J. Eric Wright was headed for Wall Street until he decided to take a year off in Africa. That short jaunt has stretched into nearly three decades on the continent — and led him to his life’s work. Today, Wright is chairman of Africa Venture Partners, a venture capital and private equity firm based in South Africa, and director at the Picasso Group, a private investment and project development firm in the U.A.E. focused on energy, agriculture and real estate ventures in emerging markets. Knowledge at Wharton spoke with Wright about the challenges and opportunities for entrepreneurs in Africa.
An edited transcript of the conversation follows.
Knowledge at Wharton: In recent years, Africa seems to be having this upsurge of entrepreneurial energy. From your perspective, what are some of the biggest opportunities for entrepreneurs in Africa today and why?
J. Eric Wright: I think the biggest opportunity for entrepreneurs is in the consumer space. The past 20 years or so, there was a heavy investment in infrastructure that’s allowed entrepreneurs to emerge and not require as much capital to build out infrastructure, which really was difficult for entrepreneurs to participate in.
Now that a lot of that infrastructure has been built, particularly in the communications space, a number of ventures are now coming online and many MBAs are coming back home as a first choice of employment. In previous years, their first choice was to go to London or New York and work for Bain or McKinsey or a big bank. Now they’re looking at starting their own businesses back home, many of which are in the consumer space.
“One risk that entrepreneurs face in Africa … is a lack of early-stage capital.”
Knowledge at Wharton: What are the biggest risks that African entrepreneurs face and how do they differ from those that may confront entrepreneurs in other countries? How can those risks be mitigated?
Wright: I think one risk that entrepreneurs face in Africa that is a challenge for all entrepreneurs, but may be even more difficult in Africa, is a lack of early-stage capital. Oftentimes, entrepreneurs have a great idea and they’ll start off with a bit of their own seed capital if they have it, but it’s very difficult for them to find the next stage, and they may run out of funds before they’re able to really get traction.
A lack of early-stage capital both at the seed stage and the Series A stage would probably be the first thing that I would raise. Their regulatory challenges in terms of getting businesses off the ground can be a challenge. It depends on the country. I think the third is the depth of management talent. There are great entrepreneurs, but we still must fill the mid-level management and provide more training, more education at that level. That really impacts businesses as they begin to scale. That’s a challenge, certainly if you compare to the U.S., but I think there are similar challenges with many emerging markets as well.
Knowledge at Wharton: Take us through your Africa journey.
Wright: I graduated from Wharton in ’92 and at that time, Africa certainly wasn’t a sexy, hot place to start one’s career after business school. I was going to go work for Morgan Stanley in New York and I thought, ‘well, I’ll just take a year off and try to do something totally unrelated to the traditional mainstream MBA track,’ and ended up moving to Ghana.
I wanted to go to an English-speaking country, which was a huge mistake, because I should have gone to a French-speaking country and learned the language. I wanted a country at that point that was politically stable and had some economic indicators that were very positive, and at that point in time, there were very few. Ghana was a standout in the early ’90s and had recently had a democratic election, which went well. I decided to go there, in part because of a couple of classmates who encouraged me.
Once I got over there, I created a partnership with the MBA Enterprise Core, which had been sending MBAs to Eastern Europe in the late ’80s and had not sent anyone to Africa. I approached them about a partnership for Africa, and they used me as a guinea pig to see if the program would work there. After about six months there, I decided to start in investments with a Ghanaian guy that had been living in the U.S. for about 25 years. He was a partner at Deloitte and Touche and had an interest in starting an investment bank.
We built that investment bank and today it’s probably the second- or third-largest investment bank in Ghana. From there, I started thinking about a more long-term engagement and career in Africa. I thought maybe a year isn’t enough, and I started looking at South Africa. This is now ’93, and the pending elections in South Africa were scheduled in ’94, so I began looking at how do I get to South Africa? Fortunately, within probably six to nine months, I landed in South Africa and worked for Citigroup in private equity for a number of years. We did a number of deals in the telecommunications space when there was very little infrastructure and built out a lot of the mobile networks. I then left Citi in 2000.
“As an entrepreneur … having a strong understanding of leadership skills and HR skills is very, very valuable.”
Knowledge at Wharton: What is Africa Venture Partners and what is your investment strategy for Africa?
Wright: Our strategy has historically been around the mobile telecom space. After leaving Citi, we invested in a few of the big mobile operators that became very successful. I left in 2000 to join a dot-com when everyone was leaving big companies in the U.S. and elsewhere, and we raised $10 million for a company called Africa.com. We attracted a very, very talented team. Practically every venture capitalist wanted to back us.
There are great comps in India and China that were $6 billion and $7 billion evaluations, respectively, and they basically had a PowerPoint deck and we put ours together and thought we were worth $1 billion. Many on the Street were saying that they would IPO us at a $1 billion. Many of the large VCs in California wanted to see us. Unfortunately, a few months in, the dot-com boom crashed and we had to go back to the drawing board, but the cash was running out very rapidly. We ended up folding the company.
