The path to 2x DPI for African VC’s asset class

African VC can get to 2x distributions to paid capital across the ecosystem (DPI) by 2030 (conservative)

But today, African VC is the world's most unprofitable asset class. Why? Low liquidity.

This was a structural problem before the first dollar was invested in an African startup. Africa's capital markets were already illiquid. This doesn't necessarily mean that African startups are illiquid themselves.

One day, we'll all be able to see the performance of African VC funds with average DPI.

In simple terms, it's how quickly investors get back raw cash from the investments they make in startups.

Based on how things have gone, of the $24b invested in African tech, there's been less than a few billion in exits and cash returned to investors.

So, if we averaged our ecosystem DPI, it would mean that for every $1 invested, investors get back cents on the dollar.

That means our ecosystem DPI is really low. This happened alongside a shift in global VC - where most founders are taking in less cash to build profitable businesses.

Profitable businesses were already the norm in Africa, before the first dollar was invested in African startups.

So, what if African VC is already ahead of the liquidity cycle? That made us wonder, so we modelled out what it would look like if an ecosystem DPI grew with profitable businesses over the next few years.

Here's what we found:

Key Assumptions:

• Current state: $24B invested, $1.8B returned (0.075x DPI)

• Target: 2x DPI by 2030

• 10% annual growth in new investments

• Stage-specific revenue ranges:

  • Early: $100K - $500K

  • Growth: $500K - $5M

  • Late: $5M - $50M+

• Gross margin ranges:

  • Early: 20-30%

  • Growth: 30-40%

  • Late: 40-50%

• Dividend payout ratios:

  • Early: 0-5%

  • Growth: 5-10%

  • Late: 10-20%

Model Outcomes:

• By 2024: $25.33B invested, $4.30B returned (0.17x DPI)

• By 2026: $28.40B invested, $13.05B returned (0.46x DPI)

• By 2028: $32.12B invested, $27.80B returned (0.87x DPI)

• By 2030: $36.62B invested, $51.30B returned (1.40x DPI)

Our model shows significant growth but falls short of the 2x DPI target. To reach it, we need to generate an additional $22B in returns by 2030.

How do you think we can unlock this liquidity for VCs in Africa?