The Next Wave: Escaping the bog

There is a popular theory circulating at conferences, on Twitter, and in the group chats of well-meaning people across Africa’s investment ecosystem: that the primary obstacle to building deep, functional capital markets on the continent is a failure of local capital mobilisation. If only we could convince pension funds, family offices, and high-net-worth individuals to allocate more money to venture and SME finance, the thinking goes, the system would begin to work. This theory is half right—which is exactly what makes it dangerous.

Cet article est aussi disponible en français

Some people think we need to crowd more local capital in to support young, growing small businesses. Even though there is a disagreement about whether that potential local capital influx should focus on the young and growing (fast) segment versus the small, slow-growing segment. There is generally an agreement about the need to mobilise more local capital. So, the thinking goes, we can reduce dependency on foreign investors.

So everyone goes on a hunting spree to persuade, charm, debate, or, if all fails, shame the bastions of local capital—pension funds especially—into allocating more money to venture capital and small and medium enterprise (SME) finance fund managers.

It is a noble and needed advocacy. One that I fully support. Taking the larger share of the responsibility of investing in your growth industries and businesses is only prudent in all the best ways of self-interest.

But I must point out that not too long ago, we were focused on debating the merits and demerits of building out local IPO engines. Despite some noise here and there. Those efforts seem to have fizzled out, or at least out of view. My interpretation is that most of us have learned that the bill of the tradeoffs for absorbing a huge chunk (relatively speaking) of foreign venture dollars within the short 24-month span of 2021 and 2022, is simply too large.

And both we and the “foreign” venture dollar managers are reluctant to call for the bill. Both in terms of the valuation-to-reality adjustment and in terms of the narrative violation, we might incur.

As the local IPO and/or tech exchanges talk has cooled, it has given rise to the private “Secondary” market proposition. Never mind that public listings are the quintessential secondary market platform of the modern business era. That, too, has largely tapered off in terms of urgency. Perhaps because the strongest proponents are digging in their heels to push it through mountain and forest. But also likely because we are all confronting the inevitable bog of Illiquidity—a nasty 3km-wide pond of “not-enough” money to buy overpriced assets or rescue under-priced gems from going “the way of all flesh.”

The Bog of Illiquidity for private secondary markets in Africa is, incidentally, just an avatar of the same issue that local IPOs were proposed to fix. It’s also not the first time humans have encountered this apparition in capitalist and pre-capitalist societies. Let’s do some history.

Next Wave continues after this ad.

The Stage for Africa’s Future is Set! Building solutions that compete globally requires a platform worthy of that ambition. This year, Moonshot (Oct 28–29) moves to the National Theatre, Lagos, to host the conversations that will shape the next decade of African tech. From term sheets drafted in our deal rooms to first-principles masterclasses on infrastructure and commerce, Moonshot 2026 is designed for those doing the serious work of building.

Pre-capitalist societies didn’t have secondary markets. They didn’t need them—or rather, they couldn’t conceive of them, because the problem they’d solve didn’t yet exist in a form anyone could articulate. But the underlying problem—you have wealth tied up in something and you need it to be somewhere else, right now, at a fair price—that problem is ancient.

These societies dealt with it in three ways, and each one eventually hit a ceiling.

In feudal Europe, pre-Meiji Japan, and much of pre-colonial Africa, wealth meant land, and land meant political identity. A Buganda chief’s holdings weren’t an “asset class.” They were him—his authority, his lineage, his obligations. You didn’t liquidate your land because that would mean liquidating yourself. This worked beautifully in a static, subsistence-oriented world. It broke the moment long-distance trade created a merchant class whose wealth was portable—goods, ships, gold—but whose legal and political environment was still built for dirt that doesn’t move.

When toleration became impractical, people invented ways to move value through time. Medieval Italian merchants created bills of exchange. Islamic traders ran hawala networks. In West Africa, Hausa traders built sophisticated credit systems backed by kinship and reputation rather than courts. These instruments solved the timing problem: I need value now, I will repay you later.

But they could not solve the exit problem—at least not the systemic one. A bill of exchange settles. A loan matures. The lender gets repaid with interest and has technically exited. But the equity holders underneath—the founders, the partners, the people whose wealth is bound up in the ongoing enterprise—are no closer to liquidity because someone lent the company money and got paid back.

Debt instruments solve the capital deployment problem and the lender’s own return problem, but they contribute nothing to the broader question of secondary liquidity. In some cases, they make it worse, adding a senior claim ahead of equity and making the equity position even harder to sell.

The third was communal pooling.

Rotating savings groups, mutual aid networks, tributary redistribution. West African tontines, Southern African stokvels, the Incan mit’a. These solved the security problem—if your harvest fails, the group catches you—but through social obligation, not through markets. The “return” on your contribution was the right to draw on the collective when your turn came. You could not sell that right. And critically, these mechanisms could not scale.

A stokvel can fund a house. It cannot fund a fleet of merchant ships or a transcontinental mining operation. It is inherently local and relational.

Each of these three responses is alive and well in African markets today. Angel investors who can’t exit are tolerating illiquidity, hoping for an acquisition that may never come. Venture debt and revenue-based financing are the modern debt workaround, solving the lender’s return problem while leaving the systemic exit question untouched. And closer to the ground, chamas, syndicates, and cooperative investment clubs are communal pooling. They are powerful, trusted, and completely unable to absorb the scale of capital that us in “mobilise local capital” crowd like talking about.

Each of these responses will all hit the same ceiling now that they hit under our ancestors, hundreds of years ago.