The platform role for African VC firms: A mere trend or a value driver?
I often like to recount that my fascination with startup support began a long time ago. A decade ago, my curiosity led me away from my role as a software engineer and into the intricate world of startups. Since then, I've been deeply engrossed in supporting founders and seeking out the most effective support structures for startups to thrive , beyond investing capital. In 2015, I assumed the role of CEO at a ridesharing company called GoMyWay. This marked my second venture into entrepreneurship, and the stakes were considerably higher. It left me with a newfound respect for entrepreneurs. Leading a company is an immense responsibility, and the experience was a humbling one that provided me with a fresh perspective on the true meaning of supporting startups. My journey has taken me from software engineering to entrepreneurship and eventually to the development of startup support programs. Along the way, I've had the privilege of witnessing firsthand both the profound impact and the intricate nature of supporting startups.
Last year, I came across the platform role for the first time , and I've noticed its emergence not only on the African continent but also globally. Today, the Platform role is one of the newest and fastest-growing positions within the VC industry worldwide. According to a recent report by the VC Platform community, nearly 40% of all venture firms have invested in and currently maintain a significant Platform team. In this article, drawing from the lessons from my journey and the ever-evolving African startup landscape, we will explore what the platform role entails and what it means within the African context. Additionally, we will delve into how platform teams play a crucial role in driving the success of both startups and venture funds.
What is Platform? It is a broad category of roles focused on specific non-investment functions ranging from pre-investment firm goals (such as building the firm’s brand to better source new investments) to post-investment efforts (directly supporting portfolio companies). Put plainly, the Platform team within a VC firm is a specialised unit with the primary aim of offering extensive assistance to portfolio founders and executives, all the while enhancing the firm's reputation and visibility.
The pivotal shift in mindset for me, upon encountering this role, was the transition from providing ad-hoc one-on-one support to envisioning portfolio support as the construction of systematic, scalable solutions that cater to the needs of multiple portfolio companies. It's not merely about creating programs and processes but also employing technical tools to effectively construct these systems.
The image displayed above provides a comprehensive list of various components integral to the Platform role. Typically, each firm tailors its strategy to emphasise specific components.
I like to conceptualize platform teams as a spectrum. At one end, you have firms with a lean team that concentrate on a select few repeatable and scalable elements (such as resources and networks) tailored to benefit their portfolio. At the opposite end, you find firms that maintain multi-person platform teams comprising experts in each component they have chosen to prioritize. Depending on the amount of funds raised and the chosen platform strategy, a firm has the flexibility to move along the spectrum, transitioning from the lean end to the opposite side.
How Platform teams create Value for VCs and their startups.
Why is it essential to discuss the role of platforms? Why are we engaging in this conversation, looking beyond the obvious fact that I now hold a Platform role? The concept of platform roles has been around for decades, but it didn't gain significant prominence until 2009, as the world was emerging from the Great Recession. During that period, Andreessen Horowitz (A16z) embarked on a mission to construct a novel type of venture firm, one patterned after an agency model, with in-house specialists dedicated to providing services to their portfolio of companies.
Since then, platform roles have steadily gained traction within venture firms. In 2009, only 24% of venture firms had any platform-related positions. Today, that figure has more than doubled to 52%—meaning that over half of all venture firms have established a Platform team. Over this same timeframe, the composition of employees within a firm has shifted from platform roles representing less than 5% of the total headcount to now accounting for more than 13%.
What's noteworthy is that the proliferation of Platform roles actually outpaced the growth in the number of venture firms and the available capital. General Partners attribute this surge in Platform roles to the necessity of distinguishing themselves in an increasingly crowded VC landscape. Platform emerged as a crucial element in nurturing successful companies, particularly in fiercely competitive markets. Furthermore, beyond offering support to portfolio founders and executives; they also played a pivotal role in building the firm's reputation. Recognizing the importance of enhancing their brands to secure the most promising deals, firms understood that this would, in turn, result in attracting more capital from Limited Partners (LPs), generating a steady stream of high-quality deals, and achieving a higher success rate in securing those deals.
