Q&A with Magdi Amin, Managing Partner at African Renaissance Partners

In our latest Q&A series, we chat with Magdi Amin, Managing Partner at African Renaissance Partners.  African Renaissance Partners backs innovators who are solving Africa’s major challenges. They believe entrepreneurs and innovators can use technology to improve access to clean energy, healthy food, finance, health and education.

African Renaissance Partners is passionate about financing and backing entrepreneurs who are leading Africa’s economic transformation and spreading the power of venture to overlooked markets. Magdi Amin shares his views and experience on the crucial role that entrepreneurs and innovators play in building inclusive economies.

What drew you to your current role and industry?

I grew up between Sudan and California, where my father, a diplomat and professor, had relocated us after some political turmoil. Like many immigrant families, we lived in a contrast between an African household and an American external life, homework and sports. This exposure to the economic differences between Africa and the US developed into a sense of the injustice of economic inequality, which became a calling.

After a few years in banking and consulting, I joined the World Bank Group to focus on economic development. I stayed there for nearly two decades in various roles, which exposed me to how companies, industries, and countries succeed and fail, how they survive crises, economic policy, and how technological development can be transformative, and the role of leadership.

To focus more directly on technology and investing, I joined Omidyar Network in 2018. While I was there, a popular revolution brought down Sudan’s dictator, and the new Minister of Finance asked me and two colleagues to join him as an advisor. I worked alongside the Minister of Finance for almost two years until a coup ended the transition to democracy.

I have lived in post-Socialist Central Europe, Thailand during the Asian Financial Crisis, Ethiopia during its political crisis, and Cairo during the Arab Spring. In many of these instances, I saw the crucial role that entrepreneurs and innovators play in building more pluralistic societies and inclusive economies, in contrast to the crony-dominated economies that had caused various crises. I also observed that many of these innovators were focused on solving the problems facing ordinary people.

Knowing the power of venture capital to become not only the innovation factory for Africa, but also the driver of a bigger middle-class and inclusive economy, I connected with my co-founder, Henok, who shares my views, and we built a team. We’re motivated by the fact that many great entrepreneurs in most of Africa do not benefit from the power of VC, which is highly concentrated in four hubs. It creates a great opportunity for us.

This is why we started African Renaissance Partners. We’re doing this because it is needed, will create impact and high returns, is aligned with our values and leverages our previous experience.  We’re not alone in this mission, and we know that any of our successes will be amplified by others.

VC Industry

Are there any existing risks which you’ve found to be critically underestimated across the ecosystem?

I’ll name a risk factor, or category, that I believe is underestimated, and another that may be overestimated. I believe that culture – admittedly a group of factors rather than a single factor – is underestimated. 

Culture matters, and the three dimensions of it are important to me. First, there must be a culture of integrity, starting with the tone and example set by the founder. There are many risks that we take in investing in a startup, including market, technology, and currency, but we will not compromise on integrity. With integrity, our exposure is much more than capital alone. Our reputation is at stake.

Second, there needs to be a culture of responsibility, both the responsibility to create products that move Africa forward and appreciation for the potential unintended harm their solution creates, such as the potential misuse of data. 

Third, the culture needs to include respect for the physical and mental health of the team, because the worst thing that can happen is to lose important members of the team to burnout or illness. Finally, and related to the third one, there should be a culture of internal empowerment. Founders and CEOs need to lead, but they also need to respect and empower their people to take ownership of their roles, contribute to the ideas and energy of the organisation and be willing to hear negative feedback. Top-down, hierarchical systems are not very resilient or responsive to change, and we’re in the business of change.

Some risks are overestimated. In general, I believe that the risk of startup investing in Africa is overestimated relative to other regions. Some issues such as currency risk can be more pronounced, but even in the most developed markets, most startups are expected to fail. Some of the failures in the US and Chinese markets each consumed more than a third of the entire volume of venture capital invested in Africa per year. Yet investment continues in those markets, because of the power law. Because of unfamiliarity and other biases, failures are attributed to Africa rather than the normal process of innovation and creative destruction. The power law works in Africa just as elsewhere, and because of Africa’s rising place in the global economy, the upside is tremendous.

