No exit for DFIs...but a glimmer of hope for the rest of us
Capital has dried up in a big way. IPOs in the US are down by 90%, which means investors don’t have the capital to recycle into new startups.
Even investments in Africa are down 50%.
In talking with DFIs and institutional investors at conferences, they are increasingly worried about exits. Their “10-year funds” are now 16 years old and have no exit in sight.
Never mind the logic of why startups that take 11-12 years (e.g. Airbnb, Uber) to mature in the US should somehow take less time (10 years) in less developed markets.
On paper, Funds of Funds would invest in funds that would exit in 10 years to Private Equity or acquisitions. But there aren’t enough big companies to make such acquisitions. The existing big companies have a reputation for just stealing the tech rather than buying it. Meanwhile, Private Equity is facing the same exit problem as institutional investors.
Over the next few years, it is more likely than not that DFIs will focus more on debt. If they can only make <10% returns (IRR) on high-risk equity investments that they can’t get out of for 16 years, why not provide debt at 10% lower risk and have a clear exit? As we see funders move into debt, supply will go up, and price will go down, which is good for entrepreneurs. Interest rates to entrepreneurs will drop even further as the Fed will likely reduce interest rates, reducing prime rates worldwide—DFIs will get squeezed in the middle.
[Note: if you run a business fueled by debt, like a fintech, and you are profitable/don’t need to raise equity, the next 5 years look very bright for you]
There is one obvious option that has been staring everyone in the face for decades:
Public listing…
Subscribe to see how/if public listing will work in the next 10 years in Africa.
Solving The Exit Problem: Part1
Solving The Exit Problem: Part1
Solving The Exit Problem: Part1
No exit for DFIs...but a glimmer of hope for the rest of us
Capital has dried up in a big way. IPOs in the US are down by 90%, which means investors don’t have the capital to recycle into new startups.
Even investments in Africa are down 50%.
In talking with DFIs and institutional investors at conferences, they are increasingly worried about exits. Their “10-year funds” are now 16 years old and have no exit in sight.
Never mind the logic of why startups that take 11-12 years (e.g. Airbnb, Uber) to mature in the US should somehow take less time (10 years) in less developed markets.
On paper, Funds of Funds would invest in funds that would exit in 10 years to Private Equity or acquisitions. But there aren’t enough big companies to make such acquisitions. The existing big companies have a reputation for just stealing the tech rather than buying it. Meanwhile, Private Equity is facing the same exit problem as institutional investors.
Over the next few years, it is more likely than not that DFIs will focus more on debt. If they can only make <10% returns (IRR) on high-risk equity investments that they can’t get out of for 16 years, why not provide debt at 10% lower risk and have a clear exit? As we see funders move into debt, supply will go up, and price will go down, which is good for entrepreneurs. Interest rates to entrepreneurs will drop even further as the Fed will likely reduce interest rates, reducing prime rates worldwide—DFIs will get squeezed in the middle.
[Note: if you run a business fueled by debt, like a fintech, and you are profitable/don’t need to raise equity, the next 5 years look very bright for you]
There is one obvious option that has been staring everyone in the face for decades:
Public listing…
Subscribe to see how/if public listing will work in the next 10 years in Africa.