My last post asked whether we're brave enough to deploy VC correctly. Several people reached out. Good conversations. But one question kept coming up: "Why does a company with no profits get a billion-dollar valuation, while an SME doing 40% margins can't get a meeting?" It's the right question. And the answer is uncomfortable. We didn't just change how businesses get funded. We changed what a "strong business" even means. Here's how it happened. In the early internet era, investors noticed something genuinely true: some businesses needed to lose money aggressively now to own a market so completely that profits later would dwarf anything earned by being cautious early. Amazon is the case study. Nearly a decade of bleeding cash — then dominance so complete it reshaped global commerce. The insight was real. For a narrow class of businesses with genuine network effects and winner-take-all dynamics, burning capital to capture the market before someone else does is rational strategy. But then the logic got detached from its preconditions. And applied to everything. Because here's what most people miss about how VC actually works: A fund raises $100M. It needs to return 3x to its investors. That's $300M back. It makes 20 bets. Most fail. So the ones that work need to return enormous multiples. This means VCs are structurally incentivised to fund companies that could be worth $1B+ — not companies that will definitely be worth $50M. Your SME doing 40% margins on $200K revenue is a great business. It might exit at 5–8x revenue. That doesn't move the needle on a $100M fund. So valuation became a narrative tool, not a reflection of current economics. You're not pricing what a company is. You're pricing what it could become if every assumption holds. Profitability, in that framework, almost becomes a liability. It signals you've optimised for now instead of for scale. Stripe understood this. So did Starlink. Both burned capital in service of a genuinely defensible, winner-take-all position. The logic held because the preconditions were real. But most companies — especially in Africa — don't have those preconditions. And when you apply a Stripe-style funding structure to a company whose natural growth is gradual, operational, and trust-dependent, you don't accelerate it. You break it. I'm watching this play out in real time with PerAnkh, the workforce infrastructure company I'm building. Our trust layer compounds over 12–18 months. Value accrues to employers, institutions, and governments — not to individual users clicking through a platform. No VC clock survives that architecture. Forcing one onto it wouldn't speed us up. It would destroy the very thing that makes the model work. That's not a funding problem. That's a capital-fit problem. And it's not unique to us. Across Africa, there are businesses building real, durable value — compounding quietly, serving markets deeply — that are invisible to the VC model not because they're weak, but because they're the wrong shape. The good news: the correction is already underway. Burn rate is no longer a badge of ambition. Down rounds are being discussed openly. The LP base is asking for actual distributions, not paper markups. The model will survive — for the narrow class of businesses it was actually designed for. What won't survive is the cultural overapplication. But the harder problem remains: the alternatives are too thin. Revenue-based financing. Growth equity. Development finance. Family offices with genuine patience. These exist — but not at the scale or accessibility Africa's builders need. That's the infrastructure gap nobody is building fast enough. Not "is VC broken?" — but "what fills the space it was never meant to occupy?"