Startup Industry

Much like investors, founders need to be thesis-driven to develop disruptive solutions. What are the best approaches to devising an original thesis about the market?

This is a great question.  Being thesis-driven, to me, means having a clear vision of how the future will evolve for a technology, market, or industry, and investing – as a founder or VC –  ahead of that shift in order to benefit when the vision materialises. To use the words of ice hockey’s great Wayne Gretzky, to skate toward where the puck is going to be, not where it has been. 

For founders, developing a compelling thesis around a particular solution, technology or market, requires:
a. Expertise in the domain of the thesis
b. Understanding the system of forces, including technology or demography, that may impact the solution or market in the future, including how customers will engage
c. A clear understanding of internal strengths and gaps relative to what that future solution or market will demand
As a thesis is uncertain, the founder needs to articulate a compelling thesis to their team and external stakeholders, including both evidence and story. A strong thesis is hard work but results in clarity.

We are driven by several theses. First, we believe that rapidly growing countries in East Africa, which are very small VC destinations today, will become large VC destinations over the coming years. As such, startups in such markets are undervalued today. Second, we believe we can unlock outsized returns in such markets with hands-on support and advice. It sounds simple, but it takes resources to provide this advice, so it is important to validate this. Finally, we believe that businesses that solve fundamental social and economic problems will enjoy higher returns in the long run, because solving those economic problems creates large potential markets. We constantly work to validate our perspective in our markets of focus.

African Renaissance Partners 

Your firm strictly invests in East Africa, because of your familiarity with your home markets and knowledge of the factors at play. How important do you think on-the-ground experience is in investing successfully?

Being local is essential, especially in frontier markets.  One can understand a lot from meeting founders, research, pitchdecks and financial models, but the early stage of these markets means that there is less institutionalisation and rapid evolution of markets. Investors do not have the benefit of a long history of startups and their failures and successes to learn from, because those markets are being created today. Pattern matching around business models is less relevant, and valuations are more difficult because of the lack of comparable data. This all adds up to uncertainty.

We mitigate this by what can be understood locally: the founder’s experience and networks, market, consumer preferences, the growth of sectors, how urbanisation is evolving, political outlook, and the growth of human capital. As fintech or cleantech emerges in Ethiopia and Tanzania, for example, it helps that we are aware of how those markets evolved in Kenya, Nigeria, Brazil and India, which we gained by working on economic development. But even more consequential is our understanding of Ethiopia, Tanzania, Rwanda and Uganda, including economies, sectors, technology, policy and talent that comes from our focus and presence.

Would you say that founders should always have previous experience with the problem they are solving, or can inexperienced founders with other strengths, like advanced systems thinking, build successful startups?

I don’t underestimate the power of systems thinking, but if the founder doesn’t have direct or at least close adjacent experience with the problem they are solving, they need a co-founder with that background. This does not mean, for example, that only teachers can develop edtech for teachers. Still, if a founder doesn’t have some direct exposure to the challenges of skill acquisition and retention, or learner-centred approaches, and how socio-economic context changes the education process, I would be concerned with the relevance or market acceptance of their solution. I’ve heard directly from the founder of Udemy last November in Silicon Valley, who was inspired by the challenges faced by his mother, a school teacher in Turkey

I believe founders need to have lived the problem first-hand to see and feel the true purpose of their work and be motivated to the point of healthy obsession to solve the problem. When things are going well, there is no motivation problem. But every founding team faces difficult hurdles. The tangible sense of purpose that comes from living the problem, or knowing real people who would benefit from the solution drives the team to understand user feedback, see through false positives and make a successful pivot. A grounded, compelling vision of a better future, informed by experience, unifies the team and puts everyone on the same side of the table. And when those founders win, we all win. Africa wins.

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