But the nine months there was the best business education that I’ve ever had on multiple levels, primarily on the people side. When I was at Wharton, I didn’t take very many HR-related classes. As an entrepreneur reflecting back, I think it’s the single biggest skill that one can have, and it’s under-valued by many people in business school who are looking more at the quantitative or strategy-oriented courses. Once you’re out as an entrepreneur and you have to motivate and manage people, having a strong understanding of leadership skills and HR skills is very, very valuable.
Knowledge at Wharton: What is your assessment of the landscape today for venture capital and private equity in Africa? How do you differentiate yourself in that space?
Wright: Generically, I think the outlook is still positive, but I think returns will start to come down. There has been a tremendous amount of capital raised for private equity and some very large funds in the African context, and there aren’t as many companies as one would think where you can make a $50 million, $100 million investment. Many companies of that scale are family-owned, and families often do not want to relinquish control and do not necessarily want the corporate governance that comes with a private equity investment.
Many private equity shops are looking at partnering with family-owned businesses to create new entities that may focus on a narrowly defined space. Within that entity, the families are OK with the corporate governance issues and maybe giving up control. African Venture Partners is not a traditional passive private investor. It’s more of a company that starts initiatives and seed-funds them and stays involved from a management perspective. Most of the time, they are our ideas and not third-party entrepreneurs. It wouldn’t be the traditional model where an entrepreneur walks in the door, we provide capital and monitor that investment from the board. We are much more hands-on.
Knowledge at Wharton: Given the Picasso Group’s focus on oil and gas, power and mining in Africa and the Middle East, how are you dealing with the commodity price drops and is it changing your investment strategy in those regions?
Wright: Absolutely. Right now, it’s a time to just sit on the sidelines and let things settle down a bit. Hopefully, oil prices have bottomed out, but one never knows. The commodities cycle, the oil and gas cycle — right now, it’s certainly not a great time to be in that space. The power industry holds more promise I think in the short term, although, those projects take a very long time. And in some markets, it’s more challenging from a regulatory perspective than others to get things done.
“The consumer play is where we think the real action will be for entrepreneurs going forward.”
Within Picasso, we’re beginning to look at more plays in the consumer space. To your earlier question around opportunities for entrepreneurs, the consumer play is where we think the real action will be for entrepreneurs going forward. The decision process for someone buying your goods is not concentrated in the hands of two or three individuals, as it is in the case of a big infrastructure play, where the president and the minister and a few others have to green light a deal. In the consumer space, if you have a value proposition that millions of consumers want and can afford, then they will transact and buy that product. The politics, for the most part, are taken out of the equation. I think it’s a better place to be at this stage of Africa’s development.
Knowledge at Wharton: How do you mitigate against risks in this sector?
Wright: I think it’s a lot easier to mitigate against the risk. I think one of the issues may be around how do you package and size a product that meets the consumer’s ability to afford your product? You want to create products that are very, very affordable and can reach a mass market.
Knowledge at Wharton: Many entrepreneurs on the continent tend to adopt a pan-African approach rather than focusing on a single country. What are the pros and cons of this approach?
Wright: I think it’s very difficult to have a pan-African strategy in that there are 50-plus countries, each with totally different opportunities and risk and regulatory environments and political dynamics. Currency issues can go against you. South Africa has lost 30% or 40% in the value of the Rand in the past six months or so. As an entrepreneur with limited resources, it’s hard to really call yourself pan-African.
I think pan-African means that you’re opportunistic in a pan-African respect, that you will pick and choose opportunities across the continent. But I think you’ll find the most successful entrepreneurs are focused on one or two countries and they may bet that down and look to scale from there but not try to be active in the very early days in multiple countries. If you take a country such as Nigeria or South Africa or Kenya, you’re capturing a large percentage of the disposable spend across Africa just being present in two or three or four countries.
Knowledge at Wharton: Based on your experience as an entrepreneur in Africa, what is the biggest leadership challenge you have faced? What did you learn?
“Patience is something that’s very, very key in an emerging market such as Africa.”
Wright: There have been many challenges as a leader. Coming out of investment banking where all of our colleagues have a similar background in terms of where they went to school and their work experience, it was much easier to lead in that environment. In the corporate structure, I only managed those individuals. Someone else was responsible for management of those individuals who were not at that level.
Whereas, as an entrepreneur, particularly when you’re starting off with limited resources, you may not be able to hire a Wharton MBA or someone who has Wall Street experience or worked for McKinsey, etc. As you go lower in the organization, you may even have individuals who do not have a high school education, maybe some illiterate, may not speak English very well. So the challenge for me, personally, was understanding and trying to create a management style, leadership style that would be effective at all levels of the organization.
I also think patience is something that’s very, very key in an emerging market such as Africa. I think that the process of on-the-job training is very important. It’s not an academic or theoretical exercise. It’s how to do certain things to get them done and to create systems and processes that hopefully will be learned and can be replicated on a consistent basis.
