Forget Mark Zuckerberg of Facebook or Larry and Sergi of Google, America Online (AOL) founder Steve Case is the original start up king. Case founded AOL in 1983 after working for a number of large corporations in the United States. One of the first commercial internet service providers, AOL changed the way the world communicates and provided the initial infrastructure for our current digital age.
Case has since left AOL, but through his philanthropic work with his wife Jean Case (who heads their eponymous Case Foundation), and through numerous investment vehicles like Revolution Capital, the Cases have become big supporters of entrepreneurial talent across the globe.
Ventures Africa caught up with Case on the sidelines of the recent Global Entrepreneurship Summit in Nairobi to chat about Africa and entrepreneurship as he embarks on a tour of Kenya, Ghana and Nigeria this week.
The interview is edited for clarity
Ventures Africa (VA): You’ve been in Nairobi for a few days now and are heading off to Ghana and Nigeria, how has your trip been so far?
Steve Case (SC): The trip has been terrific. The most exciting thing I’ve seen is great entrepreneurs here in Nairobi — also a lot I’ve met here today at the Global Entrepreneurship Summit from all around the world. They really have great ideas. Some of them are going to be great businesses that change the world and create a lot of value and create a lot of jobs. It’s been encouraging.
I’ve been to Kenya before, but what’s happened in the last five years or so, particularly in Nairobi, is really striking and very encouraging. We did a pitch competition at the iHub and there were eight companies presenting there. All were terrific.
Some of the innovations that have been coming out of here like mobile payments like Mpesa or some of the products that are providing energy in rural villages like a Brick and Mcopa and others, they are quite innovative. I think they demonstrate traction not just in Kenya or Africa but in some cases all around the world.
VA: When did you first get interested in Africa as an area for entrepreneurship or investment?
SC: I first I got interested in Africa almost 15 years ago. The Case Foundation has funded a number that initiatives that were more on the philanthropic side. We were partners with the Malaria No More initiative. We worked a lot on HIV/AIDS and my wife Jean was involved with the PEPFAR initiative that President Bush put forward. We’ve funded a clean water initiative. It started with philanthropic support and now we supplemented that really in the five years or so with investments, both some direct investments and particularly some investments in some funds that have broader reach. We are an early investor in the Endeavor Catalyst Fund. Were an investor in a new fund that launched just about a month ago called Africa Angels Network. We’re also investors in a fund and just launched today actually at the Global Entrepreneurship Summit called the Village Capital Fund. We also invested in Black Ivy which is another for private equity fund.
We’ve done some fund investments and we’ve also made a few direct investments like Andela, that we’ll be seeing when we’re in Lagos, and Brick here in Nairobi, and Sanergy also here in Nairobi. Over the next five years we expect make more investments, probably more through trying to help stand up more funds that can have more reach.
The biggest gap we perceive here, and certainly we’ve heard from a lot of entrepreneurs in the last few days about this, is there’s still a gap for that angel capital side of things and then that early venture capital. While we can make some direct investment, probably the biggest way to have the broadest impact is to invest in some funds that can each invest in dozens of companies. And we’ll look for other fund investment opportunities as well as other direct investment opportunities.
VA: Entrepreneurship has been your “thing” forever, in particular since you’ve been spearheading President Obama’s entrepreneurship initiative. How do you perceived the challenges African entrepreneurs face? Are they different from the ones US entrepreneurs?
SC: I think they’re more common, than they’re different. I think the discussion about access to capital is the same discussion I hear from entrepreneurs from all over the United States. I’ve done a lot of this visits to cities that I call “The Rise of the Rest Tours.” For the last 14 months I’ve visited 14 cities. In Detroit, Des Moines, Madison, Nashville, Pittsburgh, St. Louis, Kansas City and others and talked to entreprenuers there and they say there’s a funding gap. They don’t really have the capital they need. Last year, in the United States, 75 percent of Venture Capital went to one to three states; California, New York and Massachusetts. Sso the other 47 states were fighting over the 25 percent. The funding gaps that exist in Nairobi or Lagos or others is the same funding gap that I hear about in Detroit and Des Moines.
The second is talent – how do you recruit people to your company? How do people in your community get the education they need and the skills they need to join your company? How do you recruit people from other places either in your country or from other countries? Some policies around immigration become really important in what’s now a global battle for talent.
