Kendall Ananyi – Lessons from over 40 Startup Investments
Kendall Ananyi
Eight years ago I made my first Angel investment in Paystack. Today I am celebrating over 40+ investments in startups and averaging an exit each year since the Paystack acquisition by Stripe was announced in 2020.
It’s been a great symbiotic experience overall as my own startup Tizeti thrives from the startups. My customers utilize the internet service we provide to access some of these startups services/products. The startups and their team also need internet to build and support tech products/services from their office or homes.
These are the companies I am invested in directly or via a fund. They all have a cumulative valuation of close to $4Billion. Some are doing really good, some are going through challenges and some will rebound.
- Paystack (Exited): Modern payments infrastructure for Africa..
- Flutterwave (Exited): Payment infrastructure for Africa
- Buypower: Buy electricity instantly
- Pit.Ai: Was solving intelligence for investment management. Combine AI research with powerful computing to automatically mine profitable trading strategies in financial markets.
- Helium Health: Provides a suite of technology for healthcare providers, payers and patients across Africa
- Reliance Health (Exited): Uses technology to make quality healthcare delightful, affordable and accessible in emerging markets. Through an integrated approach that includes affordable health insurance, telemedicine and a combination of partner and proprietary healthcare facilities.
- Kobo360: Supply chain platform for Africa
- Aella: Diversified credit infrastructure powering payments across Africa.
- Kuda: Money App for Africans
- Bento: Helps companies across Africa reimagine payroll, compliance, remittances, hiring, and employee management.
- Atom Insurance: Offers life and non-life microinsurance products and services to individuals and small businesses in Nigeria.
- Oxio (Exited): Reliable home internet plans across Canada
- Brass: Provides banking services to small and medium businesses. They provides SMBs with a suite of product and tools designed to help them grow their business and significantly reduce the friction of doing business
- Wallets Africa: Building Africa’s foremost borderless digital financial platform for a new generation of Africans and visitors to the continent
- HashVest: Brokerage & WealthTech App, that lets Retail Investors invest in both their Local and Emerging Markets’ Assets
- Edukoya: Online Learning App for Africans
- Trove: Platform that helps individuals and financial institutions in Africa access and trade global stocks.
- FiClub: Neobank for the Informal Sector, built as a Social Trust Network, where people pool their Savings + Reputations to unlock greater credit access.
- 54Gene: Was to partner with leading hospital in Africa to collect genetic and supporting clinical data, creating its own biobank unlocking 3 business lines: Drug Discovery, molecular diagnostics and clinical trial management and ops.
- Awabah: Digital pension platform for self-employed Africans
- Breadfast: MEA first grocery delivery service with a fully owned supply chain
- Turion Space: Provides Space debris removal and satellite servicing and taking advantage of low space launch costs
- Pideaky: Square for Latin America
- LemFi: International Payments for Everyone
- Karbon Card: India’s neo bank without any fees, limits or waiting
- Bamboo: Modern way to invest in everything
- Teesas: Ed tech startup aiming to make education affordable and engaging
- Simplifyd: Integrated platform that provides fast and quick deployments for websites, web applications, APIs and data stores
- Curacel: Building Plaid for African insurance. APi’s that allows any company in Africa to add insurance.
- Lenco: Pan-African digital bank for Africa’s businesses
- Topship: Flexport for Africa. is the easiest way for African businesses to export/import cargo freight and parcels.
- Vendease: marketplace that allows restaurants in Africa to order directly from farms and food manufacturers, saving them procurement costs
- Anchor: Platform for building and embedding financial services in Africa.
- Siglo: Home Internet for urban Latin America
- BridgeCard: Card issuer for Africa. They make it easy for any fintech company to offer their customers a card that will work anywhere in the world
- Touch and Pay: Digitizing and processing Microtransactions in Africa.
- VALIDERE: Carbon MRV solution for energy and hard-to-abate sectors.
