Impact vs returns: rethinking investment strategies in Africa’s entrepreneurial landscape
In a recent LinkedIn exchange, Jasiel Martin-Odoom of Accion Venture Lab, made an elegant observation about non-consensus investing. He cited Oui Capital's successful returning of their $4 million (R75m) debut fund on the back of a bet on fintech Moniepoint, which raised $110m in funding at a billion dollar valuation in their Series C round.
When pressed on the distinction between venture capital (VC) risk-taking and gambling, Martin-Odoom noted that it lies in governance and portfolio support—the real work that transforms risk into value. Yet, we're witnessing a concerning trend: the frequent, misleading portrayal of VC investing as being as rational and predictable as, say, private equity, while simultaneously being sold as one of the most commercially lucrative and impactful forms of investing available in African markets.
This dual oversimplification does a disservice to entrepreneurs, operators, and investors alike. What's notably absent from this seductive narrative is comprehensive open source data supporting these ambitious claims about both returns and impact.
Boring, but beautiful
Partech’s 2024 Africa Tech Venture Capital Report shows that Africa's VC market is nearly flat at $3.2 billion in 2024. While some celebrate this ‘stabilisation’ after 2023's steep drop, we must ask: how much of this capital is genuinely aligned with classic VC asset class outcomes versus being driven by wishful optimism or opportunistic alternative deployment?
Enter Joshua Bicknell, the co-founder of Balloon Ventures, who's building what he calls "the first financial institution dedicated to good jobs" in East Africa. Their approach—focusing on offering "boring" brick-and-mortar SMEs between $10 000 and $200 000 loans bundled with six months of business support—offers a fascinating counterpoint to the tech-first narrative dominating African early-stage venture discourse.
With a modest more than $14m loan book, Balloon Ventures' portfolio businesses generate about $201m in annual turnover—roughly 8% of Eastern Uganda's gross domestic product (GDP) and 0.5% of the country’s total. Bicknell admits that it’s both indicative of how under-reported GDP figures are, and demonstrative of the outsized impact of traditional SMEs that are often overlooked in favour of "innovative and shiny" tech ventures.
Impact arithmetic
The reality? Most of the businesses Balloon backs in East Africa operate primarily in cash, with limited digital adoption. "If you're not figuring out a way of understanding cash flows and underwriting this cash," Bicknell argues, "you're missing such a huge segment of the market." While everyone's "obsessed with technology because it's a really cheap way to scale," the majority of consumers just aren't there yet.
Furthermore, Bicknell challenges the prevalent narrative that you can simultaneously maximise both financial returns and social impact. Using impact investor Acumen's over two decades long experience in deploying over $260m as an example, he notes they achieved an approximately 90% return—losing 10 cents on every dollar invested while, by many measures, creating significant real-world impact. Incidentally, Bicknell doesn’t view this as failure, but rather, reality.
His restaurant napkin scratchings on current market rate expectations—often 15% in dollars plus 10% foreign exchange effects—demonstrates how unbridled lending rates typically rise to levels most SMEs simply can't afford with their slim margins. It's a mathematical impossibility that no amount of "impact washing" can solve.
Rethinking returns
The solution appears to lie somewhere between the false dichotomy of pure profit-seeking VC and grant-dependent impact investment. It requires new asset classes (like the boring SME business one Balloon Ventures is pioneering), appropriate return expectations and honest conversations about trade-offs.
For young people contemplating VC-backed entrepreneurship or careers in VC, the message is clear: understand the asset class before being drawn to it like moths to a flame. For investors, it's about matching capital to realistic outcomes rather than forcing borrowed templates onto fundamentally different market realities.
For impact investors of all stripes backing various forms of African entrepreneurship, the path forward isn't necessarily about choosing between impact and commercial success, but rather about creating appropriate vehicles for different types of value creation. Sometimes that means accepting lower financial returns for greater social impact. Other times, it means prioritising pursuing pure profit where the market allows.
In the end, Africa's economic future won't be built solely on tech unicorns or impact investments, but on a diverse ecosystem of businesses—boring and exciting, tech-enabled and traditional—each backed by appropriate forms of capital with realistic expectations.
Andile Masuku is Co-founder and Executive Producer at African Tech Roundup. Connect and engage with Andile on X (@MasukuAndile) and via LinkedIn.
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