You’re known to be one of the most prolific Angel Investors/VCs in the African ecosystem. We’d like to know a bit about you and your journey.
Kola: My name is Kola Aina. I used to introduce myself as an entrepreneur and an investor, but I am a retired entrepreneur now and a full-time investor. My foray into investing was as an entrepreneur but before that, as an undergraduate, I always felt like I wanted to become an investor. So, I remember registering a company then called Paradigm Diversified Capital Ltd. The idea was that I was going to provide capital for what I thought would be different paradigms. But I had no money at the time, so I went on to work in a corporate organization instead.
I grew up in a very entrepreneurial home. My dad was always working on a new business ideas, and I believe this inspired me early on. Even while I worked in the corporate world, I always sort of had a side hustle. I eventually started my proper journey in entrepreneurship when I moved back to Nigeria in 2009 and launched my first technology company as I felt that there was a gap in mid-sized technology companies that could serve businesses and governments. That was the beginning of the journey to where I am today.
Initially, we tried to raise equity for that business but it was just impossible and like a nightmare. That experience stuck with me. No one believed in what we were doing and then eventually we pivoted to try to raise debt, and that was even worse.
Eventually, we pivoted the product, scaled it down, and, as they say, built an MVP. That MVP allowed us to launch a product and start to gain traction. Fortunately, that business sort of did well and because I didn’t have any investors, I had a lot of liquidity from that business. We became a sort of leader in the EdTech space and from that, I got involved in Angel Investing. Due to the nasty experience trying to fundraise, I was very pro-founder in my approach and because I was still running my own business, the best I could do was be as supportive as I could to founders. That was really what helped me build out a reputation of sorts.
Fast forward to 2016, my angel investment portfolio had grown to a relatively large number of businesses. As an Angel Investor, it could almost become a full-time job managing your portfolio. I was getting overwhelmed because the amount of capital I was putting into these companies was increasing, and I figured that we needed structure, and that’s how Ventures Platform was born. Ventures Platform was originally set up to put some structure around my investments. As of today, I remain an Angel, but a lot of my investing is through Ventures Platform as an investor in our fund as well. This explains my foray into angel investing.
On a personal level, I am a Nigerian citizen, but I consider myself a citizen of the world. I am married and blessed with three kids. The other part of my life is that I love the arts. I chair the Board of the largest private museum in West Africa, the Shyllon Museum. I spend a lot of my time in the arts, and I love working with entrepreneurs at the early stage.
Can you tell us about your first deal and how that company is doing now? Also, how do you spot and pick the right ones as an investor in Africa with all the headwinds, risks, and everything else you hear about Africa?
Kola: My very first deal? I will answer that question in two ways. My first deal wasn’t tech related. It was a construction business. It was a deal to invest in a building materials business and that did well. The definition of success in that business was quite different from the companies I invest in today. So, I invested and got my returns by way of profit share, and dividends which I think are still important.
However, my first start-up investment was around 2015, in a company that was looking to build a STEM (Science, Technology, Engineering, and Mathematics) school. It came about through an introduction from someone who knew the founder. The founder, a very smart guy, had just graduated and had this brilliant idea at the time to build a STEM school that was going to leverage technology in many ways. The founder did an incredible job, but it didn’t work out. The business certainly suffered from being ahead of its time because it was quite difficult to fundraise beyond the Angel round that we did, and so the founder eventually moved on. However, we remain friends. That deal certainly sparked something for me which is a desire to want to partner with smart people and work with them. It certainly shaped my approach to investing today where I get relatively involved in the businesses I invest in, and I want to be as helpful as I can be.
As regards how I spot deals, the process for me follows a form of hierarchy:
- I invest early so the first criterion for me is that I can trust the founder. I want to build trust. I want to invest in founders that are likable and I can spend time with, and that give off a positive vibe. I’d like to compare it to how you make friends.