- Chowdeck: On-demand food delivery for Africa
- Shekel Mobility: B2B marketplace for Auto Dealers in Africa
- Vista Space: Structural batteries for high-performance spacecraft
- Pioneer Fund: Inc named PIoneer Fund SIlicon Valley Largest investor https://www.inc.com/sam-blum/silicon-valleys-biggest-investor-is-canadian.html
- Magic Fund 2
This journey has been filled with invaluable lessons, and I’d like to share some insights I’ve gained along the way:
Cofounder conflicts
Co-founder conflict is one of the top reasons for failure in early stage startups. Navigating this type of conflict is extremely challenging. The options for dealing with co-founder disputes include:
- Buying out the co-founder at a premium, could resolve the conflict but might provide them additional resources to fuel the dispute. In some cases a large buyout could jeopardize the company as their runway is now reduced, and the funds that should have been used to grow the company are no longer available.
- Co-founder retains shares in the company and sells at a future financing round, which is usually difficult as this extends the conflict resolution period till they sell their shares.
- Resolving the conflict amicably, which preserves the most value but is rarely achieved.
Co-founder conflicts arise from mismatched expectations, unequal contributions, financial disagreements, role ambiguity, communication issues, personal differences or lack of trust. Helping founders address these potential sources of conflict early on and having open discussions with all co-founders as they work through differences will prevent value destruction. Maintaining healthy co-founder and investor relationships is extremely important, and it is crucial to avoid situations where investors have to side with some of the co-founders in a conflict.
Crisis Management
There has been a significant amount of press coverage of issues in African startups in the last four years. Most startups have struggled to publicly navigate crises due to a lack of specialized firms on the continent. Many PR firms masquerade as crisis managers, but “crisis management is not PR,” and they often exacerbate issues instead of resolving them. My general advice is to hire a firm as quickly as possible, as a crisis handled properly conserves resources that will be used to continue executing your mission once it blows over. Most founders tend to want to “control the narrative” or use their “right of reply” to attack the media or sources and engage PR firms or get bad advice from friends and family. This often backfires, as PR firms keep dialing up the issue, and you’ll keep expending resources over an extended period.
A simple approach when not able to hire a firm could be to take the “no comment” route. In AppleTV+’s WeCrashed, Adam Neumann’s character hires the best crisis management people in the world, and they explain why their response should be “no comment”.
In the end, please take stock, re-strategize, and keep building. Sophisticated investors generally make investment decisions based on growth and market potential, not press coverage.
Due Diligence and Governance
Emphasis on due diligence prior to receiving investment is common, but governance post-investment is even more important. Early-stage startups often lack sufficient information for thorough due diligence, making it less effective. Implementing robust governance structures post-investment helps ensure startups that attain product-market fit have a higher probability of reaching their full potential. Startups receiving significant investment should adhere to proper governance policies and hold regular board meetings with experienced board members where feasible.
Out of 40+ investments, I only had one startup not launch or show any visible traction. I got no updates and had to chase down the founder to get the documents months after the investment. One out of 40 is 2.5%, is a small number but it does exist and has resulted in increased scrutiny of African startups. Naming and shaming hasn’t really worked and it’s an open conversation, proper governance should help keep it at the historic low %.
Exit strategy
Exits in Africa are rare but increasing. This is partly because the majority of the startups were founded after the Paystack exit to Stripe and are less than three years old. We should see more exits in the next four years. Early-stage investors may have opportunities to exit during growth stages (Series B and later) if they were disciplined enough and invested at reasonable valuations. However, higher valuations from the 2021-2022 frenzy mean early investors may need to stay longer to see significant returns due to the higher valuations the ZIRP startups raised at.
Pre-seed Investing challenges
Investing super early (pre-seed/idea stage) is risky, and the few I’ve done haven’t been great. There are investors who specialize in this area and invest large amounts at really small valuations, thus owning large chunks of the startup’s business too early. In the past, new investors would “re-cap” the cap table prior to making an investment, but that’s not the case since ZIRP. Founders end up having investors with large holdings who may not be helpful and have to offset their impact by significantly raising the valuation of the next round of financing, which can be counterproductive as it reduces the probability of closing the next round. It also affects exits at the growth stage, as the startup will need a larger amount to buy out those investors. These funds are better invested in the company, but it’s a Catch-22 situation as it’s great for investors to show exits, as I mentioned in the exit strategy, but not at the expense of funds to be used to grow the startup. It also makes it more expensive and sometimes difficult for later-stage investors (needed to help the startup grow) to reach their target ownership percentage.
