Due Diligence: Private equity investor talks restaurants, Jumia and keeping an open mind

Carolyn Campbell

How we made it in Africa’s ‘Due Diligence’ series asks top players in Africa’s private equity industry about how they are mastering the art and science of profitable dealmaking and fundraising. Doing the due diligence on those who do due diligence for a living.

This article is published in association with Africa Private Equity News, a one-stop source for industry-related information. Stay up to date by downloading the free Africa Private Equity News app: Android | iOS | www.africaprivateequitynews.com

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We talk to Carolyn Campbell, founding partner and COO of Emerging Capital Partners, about investment opportunities on the continent and the one deal that got away.

1. Explain your firm’s investment philosophy.

ECP strongly believes in the inherent growth potential of the continent. We seek to identify and invest in exceptional domestic-facing opportunities as opposed to the old export strategy that you saw in the past. We then like to create scale in these businesses.

The socio-economic composition of the continent has evolved significantly over the last decade with the creation of a very dynamic and quite modern middle class. They have disposable income and enjoy the same things as the middle class everywhere else on the planet. There is therefore a need for businesses that serve this middle class. In addition, there is also demand for basic services and necessities, from both businesses and individuals. It is in these areas where we really see our niche.

2. What is the greatest investment lesson you’ve learned?

We’ve learned that no matter how big the opportunity and how solid the investment thesis, it really does come down to the relationship with the people that you are investing in. Adaptable and flexible management teams are required for a continent undergoing high growth. The relationship with the management team that we select has to endure for a number of years. They are the ones we lean on to help us navigate this domestic-facing opportunity overall. We have several offices on the ground and 20 years experience of being local, but we need to be sure that the relationship will remain solid through thick and thin.

3. Identify an untapped opportunity for private equity investors in Africa.

It would be taking the casual dining experience in Africa to the next level. An entrepreneur who has developed a casual dining or café experience could broaden that out to serve a larger population by creating a chain. We started in this segment with our investment in Java House, and recently followed that up with an investment in Artcaffe in Kenya.

These businesses cater to middle-class people looking for a way to spend their disposable income during their leisure time. They also offer alternatives to the office for business meetings and provide a space for students to gather and study.

We have seen how this concept has taken off in regions such as China, and we see a similar opportunity in Africa. There have been a few entrants coming in from outside, such as Burger King and KFC, but developing local entrepreneurs is particularly exciting for us.

4. What is the biggest misconception about your job?

The biggest misconception is that it is one job. Twenty years into this venture, my job is multi-faceted – not just week to week, but day to day, and probably even hour to hour. From managing the investment committee to working with our investors, and making sure the whole operation hangs together coherently and efficiently. It also includes ensuring that our deals realise the promise that we’ve given to our investors and that we realise exits the way we are supposed to. In addition, it is to look for new opportunities; we have a 20-year history and we want to expand that history even further into Africa. So it really isn’t one job, it requires wearing many hats.

5. Name the one deal you wish you invested in.

Jumia, the e-commerce platform, which recently had an IPO on the New York Stock Exchange. We liked the founders very much but when we looked at the company, it was too early stage for ECP given our mandate, which is to invest in companies that are in a growth phase as opposed to startup mode. Had Jumia been further along the growth curve when we looked at them, we probably would have invested.

6. What are the skills needed to succeed in Africa’s private equity industry?

You need to be committed to your principles and your investment strategy, even when something like a Jumia comes along. We could have easily said, ‘Oh, let’s make an exception, let’s go early stage and invest in Jumia’. But then we wouldn’t have remained true to our investment philosophy.

In addition, you also need to develop a bit of a sixth sense about people and have experience in working with a wide variety of entrepreneurs that gives you that gut feeling about a relationship. You never know exactly what the relationship with the company is until you’ve put a ring on it and done the deal. Only then you really know if your relationship is going to hold through the vicissitudes of the full investment cycle.

Furthermore, you need to keep an open mind to what an opportunity is in a continent such as Africa. Opportunities change very frequently in a dynamic market that is growing like Africa.

This article is published in association with Africa Private Equity News, a one-stop source for industry-related information. Stay up to date by downloading the free Africa Private Equity News app: Android | iOS | www.africaprivateequitynews.com