As Africa’s venture capital (VC) and private equity (PE) sectors mature, a critical question emerges: "How do compensation levels compare globally, and what does this mean for talent retention and human capital development?" To break this down, CNBC Africa's Tabitha Muthoni spoke to Mark Kleyner, Co-CEO at Dream VC, following their latest report, which maps out salaries across the continent and highlights key trends shaping the industry.
As Africa′s venture capital VC and private equity PE sectors mature, a critical question emerges. How do compensation levels compare globally, and what does this mean for talent retention and human capital development? To break this down, I spoke to Mark Kleyner, Co-CEO at Dream VC, following their latest report, which maps out salaries across the continent and also highlights key trends shaping the industry.' Very briefly, and maybe how we came about undertaking the report, Dream VC by itself is a venture capital institute. That means that our key ethos, key activity is really educating individuals on how to work in the venture capital space, how to invest in the venture capital space. And a big part of that is also oriented towards getting more international and institutional investors investing in Africa. Now, over the last few years, we've noticed that there's been a certain discrepancy, if I can call it that, of investment salaries between the existing local players and the international institutions that actually put money into the continent. Around that, we've been thinking, what are the structural reasons? And this study is the first one that actually allows us to speak with some confidence, having now assessed about 10% of all the venture capital and private equity investment professionals in Africa. It does seem that there are some factors that are expected. For example, the venture capital business model is one where the budget that a venture capital fund has is directly proportional to the size of the fund. And what we're seeing is that on average, an African-based, African-focused fund is anywhere from five to ten times smaller than an international fund of the same dimensions that is set up in New York or London or Paris. But there are other influences that are not as obvious that are unfortunately worthy of note. And the very big one is that at the moment, it does seem that international firms and local firms alike are still benchmarking salaries downwards. So they're not benchmarking the salaries of African-focused investment professionals against global norms. They're benchmarking them against local market rate salaries for other professions that are unrelated to venture capital and private equity. And we are also seeing a bit of a downward pressure because of who is actually investing in those funds, where local investors are more likely to put a downwards pressure, especially because of the developmental nature of where many of the local investors actually come from. Yes, indeed, talent retention also remains a key challenge in Africa's investment landscape, with many people going out for global opportunities or the way we like to say it, for greener pastures. But Mark, from where you sit, do you think maybe local firms are doing enough to retain some of these talents? And also, at the same time, what innovative strategies can these firms put into place to ensure that they retain human capital? Well, you're right in pointing out that this is an issue. It does seem like churn, essentially, the process of an employee leaving an investment firm, is really high. In some parts of the continent, by our estimates, most investment professionals don't actually stay with their respective employer for more than two years. But a typical venture capital or private equity fund always sets up a ten-year strategy. That means that at least four or five times during that strategy, their employees are leaving, essentially, preemptively. And that does come back to either the compensation not being competitive enough or the alternative, nonmonetary compensation not being robust enough. Now, we are seeing a trend to the positive. So more and more firms are considering alternative compensation options. A specific one to the venture capital space is the concept of phantom carry. Data suggests that some funds in particular, they don't give their early or junior employees necessarily a share of the profits officially, but in practice they still do that by reflecting it in bonus payments. Beyond that, we are starting to see more and more funds explore upskilling expenses. And especially considering the young nature of the industry, the average employee in most African venture capital private equity funds is still younger than the international counterparts from what we see. It does seem like the upskilling budget element might be the easiest and most low-hanging fruit for funds to actually retain talent. And yes, retaining top talent is crucial here, Mark. But I'm also looking at this report and I'm seeing about 43 percent of women are still in junior positions or are still underrepresented when it comes to matters and leadership. So maybe from your research, how were you coming about this? What were some of the insights from some of these women? What is holding the women down from, you know, going to the top? Unfortunately, there's a lot of factors at play, but the biggest one is actually time. So if you look at the history of the venture capital, private equity, and even impact investment dimensions of private investment in Africa, the very first funds that were set up were set up by individuals who didn't have access to developmental funding, who didn't necessarily have access to private pools of capital, who could only raise from their own peers, their own counterparts. As a result, many of these individuals came from traditional industries such as banking, such as mining, such as oil and gas. And in those industries, the individuals who were the most connected, who had the most funds to begin with, were often men by nature of an existing gender disparity in those industries. Now, venture capital and private equity doesn't have a gender disparity by intention, but by result of this legacy of that first generation of general partners and fund managers coming over, that certainly bled into the space. Beyond that, we do see other factors affecting potentially the compensation at each stage. Of course, there are factors that are ever-present across industries that still further gender inequity. But a very positive sign, actually, is that the point you mentioned, the 43% women in junior professions, is actually one of the highest around the world. So compared to the U.S. or Europe, actually, African VCs have a higher representation of women in junior roles. So maybe in about five to ten years, once they get a promotion, then we will see a higher level of gender parity. Mark, you also do compare Africa's VC or P compensation trends to