OP-ED - What do SAG Ventures and Balloon Ventures have in common? The intermediary trap
Prince Nwadeyi's published research and Joshua Bicknell's operational experience expose the same problem: entrenched incentive structures don't serve those closest to real economic activity.
Last week offered a striking juxtaposition. Entrepreneurial financial services innovator Prince Nwadeyi celebrated his academic paper's publication in the International Marketing Review.
It’s research unpacking how insurance brokers in South Africa systematically maintain information asymmetries that keep base of the pyramid (BoP) consumers trapped in suboptimal products.
Meanwhile, SME investment asset class builder Joshua Bicknell's LinkedIn update suggested something between resignation and frustration about the capital his organisation, Balloon Ventures, has (and hasn't) managed to secure for backing East Africa's unglamorous SMEs.
Two founders. Two different immediate concerns. One uncomfortable parallel.
Intermediary issues
Nwadeyi's research, conducted with professor of international management and strategy at the University of Sussex, John Luiz, reveals how brokers leverage symbolic work - invoking dignity and cultural obligation around funerals - to reinforce consumer dependence on funeral cover whilst sidelining more comprehensive life insurance products.
The kicker? Insurers themselves admitted they don't understand the BoP market and outsource that understanding to intermediaries who have vested interests in maintaining the status quo.
Commission structures incentivise pushing simple, high-turnover products. Complexity means effort. Effort means risk. Risk threatens income streams when policies lapse and commissions get clawed back. So intermediaries do what any rational actor would: they optimise for their own incentive structures, not the best consumer outcomes.
The result? Millions of South Africans hold multiple funeral policies when a single life insurance product would serve them better. Information asymmetries don't just persist, they're actively maintained by the very people positioned to bridge them.
Capital mismatch problem
Bicknell's experience at Balloon Ventures illuminates a different but related dysfunction. His portfolio, USD 14 million deployed across traditional SMEs, generates roughly USD 201 million in annual turnover. That's 0.5% of Uganda's GDP from what he cheerfully calls "boring" businesses: hardware shops, logistics operators, agro-processors.
Yet apparently, raising capital for this model remains a slog. Why? Because it doesn't fit tidy boxes. It's not pure VC (no 100x exits). It's not traditional private equity (cheque sizes too small, businesses too informal). It's not microfinance (ticket sizes too large). It's certainly not philanthropic (profit expectations exist).
So it occupies an awkward middle ground where impact investors want better returns and commercial investors want clearer impact metrics, and everyone wants technology to magically solve the unit economics of lending to cash-heavy businesses operating in economies where formal data barely exists.
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The pattern
Here's what links these observations: both scenarios feature intermediaries (whether insurance brokers or capital allocators) whose incentive structures diverge from the end users they're meant to serve.
Insurance brokers maintain information gaps because transparency threatens their margins. Capital providers chase structures that fit inherited templates rather than designing vehicles for the businesses that actually exist. In both cases, the people with proximity and understanding face misaligned incentives, whilst the people with capital and power operate at a comfortable distance from ground realities.
Nwadeyi's academic contribution demonstrates how institutional maintenance work perpetuates these misalignments. Bicknell's operational experience shows what it costs to challenge them.
What's at stake
The temptation is to treat these as separate problems requiring separate solutions. Insurance regulation here. Impact investment innovation there. But that misses the deeper pattern: African markets are thick with intermediation layers that extract value whilst limiting the flow of both capital and information to where they'd create most impact.
The remedy isn't eliminating intermediaries, Nwadeyi's own businesses at SAG Ventures leverage partnerships precisely because corporates possess infrastructure that founders lack. Rather, it's about redesigning incentive structures so that intermediation creates value rather than merely captures it.
For Nwadeyi, that's meant building solutions like Purchase Pal, which embeds insurance into FMCG purchases, cutting out traditional broker margins entirely. For Bicknell, it requires proving out an asset class for patient capital providers willing to accept that backing a Ugandan hardware shop won't produce venture returns but might generate steady cash flows and employ fifty people.
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Discomfort: the new black
Both approaches demand what markets consistently resist: patience, proximity, and the humility to accept that the most impactful deployment of capital might look crushingly boring on a pitch deck, and be even more brutally inconvenient to implement.
Which brings us back to those LinkedIn posts. One celebrating hard-won academic validation for research that challenges industry assumptions. Another hinting at the exhausting work of securing capital for businesses that generate GDP but not headlines.
Different battles. Same war. And whilst we're busy celebrating the latest funding round for Africa's next potential unicorn, it's worth asking: how much economic activity are we missing because it doesn't fit our inherited categories?
The answer, if Nwadeyi's research and Bicknell's portfolio are any indication, is rather a lot.
Editorial Note: A version of this opinion editorial was first published by Business Report on 21 October 2024.