Wide-Based Institutionalised Seed: A Feature, Not a Bug

Many of you came here looking to hear my thoughts about VC. Instead, you’ve gotten these weird front-row seats to the goings-on of my brain; talking about lice and wigs. This time, I decided to share one of my notes on VC as a palate cleanser. 😀 

Here goes. 

If you’re familiar with Venture Capital (which many people aren’t, and that’s okay), VC is all about investing in high-growth, high-innovation businesses. If you look at the early 2000s, when VC was really popping, you’ll see Uber, Google, Facebook, Amazon, that lot. We hadn’t REALLY started in Africa yet :-) Currently, it’s AI, with OpenAI valued at $500 billion, as in BILLIONS.

Most VCs operate under the assumption that a tiny fraction of investments generate the bulk of returns, while most yield little or nothing. Failing is literally built into the model. Out of 10 investments, maybe two will deliver outsized returns, another two will break even, and the rest will die. Google it if you don’t believe me. 😏 

Now, naturally, early-stage (pre-seed, seed) funds tend to cast a wider net with their portfolios. An unfortunate correlation is now being made, linking a broader investment base to “spray and pray.” 

If you’re not familiar, think of it like throwing seeds out of your car window onto any soil you see. There’s a good chance most will die, and the ones that don’t will probably succeed from sheer luck.  You require no skills to throw seeds out of a window. All you need is seeds and a window. 

In spray-and-pray, VC would make high-volume, low-value investments with little to no due diligence or structure, or value addition. Some operate(d)  on the principle that promising founders will introduce them to other good founders. Others believe(d) sector focus means covering so many in that space that at least some will do great. And so on. 

I think we’ve all known as a continent that this isn’t something we currently have the goodwill to attempt. As far as I know, it hasn’t worked yet. More importantly, this doesn’t produce the sustained value creation or build the trust we desperately need. 

We need more structure to convince those rich uncles that we don’t need another mall in Nairobi, or more apartments, and that VC is actually a viable investment asset class. 

Now, an interesting trend is emerging, where many expect seed funds to look and operate the same way: small portfolios, sector and country focus, bigger tickets. To escape the “spray and pray” allegations. 

While viable and interesting, we have to ask who is writing the early cheques if we’re all avoiding writing the early cheques? 

I want to point out that we’re a very young ecosystem. We’ve had maybe one complete VC cycle. Our first full 10–12 years of VC on the continent, and we’ve performed exceptionally well, despite popular belief. 

Okay, enough rambling. Let me get to my point, we need funds that invest in many, not spray and pray, but wide-based institutionalised seed (WIS) is a necessity. We have no choice. 

First, I’m not trying to invalidate anyone’s work, nor am I saying all seed funds should look the same. I say this to avoid the whataboutism people love when one point is emphasised. OK? Don’t inbox me saying I’ve dismissed your opinions. 😂 

More than one thing can be true at the same time, even if they seem contradictory. 

Defensive? Maybe. But hey, article nayo ni yangu (It’s my article, after all). 😀 

When I started thinking through this, the first draft had graphs, tables, and numbers, but I decided to save myself the bruhaha, the crinkum-crankum. 🤣 I can just see all of you running to translate those words and accuse me of using AI. Anyway… 

I want to focus on what I call Wide-Based Institutionalised Seed (WIS from now on, because I ain’t typing all that)  Strategy, and why it’s a valuable approach for seed funds in young African ecosystems. 

Guys, guys, did you see that economics degree shine? Keynesian multiplier :-) 

To me, WIS not only addresses current investment gaps but also acts as infrastructure for the entrepreneurial ecosystem. Let me explain with an example. 

One reason M-Pesa was a roaring success in 2007 was that Safaricom already had a huge network of agents. If my research is correct, they had 1,000 agents selling airtime (the fun scratch card era). 300 of these became M-Pesa agents, and within a year, there were 3,000. 

The seed, entrepreneurial, and innovation space needs the same “agents”: well-funded, skilled, experienced, and determined founders. This is the infrastructure I’m referring to. 

We cannot leapfrog nonsense. Infrastructure must exist first. 

Thankfully, we have the brains, the brawn, and now the WIS investors, who come in to provide the capital, the skills, and the network. 

Think of it as the entrepreneurial equivalent of the Keynesian multiplier, which basically says investing in infrastructure creates a multiplier effect on the economy. 

An initial investment in infrastructure leads to a larger increase in overall economic output. You build a road from point A to point B; the guys building the road get paid, they start spending the money on goods and services in the village shop: the shop in the village can now trade expand and trade in both point A and B, because its more accessible, but also are making more money, their children can find jobs in point A & B, and so on. 

“This happens because the initial spending creates income for workers and firms, which is then spent on other goods and services, generating further income and demand. The effectiveness depends on the multiplier’s value.” ~ The internet 

Flips hair in Economics degree again 

This is the correct way to think about the WIS strategy. The initial investment in founders at the seed and pre-seed stages increases: 

Everything else follows, including some lifestyle businesses that perform well (founder buy-backs becoming an excellent exit strategy). 

I won’t even get into job creation and household income increases-these are natural consequences of sound investing. The impact is substantial. 

Part of the mindset shift needed is decoupling WIS from “spray and pray.” WIS investors are people with years of experience, networks, failures, pain, and relationships that enable better decisions. They also know the levers to pull to support founders. 

The WIS strategy should be anchored in process; systems for due diligence, even in data-scarce environments, leveraging experience, historical data, good governance and pattern recognition. This ensures investments are guided by nuance, not conjecture. 

I genuinely believe many think we operate on vibes and the grace of God, far from it. It’s about pattern recognition, in startups, founders and ecosystems. 

Speak to your most successful buddies; their mental models and theses are based on pattern recognition, betting on specific future outcomes. Believing in a future yet to be seen, using today’s evidence and executing with precision. That’s what a good WIS investor will do for early-stage investments. 

Contrary to popular belief, seed investments aren’t inherently riskier than later-stage ones. I won’t get into it because this is all Google-able, and honestly, I’m not in the mood. 😀 

We must think about ecosystem evolution. What do thriving ecosystems have? Lots of capital first, or lots of entrepreneurs and builders? I believe money follows innovation. 

We need to enable innovation, and that’s what seed investment does-it fuels innovative environments and bets on the best ones. 

WIS investors are crucial to creating a sustainable environment where talent is nurtured, supported, and developed effectively at the earliest stages. As the ecosystem matures, these funds play a pivotal role. Ignore this at your own risk. 🤷‍♀️ 

I’m not saying this is the only strategy at this stage. I’m saying there’s little alternative to having WIS Investors in the space. 

And it’s needed until further notice.