Another reason why raising large pre-seed rounds from investors too early is not advisable is that it doesn’t encourage startups to be disciplined in deploying capital. They often believe that throwing money at a problem will solve it faster. This approach can lead to excessive spending on marketing to force product/market fit, when they should be listening to their customers, understanding what attracted them to the service, how they use it, and gathering first-hand feedback to refine the product. For example, Tizeti was one of the first startups to sponsor an ad on Big Brother Nigeria. We ensured we were EBITDA positive and close to our Series A because it’s difficult for any startup that hasn’t reached product/market fit to justify such a large marketing outlay over a quarter. I was surprised to see earlier stage startups spending heavily and bidding up ad prices in later years. Five years on, most of these early-stage startups that raised large rounds too early are out of business, and their expensive marketing campaigns didn’t yield significant traction or where they acquired lots of customers revealed that they didn’t have a sticky product.
I make most of my investments at the seed stage as it’s less risky, and the startups typically have a bit more traction.
Losses and Reinvesting
Exits are great and are celebrated, but there will also be investments that won’t work out, and that’s fine. The power law in venture investing helps offset the losses as a handful or even a single investment yields returns larger than all other investments combined, often by orders of magnitude. Entrepreneurship is difficult, and businesses fail. In fact, there is a higher percentage of businesses that fail versus really successful ones. There has been a lot of negative coverage around startups that lay off employees or go out of business in the last few years. Founders that are struggling are now taking longer to communicate the shutdown of their companies for fear that a negative article will be written about them. This is not a great trend, as they should be allowed to fail gracefully, openly communicate failures, share lessons learned, and go back in the ring/arena and try again. This benefits the nascent tech ecosystem. The other reason why it’s okay to fail is investors can write off the losses, which is beneficial when they have any capital gains from exits.
Exchange rate
The majority of the startups I invested in are in Africa or other emerging markets, and the exchange rate to the US dollar has declined over time. This makes it challenging to understand how great the companies are doing from their investor updates in USD when their parent or holdco is US-based. My advice is to provide results in both local currency and USD so it’s easier for investors to assess how you are doing.
Hedging currency risk is difficult and startups should explore additional geographies and launch in multiple countries once they are in the growth stage so the effect of one currency doesn’t weigh down their results when consolidated. For example, the Nigerian Naira might be down in a year when the Ghanaian Cedi is having a great year, or you might get stability from expanding to Francophone Africa and earning FCFA/XOF. The MENA region is also an area to consider to further mitigate currency risks as a startup. Expanding to multiple countries should be well thought out too and putting in place the right expansion team is extremely important to be able to take advantage of exposure to multiple currencies.
Looking ahead
Finally, I hope sharing my experience and insight will help startups in the region. Here’s to more success and wishing to be on the podium when my startup or one I am invested in is listed on a major public stock exchange in the next four years so I can pay my kids’ university tuition :).
Kendall Ananyi
Really good and balanced article. 40 is a “matured” number! Well done!
Wow…great article
I hope you invest in mine too.
Beautiful piece with a lot of learnings. Many thanks for sharing
Haha 😄. Kid’s University Tution. Nice…
Aside Trove, most of these startups aren’t export focused or enable Africans to earn in dollars. This might be a reason the naira-dollar situation is eroding profits
Great content here. Inspiring and refreshing
Kindly permit to publish in a magazine (of course credit will be given to you and the link to this would be attached with a FOR MORE CONTENT FROM KENDALL attached.
Also if you don’t mind, we would like to have a conversation with you on a virtual business summit coming up in August
Sure. Please go ahead
A very refreshing read and a whole lot of insights ganered from this. Thank you for sharing
Nice piece and very insightful
Thanks for sharing.
Thanks for sharing this insight from your depth of experience
Nice piece !
Are you retired or you’re still on the lookout for future investment opportunities.
I would really love the opportunity to share an idea with you.
What a depth of experience… it’s eye opening and also a challenge
Great points on funding the feud between cofounders
This is very challenging and eye opening. My spirit is lifted. If you don’t mind, I would like to come close.
For someone who has is interested in investments, this really came in handy. I hope to see more on this. Thank you sir
Really insightful! Thank you for sharing, loads of insights and information!
Very brilliant write up. You are very good investor and highly intelligent
I will like to follow up with your on your next project, and also look up to some companies listed to work on partnership
Sincerely congratulations
Thank you for sharing. This is an inspiring and insightful piece that everyone should read , including CEOs, business owners ,and founders.This lesson is spot on.Thanks