole force of the capital markets can be unleashed with investment volumes that dwarf the charity sector. There is a chart in The Economist this week that shows this is already happening: investment and aid were about the same in 2004 but now investment is over twice as much.”

You cite a severe lack of qualified intermediaries as a major challenge moving forward, can you talk about this?

“It reminds me of the UK VC industry when I joined it over 30 years ago. There was a lack of VC experience and no-one had a track record. The big accounting and consulting firms were not geared up to advise entrepreneurs and match opportunities and investors. It was a cottage industry with everyone learning on the job. Africa can potentially climb the learning curve much faster because it can access those people from other markets who have been through it before. We are talking about creating an industry with all its support infrastructure.”

When we talk about the ‘capacity development’ of capital investment managers what are the specific areas of focus that need attention?

“VC is a skill that cannot be learned from a book or on a course. You have to learn by doing and that means working alongside people who have been doing it for years. There are many processes and tools that can be made available (eg standard structures, term sheets and models) but applying these requires judgement and “pattern recognition” from having seen something similar before. So every aspect of the venture capitalist’s job needs attention.”

You also talk about the need for role models. Can you point to a few role models leading the way?

“I think this is true both for African entrepreneurs and for VC groups. Of course there are a few well known names like Mo Ibrahim and Aliko Dangote, but each country needs its own success stories so that people can really relate to them. In the VC world the only really proven example of investing successfully in sub $5m transactions is Aureos Capital. And sadly, but understandably given the economics, they have now moved on to $10m transactions. This leaves a gaping hole in the space where Jacana operates. If you add the funds under management of Jacana and its partners, Fidelity Capital and InReturn Capital, you arrive at $45m – that makes us one of the larger players in this market, but still tiny compared with the opportunity and need.”

What are for you the key ingredients investment managers should be looking for in potential new investments?

“VCs often answer: management, management, management. Talented and committed management is certainly crucial. But even the best management cannot succeed without a competitive offering, preferably in a growth market. Investors also need to think about relationships: are management open and transparent; will they tell the bad news as well as the good; is there an exit route for the investor that is compatible with management’s aspirations?”

What are the specific risks they should be aware of and take extra steps to mitigate?

“In many ways they are the mirror image of the key ingredients for success: risk that management is not committed; that interests are not aligned; that information on performance is not readily available; that products are not competitive. And there are Africa-specific risks: power failures can be costly and disruptive; poor infrastructure causes supply and distribution problems; corruption can be an issue when dealing with public sector agencies. The risks that centre on relationships cannot be worked around – unless there is the right relationship you should not make the investment. Most of the others can be mitigated, but at a cost.”

How do you see Jacana supporting the continued development of the space moving forward?

“We are keen to scale up Jacana so that we can work with more local partners in more countries. We also see the potential for sector funds, for example for agriculture, healthcare or cleantech. Some Sub-Saharan countries like Kenya and Nigeria have a fair amount of SME investment activity; most, like DRC, Ethiopia, and the francophone countries in West Africa, have virtually nothing. We would like to see Jacana with partners in half a dozen new countries over the next five years, jointly managing funds of a scale that give us economies of scale and a sustainable future.”

What role do you feel VC4Africa can play and do you have a message for our community?

“Carry on what you are doing – linking entrepreneurs and investors, enabling people to network and share their experiences, encouraging others to do the same, publicising those role models as they emerge… Keep up the good work!”

Anything I missed that you feel is important to add? Maybe a message to all of the entrepreneurs out there working day in and day out to build the continent’s most promising enterprise?

“Being an entrepreneur is a tough and lonely job. Try to find partners in the business (and as investors) so that the burden can be shared and different viewpoints and experiences brought in. Half of $100m is better than 100% of $1m!”