By Sona Mahendra and Andile Masuku
As Bench Accounting's dramatic December 2024 shutdown and swift acquisition by Employer.com continues to reverberate through global tech circles, the venture capital model's sustainability is once again under intense scrutiny.
The Canadian fintech's collapse, despite raising over $100 million and serving 12,000 customers, adds fresh urgency to ongoing debates about founder-funder alignment and sustainable growth models in tech.
Meet Sona Mahendra.
From founder to venture builder and back again—Johannesburg-based Sona Mahendra's journey through Africa's tech ecosystem reads like a masterclass in pattern recognition.
Fresh from helping to transform promising founders' visions into venture-backable businesses at 54 Collective, she's now fleshing out her own alternative healthcare financing venture concept with newly minted venture support expertise and a souped-up connectivity profile to match.
For the LinkedIn-savvy crowd tracking African tech's evolution, Mahendra's feed has become essential reading.
Her thoughtful curation of global VC and venture building insights (with a notable soft spot for India's startup dynamics) has helped sharpen my own ongoing exploration of venture capital's role in African tech—as unpacked in my July 2024 piece examining how VC critiques are reshaping tech investment on the continent.
Those of us who know Mahendra well will recognise that in this week's column hijack, she brings her incisive point of view to bear on some of the most pressing questions facing African tech in a way she previously hasn't done in public with such candour.
Her multi-dimensional vantage point—as a former founder, venture builder, and now founder again—offers a grounded perspective on what's at stake.
Mahendra’s insights. In her words:
I'm a defender of the Venture Capital funding model.
Yes, the 'Western' kind. Yes, in Africa.
This is because I don't believe that there is such a thing as the 'traditional' VC model that needs to be 'adapted to Africa'.
VC funding simply follows a different set of (admittedly weird) rules compared to other types of funding. In the same way that you can't change the rules of Tennis to suit 'local market context', I don't think you can (or should) change the rules of VC.
VC exists to fund startups.
And startups are entities designed to grow fast. As Paul Graham mentions in his evergreen essay titled 'Startup = Growth':
'A startup is a company designed to grow fast. Being newly founded does not in itself make a company a startup. Nor is it necessary for a startup to work on technology, or take venture funding, or have some sort of "exit." The only essential thing is growth. Everything else we associate with startups follows from growth.'
What this means is that VC is a funding type that fuels startups that already do (or potentially will) have the ability to scale incredibly fast.
This is why a startup will always have to chase some kind of growth over profitability.
If a startup does not do this, my assumption normally is that either the founder has simply changed tactics to survive the changes in the business environment and deferred growth to a more opportunistic time, or the parties involved have not realised what kind of game they are required to play.
Founder-funder friction
The VC model itself makes no claims around 'solving the most pressing issues of our time' or 'building large sustainable businesses'. I think we've put undue pressure on this model to solve critical gaps we see in our market and as a consequence, we've been punished with fewer wins than we should have.
To be frank, there is only VC, and then other funding types. I believe it's the job of the founder and funder to understand what game they want to play, match the right kind of funding mechanism to the right business model and context, so they can pursue the same definition of success, whether it's a $5m or $500m exit.
Not doing this enough has caused friction between founders and funders (and most of these businesses failing for the wrong reasons).
On one hand, investors feel like founders are not growing fast enough. Founders, on the other hand, feel like investors have unrealistic expectations of what is possible in the African market.
As one friend put it bluntly: 'We're strangling perfectly good businesses by forcing VC onto them.'
VC funding should then, of course, go only to startups with high growth potential.
However, because of reasons unbeknownst to me (maybe LP mandates, pursuit of glamour), funders provide VC funding (and founders accept it too) to generally slower growing business models.
This retrofitting of VC onto these business models to get through our day job of investing is only hurting potential investment returns and founder sanity (both in short supply already).
Elusive prospects
So, where are the VC opportunities on the continent?
This is the urgent question we need to answer in order to viably grow the African tech ecosystem that we all deeply care about and that our careers are tied to.
VC opportunities in Africa are in the same places where it exists in other parts of the world, regardless of being developed or emerging. They come from a thesis on where we think growth will come from (regardless of margin % or technology type), whether it's from technology innovation that creates new market opportunities (i.e. novel products like in climatetech - initially, this was the only way to get venture returns) or technology commoditisation leading to severe demand and rapid customer adoption (e.g. conferencing software like Zoom).
Fundamentally, we need a framework on how to think about technology investing since not all technology businesses are created equal (and will have different limits on growth, and hence suitability to VC funding). I believe real VC opportunities in Africa lie in two key segments: the pure venture-scale startups targeting unicorn status, and the high-potential companies capable of either achieving significant exits (>$100m) or pivoting towards unicorn trajectories.
The latter segment, particularly, represents a chasm of overlooked and underfunded opportunities, largely because investors tend to favour backing more modest, sustainable businesses that, while valuable, aren't truly suited for venture capital.
Why winning matters
Unicorns are born from fertile ground of an active and vibrant ecosystem that is familiar with exits repeatedly to replenish the ecosystem with know-how, talent and funds.
This ‘Multiplier Effect’ or flywheel is vital to grow the ecosystem so that we can move from selling the potential of this continent (which I worry will stop working in the near future) to demonstrating the real opportunities that we know are available here, backed by a track record.
This focus on winning is what allows us to raise different kinds of funds (faster), and encourages former founders to come back and play.
As Africans, our dreams are powered by pragmatism. Most of us don't wake up on day 1 to build a unicorn. It just sounds too silly.
But the more we start seeing clear wins materialise (big or small), the more risk we are inclined to take.
The only way we can consistently get to this level of winning is by being clearly aligned about the opportunities available on the continent and matching them with the right funding type so we can all walk away with more wins. And it is imperative that we win.
The awkward ambiguity around how to navigate the difficult journey of building a tech ecosystem from scratch is inevitable. However, carelessly perpetuating a lack of clarity and alignment, thereby delaying wins, is not.
Andile Masuku is Co-founder and Executive Producer at African Tech Roundup. Connect and engage with Andile on X (@MasukuAndile) and via LinkedIn.
Sona Mahendra, from founder to venture builder and back again, Johannesburg-based Mahendra's journey through Africa's tech ecosystem reads like a masterclass in pattern recognition. Fresh from helping to transform promising founders' visions into venture-backable businesses at 54 Collective, she's now fleshing out her own alternative healthcare financing venture.
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