A third area is regulations — what regulatory environment you have; what investment incentives you have for investors who are willing to take the risk; what are the right incentives you have to make that more compelling; what kind of regulations you have in particular industries; how do you make it easy for entrepreneurs to disrupt the status quo? Sometimes regulations are protecting the incumbent versus enabling the innovative entrepreneurs. Sometimes in communities, the communities tend to be risk averse. They are cautious and conservative and don’t recognize that failure is inevitable for a lot of startups, but that’s not just true in Africa, it’s also true in the United States. Most cities in the United States have a similar kind of risk aversion and so part of our effort within the United States is to create a culture around startups and support more of a thriving startup community and help with the capital, and help with the talent and help with the regulatory environment. I think there are more similarities than differences. Now there are some differences obviously in Africa and in different countries that sometimes there are trade issues; sometimes there are border issues; sometimes there is corruption issues. Many times there are infrastructure issues whether it be technology infrastructure or just basic roads and water and sanitation, things like that. There are some differences but I think what unites Nairobi, and Lagos, and Detroit and Des Moines is a common set of issues around access to capital more supportive startup communities and trying to create the right environment to attract capital, attract talent and make sure that there is a level playing field so any entrepreneur has a shot.
VA: You spoke about creating a culture of entrepreneurship — can you dig into that a little more? What do you mean?
SC: I think the most successful startup communities and certainly Silicon Valley is the most prominent but it’s also now true in Washington DC, and Boston, and New York, and also in London, and Stockholm, Helsinki, and Berlin, and Tel Aviv, there are a lot of places that are showing real momentum. I would put Nairobi and some others in that basket as well. What’s makes them work is there is a recognition of importance of entrepreneurs, the recognition of the importance startups in terms of their creating good jobs in the economic growth that lifts up those communities. There’s a recognition that entrepreneurship is risky and just because entrepreneur fails it doesn’t mean they are a failure, it doesn’t mean that particular idea didn’t work, but they can dust themselves off get up and try again and many of the great entrepreneurs have had significant failures. The founder of Uber for example which had been quite successful globally had two failed startups before he did the third and he was able to do that in Silicon Valley but there many communities including many communities in Africa where he wouldn’t able to do that. They’d say “Oh, you failed last time, I’m not gonna back you this time.” Understanding that’s the nature of innovation, that’s nature of good disruption, that’s nature of entrepreneurship, is part of it. The last one would be recognizing that there’s a role for the community play to lift up the next generation of entrepreneurs that helps support the startups that someday can be the big companies that really are the anchors or foundation of your economy and the foundation of the community. One of the things here in Nairobi I’ve encouraged people that I have talked to who have had some success is make angel investments in startups in Nairobi. Many are sitting on the sidelines. They should step in and try to be supportive. Some of those will end up turning out to be good investments but all of them will end up in helping support the ecosystem, support the community. People shouldn’t expect capital to come from Unites States Europe or elsewhere if there’s not any capital coming from the local community. The best market signal is there’s local investors that understand the market, that understand the situation, that are willing back the entrepreneurs and then investment capital will come from other places.
VA: You’ve been very successful in your career as an entrepreneur and you’ve also backed some successful companies. When you look at an investment or an entrepreneur, what are you looking for in that person or team of people?
SC: Well, for me it actually starts with a big idea. I really fall in love with the idea or believe it’s an idea that can change the world. I’m in the swing for the fences school of entrepreneurship. I’m more interested if part of the initial pitch is “Wow, that’s a really interesting idea. That really could have a transformative impact of millions of people lives.” So the idea is important.
Second obviously is the entrepreneur and they do have a passion of the idea, do they have the sense that they have the grit to stick through it, the perseverance to stick through it? Do they have the humility to understand that it’s complicated to basically have a clear eyed of view of a competitive landscape? Sometimes, entrepreneurs say “oh, we have no competition” which is one of two things: either they’re lying – they do have competition and they’re saying they don’t, or they’re actually are too naïve to know they have competition. I guess number three is it’s not that good idea. If it’s a good idea there will be others trying to do that idea. Some humility is important. For me its starts with the idea, then as quick second is the founding entrepreneur and the team. I really do believe entrepreneurship is a team sport. It’s not just about any one person. The team surrounding you is important.
A final one would be — it depends on the business and the sector — but a growing number of companies, I’m seeing now and I think this will accelerate in the next decade are recognizing the role of partnerships. The network you build around on your company will also define your company. An understanding of that, if you have a strategic partnership with this company, with that company really would give you credibility, really would accelerate your growth, really create barriers to entry for other competitors. Understanding that is important. Identifying which partners might be transformative is important, and having a spirit of partnership. Recognizing that in order to have great partnerships you really create some trust and alignment and that requires a certain maturity in terms of your thinking. This is not just about you. Its how do you work with somebody else in a way that really is a win-win.
VA: How do you test these things? Do you have a litmus test?
