Most early-stage and growth-stage startup investors focus on valuation, and the question of whether the investee’s valuation can grow by an order of magnitude or more in the next decade.
At Africa Eats, we do look at that, but we focus even more on how efficient our investees are with the money we provide them. How efficient is their use of capital?
Specifically, we compute a simple ratio. Take the most recent 12 months of revenues and divide by the total amount of investment capital provided to the business.
Most startups have a ratio less than 1. This is especially true of the so-called “venture scale” companies. They tend to burn through tens of millions of dollars of investment capital before they begin earning tens of millions of dollars of annual revenues.
What is different, and not visible, about the Africa Eats companies is that nearly all of our bizi have a ratio greater than 1. Quite a few with a ratio much greater than 2.
For example, in their early years, a few of our companies earned $150,000 in annual revenues using just $10,000 of investment capital. That is a capital efficient ratio of 15.
As of 2024, all of bizi earning between $1 million and $7 million in annual revenues grew to that scale on less than $1 million of investment capital, including TRUK, a capital-intensive refrigerated logistics business.
How are these companies able to grow so quickly on so little? That is part of Africa Eats’ recipe, described in detail in the book, Berkshire Africa.