- Beyond that, I move on to looking at investigating the level of experience of the founder in the area they have chosen. If it is a multi-founder team, then I’d look out for the complementary nature of the founding team. I don’t believe in teams (especially if they are technology products) that want to outsource any key part of what they are building. So, I spend quite a bit of my time on the founding team before I even get to the product because I genuinely believe that a great team can always pivot a product or go in a different direction. Even if I invested in one company today, if the founding team is solid and they are truly entrepreneurial, they probably would go on to build something else and even if they don’t transfer my equity, I will still have a shot to invest in that new business. Because I accept it before going in that the investment could go wrong. I want every investment to succeed but I am also prepared for every investment I make not to succeed from the get-go. So, for me, it is more so about the experience and the person than the business or the opportunity.
- After that, I then look at the solution-problem fit. I spend quite a bit of time there, trying to figure out if this is the right way to solve a problem and if this is the best solution out there relative to all the other solutions out there.
- Then I shift gears generally to the size of the market because I am investing in venture-type returns. The market must be large, sizeable enough for those returns to be achieved. The market size may be large today, but it can be trending downwards. So, I want to validate that the market is trending upwards and to the right positively, at least in the midterm.
- I move on to look for what I like to call positive offline indicators especially when I am investing in Africa. Is there evidence offline that suggests that the customer behaviors that this business needs to succeed would exist and would be easy to leverage? Where the answer is No, I ask a few more questions.
- Finally, I spend a bit of time trying to look for what could go wrong and focus on risks.
That is how I approach making my investment decisions. I try to look for traction, but these are the 5 core things I try to confirm before I invest.
Let’s shift gears and talk about Venture Platforms’ Fund IV that you just closed, the objective for the fund, and why you’re getting funds locally (Nigeria).
Kola: Before now, my objective as a member of the ecosystem was two-fold. First, it was to try to make the process of accessing capital as hassle-free as I could for entrepreneurs, and second, to prove that we could have or would have unicorns. We have done that. We haven’t just had unicorns, but we have had exists.
With Venture Platform Fund IV, we wanted to have local participation because that has not been the norm. We believe that local participation is important because first, it helps to de-risk the investment. But there is also the fact that as someone who is not purely profit-oriented or motivated one must ask who would own our future unicorns. If all these businesses raise money from only foreign sources of capital when the exits start to happen, does any of that money help develop our country, and more importantly does any of it get reinvested back in our country? That is something that I care about as a Nigerian and African. For those two reasons, we wanted to have local capital in the fund. This is probably one of the largest local capital that has made it to venture over the years but I think we have cracked open the glass ceiling of local participation, which I am proud of.
However, beyond that, I think we also have quite a bit of global capital. We have some of the largest global institutions now joining us as Limited Partners (LPs) in this fund. So, it’s a nice mix of local and global capital that I think helps to de-risk and provide international connections for the investee companies that we support.
When Ventures Platform started taking outside capital, our initial investors were all Angels, we are also proud that we have participation from our Angels in the fund because they can be value-adding in many ways. But this is also how you sort of build out the local ecosystem and ensure that when the liquidity happens members of our ecosystem, who are not necessarily institutions, can benefit from it. For us, it is a multi-roomed type of thinking. Ultimately, we think that venture capital can be a developmental asset class and that does influence a lot of the decisions that we make.
During that process of raising, you must have had some challenges. Is there any advice you would give about raising a proper VC fund targeted at the African market?
Kola: I think a couple of things come to mind here. The first reality is that there are so many funds now. So, you must be clear on what your thesis is and what your differentiation is. Why are you raising this fund? At Ventures Platform, we are very clear. We are discovery and early-stage fund. We will invest the first cheque, but we will also support the companies as they scale and develop. We are also deliberate about the kind of LPs that we bring on board, wanting to have a mix. Finally, our thesis is very clear “market-creating innovations.” I see that a lot of people have also started saying that now but it’s all good. So, the first piece of advice I will give is to be crystal clear on what your differentiation and thesis are. You would have a hard time if it’s just another fund because there are funds out there already doing well.