SC: No. First of all we don’t make a lot of investments. Our view is better to do a small number of things that you can actually spend time on versus do a lot of things that you really cant keep track of. So we’re pretty high bar. In general, I would say that the way that would tell some of these things in terms of the idea — either you believe it’s a big idea or you don’t. Now sometimes you’re surprised. Sometimes things that don’t seem big ideas end up being big ideas. Uber for example was a much bigger idea in retrospect’s than it seemed at the time — even to them. They thought they would get 20 percent of the taxi market in San Francisco. Their revenues in San Francisco now exceed in the entire revenues of the taxi business because it was such a game changer that people changed their habits. They sold their car. They figured why pay for parking. They would just use Uber. Airbnb which initially came out as a renting a room, renting an air mattress kind of thing seemed pretty nichy. Now, they are largest hospitality provider in the world because they have over a million homes that are listing on Airbnb.Sometimes your surprised, but generally you have a sense that if this is successful it could be a big idea and on the individual entrepreneur side its just try to get a sense for them of how they are presenting themselves and their team. Do they have the right mix of passion and humility and sense of purpose and sense of partnership? You can sometimes make mistakes but generally, I’ve found that your initial gut instinct on those things is pretty good.
VA: Before you started to AOL, you actually worked in corporate America. How were you able to make the break from corporate structure to your own project?
SC: Well, I always really was an entrepreneur from a relatively early age. I started a lot of really small business when 10, 11 and a bunch of different businesses when I was in high school and college.
VA: What was your first business?
SC: My first business? I think I was selling greeting cards door to door, newspaper route, stocking vending machines, a bunch of different relatively small businesses. But I actually became captivated with the idea of the internet 35 years ago. I’d read about a number of new fangled concepts being tested, things like video text and teletext and two way TV. I was intrigued by reading a book by Allen Toffler called The Third Wave that talked about the future, a bit more about an electronic digital society. I said, “Oh that clearly is going to happen.”
When I graduated from college in 1980s, there was no startup culture, there was no startup funding and there was no internet. There was no place to go even though I was intrigued by that idea. That’s why I went to work with some big companies. I worked with Procter and Gamble for couple of years and then at Pizza Hut and division of Pepsi for a year. I learned a lot of things at the time but I really was biding my time waiting for an angle and then figure out some way to break in and do something in this space I was passionate about. In 1983 I found out about it the company in the Washington DC area Tysons Corner joined that company, joined that company and a few months later that was in free fall and ended up failing. But, I was already in DC and met some other people at that company and three of us went off and started AOL in 1985. Even there it really took us 10 years before we got traction. It was by no means an overnight success and we had lot of near death experiences but eventually we broke through.
VA: I want to take you back to when you said about failure not being afraid to fail. I think you probably hear this and you come to Nigeria that’s one of the really big things. Nigeria has a culture that really does not support failure. How have you dealt with past failures of your life and what advice can you give to starting entrepreneurs?
SC: I would say first of all there are a lot of communities that don’t that. I grew up in Honolulu Hawaii and that is very similar to Lagos, particularly a cautious conservative of risk averse status quo is kind of good enough. That’s a little unfair, but in general, that’s the view. I understand that. For me I’ve always been intrigued with ideas. I’ve always willing to take the risk that entrepreneurs need to take. But yeah many of the things I’ve invested in have not been successful and you have to keep going. You can’t give up. You have to recognize that tomorrow is another day and keep at it. I think for a entrepreneur in some of these emerging regions like Lagos, you need to have certain grit, a certain perseverance. But hopefully over time the communities also recognize that the best way to have a thriving community 25 years from now is to invest in the startups and the entrepreneurs today, some of which are going to create the companies that really do help and grow the economy, and really do create lot of jobs and really do create a stronger community.
VA: Nigeria generally has a bad rap. What have you heard about Nigeria and what do you expect to see on the ground?
SC: I’ve heard mixed things and I’m looking forward to being there. I’ve heard, obviously it’s a large country with a large rapidly growing population and in that’s sense a big opportunity. The beginning particularly in cities like Lagos of a more entrepreneurial startup culture. But still a lot of challenges ahead. I look forward meeting a bunch of entrepreneurs and a bunch of investors and a bunch of other folks and trying to see you what roll if any we could play in trying to take Lagos and more broadly Nigeria to the next level. And most that is in the roll of just trying to help build startup communities which we’ve done through a variety of efforts — Startup America, Startup Week and now with this President, Obama, the new work we’ve done with the White House in terms of trying to strengthen countries by strengthening their economies, by strengthening the entrepreneurial communities but also through the Case Foundation or through Revolution looking at ways that we might be able to get more involved directly.