Source: The Power of Platform. VC Platform Global Community
Let's delve into some compelling insights drawn from the latest study on the role of Platform by the VC Platform Global Community. This study entailed a comprehensive analysis of returns data spanning two decades, encompassing data from 850 distinct venture capital firms.
Findings from the study revealed a robust connection between heightened investments in platform teams and superior fund returns. Funds that maintained platform teams outperformed those without by 1,100 basis points in Net Internal Rate of Return (Net IRR) and 0.5x in Total Value to Paid-in Capital (TVPI) over the past decade.
Source: The Power of Platform. VC Platform Global Community
No platform: 0% of the core team || Moderate platform: 10% || Significant platform: >10% of the core team
It's important to clarify that this correlation doesn't imply causation, nor does it suggest that a fund must necessarily have a platform function to achieve successful returns. Nevertheless, it's intriguing to observe the trend presented in the study.
What Platform should mean for African VCs.
When we shift our focus to African markets, a unique set of challenges comes into view. These markets are notably smaller and more fragmented compared to their United States counterparts. The size of the middle class is relatively modest, and consumer purchasing power is constrained. In many regions, infrastructure is either subpar or entirely lacking, presenting significant hurdles. Additionally, the geographical dispersion of potential customers, many of whom primarily operate offline, adds complexity. Consequently, acquiring and engaging these customers can become a resource-intensive endeavour in terms of both time and cost.
Furthermore, African startups encounter distinctive challenges and opportunities that sometimes demand customized support. The ecosystem is less developed, requiring more foundational work to ensure the success of startups. Entrepreneurs often face limited access to established resources and infrastructure, compelling them to build everything from the ground up, addressing the entire value chain rather than focusing on a niche.
These are real peculiarities to consider when pondering the question, “ What does Platform mean for an African VC firm?”
As Africans, It's in our nature to support each other, and this ethos extends to the entrepreneurial sphere. Historically, individuals and communities have rallied behind budding entrepreneurs, offering guidance, resources, and mentorship. These communal efforts have contributed significantly to the growth we've witnessed in the African startup ecosystem over the years.
A prime example is the Thrive Agric turnaround story documented in this case study “Enabling Agriculture: Thrive Agric Rebirth” an agritech company whose business model at the time involved crowdfunding from retail investors, was, by September 2020, dealing with the wrath of social media users as investors and sympathisers demanded to be paid. In response to this challenging situation, we intervened. Our firm's Founding Partner, Kola Aina, aptly described this intervention as "one of the most significant forms of portfolio support in VC." We swiftly assembled a crisis team of diverse advisors, facilitated and structured the bridge capital required by the company, and enlisted the necessary human capital to navigate this unique set of circumstances. Today, Thrive Agric has experienced tremendous growth, expanding its operations to Ghana and Kenya.
While "informal" support structures have long been integral to the African entrepreneurial landscape, I believe that venture capital (VC) in Africa is undergoing a shift from ad hoc portfolio support to the establishment of dedicated platform roles. In a recent panel discussion at Dream VC, I observed that panelists, including myself, all assumed platform roles within the last 18 months. Four key assumptions that may explain this trend:
Unlike other well-established ecosystems, venture capital in Africa has only gained significant traction in the last 5-8 years.
There’s been an increase in the fund size of VC firms on the continent.
A substantial number of VCs in Africa are primarily focused on early-stage deals, resulting in an expanding portfolio of startups and, consequently, a need for scalable support systems to serve multiple companies.
Similar to counterparts in other regions, there’s a growing need for differentiation as the space becomes competitive.
Regardless of the underlying reasons, this shift underscores the acknowledgment of the immense value that structured support systems can bring to startups.
At Ventures Platform, we've embraced the platform function by establishing a dedicated platform team and adopting a unique approach tailored to the distinct needs of African startups. As I shared earlier, our journey into incorporating the platform function didn't start here. We’ve always held onto the belief that , given the complexities of building on the continent, African startups will benefit from catalytic value beyond capital. However, as our portfolio grew in size, it became evident that we needed to build and deliver scalable, repeatable systems that deliver tangible value while taking into account the particularities of each company.