The second bit is that running a fund is hard. Fundraising is difficult and I have just gone through it. So, you must be sure that this is what you want to spend your life doing. Deploying the capital, and talking to founders is exciting but raising the money and going through the processes can be very grueling and require a certain tenacity that can test you because you are asking people to give you their money and trust you.
The third thing is to try to build a track record. It certainly helps to do so. It certainly helped us. Because before we raised this fund, we had invested a couple of million dollars in the market, mostly our capital and the portfolio already had a track record both in terms of deals we had done, and that people could give a good reference on all that we’ve been doing. If you want to raise a fund in two or three years, start the work now.
Giving money is one thing but helping that business go to the next level is one of your differentiation. How challenging is that for you as a VC fund in the context of the market that you’re operating in?
Kola: I think that ultimately it takes two to tango. It’s not every founder in our portfolio that I am best friends with. But the way we approach it is, that we are always here to help. It is not necessarily everything our founders need that we can help with as well. But what we hope is that our promise remains, and what our founders find true is that we are accessible and available to help. I think that the ability to help is built on the back of the fact that we are entrepreneurs ourselves. We have built businesses in this market, so we have networks that we always can tap into. But with this fund, not to give away any of our secret sources, our goal is to scale that famed portfolio support into something scalable and sustainable. Because it starts to get harder as the number of portfolio companies increases. We have a few tricks up our sleeves that we hope to implement to drive home why early-stage founders should work with us. But I guess the simple answer to your point is that the reason we can do this is that we are operators ourselves and we built businesses so we can empathize. So, it’s transferring that to the portfolio level, which is the secret source that we hope we would be able to maintain.
Are you particularly excited about any start-up, industry, or sector? Now that you’ve got this money, you’ve closed this fund, are you particularly excited about anything over the next 6-12 months?
Kola: I am excited about the second coming of commerce. You can call it e-commerce or informal trade. I feel e-commerce had a faux start in Africa, but I feel with covid what we are seeing is a scenario where people are more open to digital channels. Over the last few months, we have seen the growth of various businesses that are working with retailers across the continent. So, I am excited about that segment and the other variations of it we are starting to see. How do you improve efficiency in the supply chain and distribution? How do you help merchants with demand or even provide financial services to them? That I find super exciting.
I also hope to see more and more innovation in the EdTech space. Again, on the back of covid. I am excited about some of what we’re seeing in the HealthTech space as well. So, there is certainly a covid after-effect that sort of acts as a flywheel for a few new verticals and so I am certainly looking in those directions.
You can’t say the word exit, at least in Africa anyway, without saying Paystack. The first question is do you have a conclusion as to why it took so long? What was it about Paystack that you think made it so successful and are there any more coming soon?
Kola: I don’t believe it took too long. I think ecosystems have to mature. The venture landscape in Nigeria and across Africa is still quite nascent as well. So, you had the first wave of companies (technological companies) that were built as service firms that weren’t quite productized. You also had the fact that we needed the telecommunications space to be liberalized and that happened with the GSM licensing. There were a few things that needed to happen to see and unlock potential in the space. Frankly speaking, I think it is a function of time. It happened when it could have happened. People were just not patient. Folks like me would always say we would have unicorns, it would come. I was telling Shola (Paystack Founder) yesterday that there couldn’t have been a better first full exit for the market. Shola is a beautiful human being, and he built a beautiful business both in terms of the culture, the product, and just how hard he worked. He recently launched a new football team, and I can’t wait to see how successful that turns out to be as well because a lot just rides on the quality of the founding team and I think Shola is just stellar when it comes to that.
Do you see more opportunities coming? New exits?
Kola: Absolutely, I think you can expect a new unicorn announcement this year. A couple I know of.
Are you invested in any?
Kola: *laughs* I hope I am. You can expect a few unicorn announcements this year. There would be exits. I will give you a simple example. Just yesterday, my Investment Committee (IC) turned down an opportunity to exit one of our investments. The reason was they think, and I agree with them, that they can have a better exit than this if we just wait. I think all those are good signs that there is more confidence from investors both local and foreign. I think you can expect more exits, more unicorn listings, and things like that.
