In the early 2000’s I did my first transaction in Nigeria and I realised that there was a lot going on in Africa. In the mid -2000’s for two to three years, I travelled between Dubai and Calgary every six weeks as Dubai was very much a gateway of finance to the African continent. I met numerous people, was exposed to many projects and realised what the opportunities were from an African perspective. In 2008, I started my own private equity/venture capital firm, with a focus purely on Africa. In my ‘previous life’ I was an investment banker and most of my transactions were African energy based. So, when I started in venture capital, I was interested to continue in the same field but on the other side of the wall, on the issuing side rather than on the banking side.
From the Stonechair perspective, we have the luxury of focusing on any project that catches our fancy. Anything from working with the management team and ensuring they have the right perspective on how to approach a project; to helping them do the work and build capacity.
As my understanding of African energy investments has grown over the last 17 or 18 years I’m hooked on the premise that African energy is the future. I don’t just mean this from an oil or gas perspective, but I’m referring to the infrastructure investment that has to happen to accommodate the next billion people in the world which are likely to be on the African continent. This will require a massive investment and it’s up to us as creative individuals to come up with solutions for both government and/or private enterprises to come together to create partnerships and ways to solve the problem that can be equitable to everybody.
Governments want to use power and energy for their own benefit and that is a perfectly natural and normal perspective to take. However, they don’t have all of the infrastructure to support that need, and that opens up opportunities for public and private partnerships to continue to expand development in Africa.
I appreciate that there are different ways of doing transactions in West Africa to East Africa and I think each jurisdiction has its own nuances of how to approach business and it can be hard to affect that business perspective so that it is potentially attractive to other outside investors. Different forms of capital have different needs and different expectations and the biggest challenge is bringing an alignment between all of these expectations, to support the growth that is desired.
|Do you bring a slightly more agile element to that financing then some of the more traditional institutional
Absolutley! It's all about perception of risk and how to manage it. A traditional bank, whether that be Africa-, European- or even North American-based, has to deal with a portfolio approach to risk. They have to deal with external parties and expections that are put on them as a bank and a lending institution, and perceptions on how they need to manage risk.
As an independent private equity firm, we don’t have a risk committee that need to approve how we use our capital. Our firm can enter into any number of creative ways to create solutions and that makes us agile
We have a saying around here: “the deal that you start with, is not the deal that you end with.” There is always something that changes along the way but we are fully cognisant of the fact that there is a world that has rules and obligations and while we are fully compliant with all the necessary legal and regulatory requirements, we try to approach deals from the perspective of “how do you?”
We make sure that someone provides a ‘bridge’ to close the expectation between what Western banks or institutions are going to need. The reality is that an entity in Africa may know nothing about these expectations and therefore doesn’t know how to deal with them. That would be an instance where our firm would step in and say, “We can take the risk, because we are bridging the divide between the information and the money. Stonechair will invest our intellectual and financial capital to get you through that process and on to the next step.”
|How do you “de-risk both the assets and the management while bridging the gap between start-up and financial
or institutional finance?”
From a management point of view, transactions tend to often have people at their core that are the impetus behind them. Bridging management examines whether or not management have the experience and the assets within themselves and the organisation to go to an investment bank and bridge that gap and speak the ‘European banking language.’
By bridging that experience level across borders on these sorts of issues, and also on a capital level; by providing assistance in meeting regulatory requirements or financing in different jurisdictions, we provide assistance for the growth of African Energy assets.
Having spent the last 18 years working in Africa, I have seen the opportunity and can say that on both sides of the equation, the financiers don’t always understand the value and the unique idiosyncrasies of doing business in Africa, but then African entrepreneurs don’t always know how to navigate the halls of the banking community. Stonechair Capital sees that as a role that it operates in everyday. . In addition, we don’t just necessarily see ourselves as investors – we see ourselves as part of the company.
|Do you think this is part of where your success lies? The fact that you're not just putting money into a project,
but are involved in driving the reality of that project?
To put it bluntly yes; because that is how you get to know where the risks might be – if we come back to the risk discussion, we may believe that this is an important project but when you get boots on the ground and you are living and breathing the project for a number of years, you get to know management and the project better and you start uncovering pros and cons to the set up – but by identifying potential problems we are able to try to deal with them earlier than later. This is a key difference between two views of successfully setting up a business and financing a business that is successful.
About Chris McLean
Chris has been an active participant of venture capital projects throughout his entire career. Prior to starting Stonechair Capital in 2009, he was the Head of Capital Markets and the Senior Investment Banker at a resource focused boutique bank and the VP of International Opportunities at a national firm.His experience with public and private companies has seen him finance, advise, and lead projects throughout the the Middle East and Africa. Chris has a keen interest working with teams that have a focus on African assets.