How African VC/PE compensation stacks up globally

As Africa's venture capital (VC) and private equity (PE) sectors continue to mature, a critical question arises - how do compensation levels in these sectors compare globally, and what implications does this have for talent retention and human capital development? To shed light on these pressing issues, CNBC Africa's Tabitha Muthoni sat down with Mark Kleyner, Co-CEO at Dream VC, to discuss their latest report that delves into salary mapping across the continent and unveils key trends shaping the industry. The report, a comprehensive analysis, was a significant undertaking for Dream VC, a venture capital institute that focuses on educating individuals on navigating the venture capital space and attracting international and institutional investors to Africa. Mark Kleyner shared insights from the study, which surveyed approximately 10% of all VC and PE investment professionals in Africa, highlighting some critical factors influencing compensation levels. One notable finding was the notable discrepancy in salaries between local players and international institutions investing in Africa. African-based funds, on average, are five to ten times smaller than their international counterparts, impacting budget allocation, including compensation for investment professionals. Moreover, a significant challenge uncovered by the study was the benchmarking of salaries against local market rates for unrelated professions, rather than global norms. This practice, observed among both international and local firms, contributes to downward pressure on compensation levels. Furthermore, the influence of local investors, driven by developmental considerations, also plays a role in this downward trend. Mark Kleyner emphasized the importance of talent retention in Africa's investment landscape, noting the high turnover rates among investment professionals. Many individuals seek opportunities abroad for competitive compensation or non-monetary benefits. He highlighted the emerging trend of alternative compensation options, such as phantom carry and upskilling expenses, as strategies for retaining talent. Phantom carry, a concept where employees receive profit shares through bonus payments, and upskilling budgets are gaining traction within the industry, particularly in Africa, where the average age of employees in VC and PE funds is younger compared to global counterparts. The incorporation of these innovative strategies aims to address the challenge of talent retention and foster a more sustainable workforce within the industry. Gender representation in leadership positions remains a pertinent issue in the African VC/PE landscape, with women accounting for 43% of junior positions. Mark Kleyner underscored the history of the sector, highlighting how the legacy of the initial fund managers, primarily men from traditional industries, has contributed to gender disparities. However, he noted a positive trend in the significant representation of women in junior roles compared to global standards, indicating a potential shift towards gender parity in the future. Drawing comparisons with markets like Southeast Asia and India, Kleyner emphasized the critical role of local capital in driving ecosystem development and supporting local funds. The presence of robust pension fund ecosystems in Asia, significantly investing in local VC/PE funds, stands in contrast to the limited exposure of African pension funds to local funds. This disparity underscores the need for African pension funds to redirect their investment mandates towards backing local fund managers, thereby fostering a more conducive environment for African VC/PE firms. The report's findings underscore the complexity of compensation dynamics in the African VC/PE sectors, highlighting the imperative for structural reforms and innovative strategies to address discrepancies and retain top talent in the industry. As the sector continues to evolve, collaboration between stakeholders and proactive measures to enhance compensation structures and talent development will be pivotal in unlocking the full potential of the African VC/PE ecosystem.