markets such as Southeast Asia and also India. So in terms of lessons that Africa can learn, what are we seeing here? And at the same time, beyond salaries, what roles do performance-based incentives like carried interest, you have mentioned things to do with equity stakes, and also deferred bonuses, you know, play in African VC or PA firms? And also, do you think some of these mechanisms are really helpful, or are they really working? Well, whether they're really working is a bit complicated to say. So we can only learn in venture capital or private equity on ten-year cycles. The way the industry is set up is that a typical investment firm can only say if they've been successful or not in making their investments over a ten-year window. And most of the African funds actually haven't existed for that long or had a full ten-year window to speak of. So that will be easier to judge in a couple of years. But what I can speak to is that comparison to Southeast Asia and India, because that is one where the difference in the direction of an ecosystem like Nigeria, Kenya, South Africa, Morocco, or Egypt, from an India or Pakistan or, for example, even China or Singapore, is pretty substantial. And one of the biggest reasons is the existence of local capital in those Asian and Southeast Asian ecosystems, and the lack of such local capital in most African markets. At the moment, in almost all of the ecosystems mentioned in Asia, especially in India, you see a very robust pension fund ecosystem, where the pension funds are both mandated to and actually follow through to invest in their local private equity funds, their local VC funds, and by proxy, their local startups. In African markets, that's not happening. The vast majority of pension funds are not exposed to African funds. And when they do invest in VC or PE, it's usually outside the continent. What that means is that local funds in turn haven't got the option to raise money from local institutional players and have to go abroad, which means raising from international institutions on international terms. And that certainly does put African funds at a disadvantage. I think for that to change, there'd need to be a substantial shift in the mandates of African-based pension funds to actually back more of their local fund managers.
Theme: Addressing Compensation Discrepancies and Talent Retention in African VC/PE Sectors
As Africa's venture capital (VC) and private equity (PE) sectors continue to mature, a critical question arises - how do compensation levels in these sectors compare globally, and what implications does this have for talent retention and human capital development? To shed light on these pressing issues, CNBC Africa's Tabitha Muthoni sat down with Mark Kleyner, Co-CEO at Dream VC, to discuss their latest report that delves into salary mapping across the continent and unveils key trends shaping the industry. The report, a comprehensive analysis, was a significant undertaking for Dream VC, a venture capital institute that focuses on educating individuals on navigating the venture capital space and attracting international and institutional investors to Africa. Mark Kleyner shared insights from the study, which surveyed approximately 10% of all VC and PE investment professionals in Africa, highlighting some critical factors influencing compensation levels. One notable finding was the notable discrepancy in salaries between local players and international institutions investing in Africa. African-based funds, on average, are five to ten times smaller than their international counterparts, impacting budget allocation, including compensation for investment professionals. Moreover, a significant challenge uncovered by the study was the benchmarking of salaries against local market rates for unrelated professions, rather than global norms. This practice, observed among both international and local firms, contributes to downward pressure on compensation levels. Furthermore, the influence of local investors, driven by developmental considerations, also plays a role in this downward trend. Mark Kleyner emphasized the importance of talent retention in Africa's investment landscape, noting the high turnover rates among investment professionals. Many individuals seek opportunities abroad for competitive compensation or non-monetary benefits. He highlighted the emerging trend of alternative compensation options, such as phantom carry and upskilling expenses, as strategies for retaining talent. Phantom carry, a concept where employees receive profit shares through bonus payments, and upskilling budgets are gaining traction within the industry, particularly in Africa, where the average age of employees in VC and PE funds is younger compared to global counterparts. The incorporation of these innovative strategies aims to address the challenge of talent retention and foster a more sustainable workforce within the industry. Gender representation in leadership positions remains a pertinent issue in the African VC/PE landscape, with women accounting for 43% of junior positions. Mark Kleyner underscored the history of the sector, highlighting how the legacy of the initial fund managers, primarily men from traditional industries, has contributed to gender disparities. However, he noted a positive trend in the significant representation of women in junior roles compared to global standards, indicating a potential shift towards gender parity in the future. Drawing comparisons with markets like Southeast Asia and India, Kleyner emphasized the critical role of local capital in driving ecosystem development and supporting local funds. The presence of robust pension fund ecosystems in Asia, significantly investing in local VC/PE funds, stands in contrast to the limited exposure of African pension funds to local funds. This disparity underscores the need for African pension funds to redirect their investment mandates towards backing local fund managers, thereby fostering a more conducive environment for African VC/PE firms. The report's findings underscore the complexity of compensation dynamics in the African VC/PE sectors, highlighting the imperative for structural reforms and innovative strategies to address discrepancies and retain top talent in the industry. As the sector continues to evolve, collaboration between stakeholders and proactive measures to enhance compensation structures and talent development will be pivotal in unlocking the full potential of the African VC/PE ecosystem.
"The report's findings underscore the complexity of compensation dynamics in the African VC/PE sectors, highlighting the imperative for structural reforms and innovative strategies to address discrepancies and retain top talent in the industry."
['Africa VC', 'Private Equity', 'Compensation Levels', 'Talent Retention', 'Human Capital Development', 'Dream VC', 'Investment Professionals', 'Gender Disparities', 'Innovative Strategies', 'Local Capital']