Your TedEx for me has been one of the best, rallying cries for investors in the diaspora to begin to engage in the African start-up ecosystem. Since you did that talk, would you say people have responded positively as expected, or do you think more can still be done?
Kola: I think there has certainly been more as I got lots of people asking me questions. Also, with the work that folks like Diaspora Angel Network are doing (by the way thanks for some of the inbounds from you and your participation in our Fund IV) I think it is reflective of what can happen when people have information and are aware. I think a lot of people in the diaspora before now didn’t know or were in silos but there is now an organized diaspora that is participating either in funds or syndicate groups. So, I am proud to see the diaspora participation on the Angel side and even on the founder side. We are seeing more diaspora founders come back home and set up companies. This is good because the value of the diaspora is that global experience and network, and I think the more of that we can engender the better for the ecosystem.
One of the things we get to hear a lot is that Africa is still too risky. What advice would you give to anyone in the Diaspora looking to invest in the ecosystem?
Kola: I think one would be to do your homework. Two, to simplify your homework don’t go in alone. I’d advise you to look for groups or local partners that you can work with, especially in the world we live in today where there is so much capital. There are also bad actors, right? You find that everywhere. So, it’s a buyer-beware situation.
Angel investing ultimately is about being local and so what you want to do as an angel in the diaspora is either invest through a collective, a syndicate, a group, or invest in a fund. That would be my recommendation because there is so much deal flow out there and a lot of it will not necessarily become a Paystack. But you’ve got to play your hand to have the opportunity.
So, leveraging a partnership group helps. There are so many options from the Diaspora Angel Network, to joining the Lagos Angel Network if you want or if you spend enough time in Lagos to invest in micro funds like Ventures Platform, Future Africa, or Voltron Capital. Ventures Platform is slightly optimized for larger institutional funds but there are also other options to explore.
Are there habits you would advise every founder to develop early on?
Yes! Number 1 is Accountability. Send your reports regularly once a month on the same day if you can. Whether it is good news or bad news. Shola had that, and maybe that’s why he became successful. I will just leave it at that because it’s important as we don’t see enough of that. You know, being accountable and reporting as at when due is critical.
One book you would recommend to every founder.
Kola: I would recommend, “what you do is who you are” by Ben Horowitz. Recommending one book is a struggle but I will recommend that especially if you want to think through how you build a great culture which ultimately leads to building a great company.
Ok so let’s get a bit personal. Do you listen to podcasts?
Yes. I listen to podcasts, however, not as much as I would like. My favorite podcast right now is the one with Chamath (The ‘All In’ podcast) and his friends. I like it because it’s just four friends who analyze some of the most insightful things and I enjoy that. I just don’t have enough time to listen to podcasts I am too busy trying to return money to my LPs *laughs*
Do you have hobbies, things outside of investing, that keep you going?
Kola: Yeah! A big part of my life is art. I love art. I collect, I support artists and I attend shows. It’s sort of my other passion. I also enjoy spending time with my kids, wife, and friends. But my other non-work-related passion is the arts. I play golf when I can. I need to play more consistent golf to be honest because I enjoy it. I have it twice a week on my calendar, but I work through that golf time most time. I am open to playing more golf this year and spending more time on my other key passion which is the arts.
Talking about the arts, do you see any similarities between picking art pieces and founders?
Kola: I think I take the same approach. I am an unconventional art collector. So, I spend an inordinate amount of time trying to get to know the artist. Very similar to what I do with founders. So, for me investing the way I invest is really about an investment whether it’s art or venture or fashion. It’s investing in the person behind the business because people make things. I think it is far better to invest in the person than the product because if the product fails the person can always make another one, hopefully.
What is one thing that people would be surprised to know about you?
Kola: I have chronic stage fright. Just talking, standing on stages, and even doing this call are super stressful for me deep inside. But I have sort of mastered a few things, so I can roll through it. But before now, in the early days, I used to shake before I got on stage. But I do so much of it now that I don’t need to prepare anymore. That TedTalk, that has helped so many people, I was shaking in boots but you couldn’t tell.