How do we achieve this? Here are 7 attributes that, in my perspective, the platform function should have within our context as VC firms investing in African companies:
Data driven: Prioritizing data-driven decision-making is essential for shaping your platform strategy. This involves examining recurring requirements by engaging with your founders, assessing past inquiries, and evaluating feedback on platform products that have already been introduced. In addition, allocating resources for research and gathering insights into market dynamics is crucial for identifying potential future initiatives. In the rapidly evolving African ecosystem, data-driven decision-making is of utmost importance. Demonstrating a dedication to comprehending the nuances of the African market will greatly inform your support strategies.
Measurable and iterative: To uphold the highest standards of support, regular assessment is crucial. Platform teams should continuously evaluate the quality and impact of their support activities. Surveys, feedback mechanisms, and open communication with startups can provide invaluable insights into the effectiveness of the support being offered. This iterative approach ensures that platform support remains dynamic, responsive, and aligned with the evolving needs of startups. At VP, we glean insights via our biannual Net Promoter Score (NPS) surveys and informal interactions. As we grow, this feedback loop will ensure that our support remains relevant.
Be Local - Contextualise your platform strategy: Various VC firms focus on delivering value across distinct categories, with the most prevalent ones being Business Development, Fundraising, ESG, and Talent. While these categories may appear straightforward at first glance, it's imperative to recognize the actual needs of your company within the chosen category. This understanding will enable you to contextualise your platform strategy effectively. For instance, one can decide to approach talent support by simply launching a jobs board which is a popular platform product, whereas, what might be needed is support around figuring out labour laws of the market and surrounding countries your portfolio companies may be looking to expand to.
Explore new components: The African startup ecosystem, though vibrant, grapples with distinct challenges. These include market fragmentation, regulatory complexities, and the need for localised solutions. Hence, you can not limit your approach to the most popular categories/components. In VP’s case, for example, regulatory and licensing support is a key part of how we support our portfolio given that we have a large fintech portfolio and the regulatory landscape in countries where our companies operate can be complex to navigate. It’s important to expand your scope beyond what is popular to what is contextually relevant.
Flexibility - Allowing for Reactive Measures: Operating in unpredictable markets requires flexibility. In Nigeria, for instance, we've experienced cash crunches, elections, fluctuating exchange rates, changes in FX policies, immediate fuel price hikes, and more in a single year. Founders often need to respond to these unexpected challenges, so a rigid platform strategy can hinder adaptability. One thing to remember, however, reactive responses should always follow a platform mindset, focusing on scalability and repeatability.
Deliver financial value: The correlation between your support and the increase in the enterprise value of your portfolio companies is a vital metric. In an ecosystem where available investment is limited, and startups need to demonstrate revenue growth to thrive, the ability of your platform strategy to generate or facilitate financial value becomes paramount.
Safeguard the ecosystem: An early and rapidly expanding ecosystem like ours requires protection, from itself and as VC firms, we must play a pivotal role in this effort. Governance and accountability measures are indispensable – encompassing thorough reporting, audits, diligent due diligence, and active board participation, among other strategies. While this approach doesn't guarantee the absence of problematic elements or bad actors, it ensures that we establish systems to address issues effectively. With larger ticket sizes now at play, the stakes have risen significantly.
As a general principle, regardless of location, the Platform team should refrain from overshadowing the founder's vision or attempting to assume control of the startup. Instead, it should function as a facilitator, providing support and ensuring alignment with the founder's journey.
In conclusion, Platform, once viewed as a supplementary function, has now emerged as a cornerstone for VC firms on a global scale. In the African context, its significance should not be regarded merely as a passing trend but as an essential response to the unique dynamics of the African market. As our ecosystem and its surrounding environment continue to evolve, presenting new challenges and opportunities, the role of the platform within venture capital firms will grow in importance.
This evolution acknowledges that startups on the continent are not just businesses; they are potential catalysts for transformative change. Through innovative support, collaboration, and a deep understanding of the African landscape, the shift from ad hoc startup assistance to a platform mindset will play a pivotal role in shaping the success stories of African startups and the funds that invest in them.