Archive | Afrilabs RSS for this section

10 investments for unleashing the entrepreneurial ecosystem

5th EU Africa

It is clear Small Medium Sized Enterprises are the backbone of every economy: they are the engines of employment, income generation and economic growth. Yet the conversation at high level forums fails to break down beyond a discussion concerning traditional venture capital and large private equity. The word startup is hardly ever used and there is no focus on building the entrepreneurial community from the grassroots.

Doesn’t the conversation start here?

The VC4Africa community and investment firm Sovec co-chaired the Venture Capital Roundtable at the 5th EU-Africa Business Forum in Brussels. This was a unique opportunity for our 15,000 members from 159 countries to express their concerns, a common voice calling on both EU and African leaders to recognize the entrepreneurial movement coming up across the continent.

Specifically, studies indicate that SMEs account for around 80% of job creation and over 55% of employment in developing countries. Emerging African economies looking to produce quality job opportunities for their youth are no exception, and policy and public sector work should focus on achieving similar levels of contribution. It is estimated there are 2 million registered SMEs in Africa and maybe 8 million operating in the informal sphere, but so how do we better support their growth and development? How do we open the doors for others to follow? And then more importantly, how can we shift the conversation to give a much needed focus on the micro and small as opposed to the medium and large? And where we talk about existing businesses active in traditional sectors, where is the space for talking about startups at the forefront of the new economy?

The VC4Africa chaired roundtable proposes that there are a number of complex constraints that are keeping entrepreneurs from realizing their full potential: we are talking about 1) skills shortages, 2) inadequate infrastructure, and a continued 3) lack of financial resources. And where many argue capital is not the issue, the efficient distribution of capital to the micro and small enterprises (and then to scalable startups specifically) remains a critical issue … combined with the need to offer hands-on support to develop the managerial, financial, and technical skills required.

Common perception aside, private sector investors are actually willing to support early stage companies when the risks are understood and parts are in place to manage them effectively. For example we reference the USD 12 million raised by 70 ventures listed on VC4Africa. And for good purpose, because these companies are growing rapidly. 64% had revenue by their second operating year and the same set of companies generated 1800 new jobs. Furthermore, these companies have the potential to redesign our societies and bring about massive efficiencies.

Again, tip of the iceberg stuff.

The argument is not to say that progress isn’t happening, but that there is so much more that can be done. Investors hesitate to engage difficult countries, sectors or client segments because of the perceived risk of investing in these segments is too high – and they are not able or willing to absorb it. At the same time we know that investments in VC4Africa entrepreneurs could be quite sustainable and that they have a significant development impact.

Key areas where the market continues to fail:

1) There are very few investors willing to assume the high risks and uncertain returns associated with investing in socially impactful early-stage businesses, particularly in geographies and industries where sector risk is perceived to be high;

2) One of the additional reasons why investors shy away from financing early stage companies are the high transaction costs involved compared to the invested amounts. New efficient, innovative mechanisms to reduce costs are needed;

3) Lack of ecosystem actors. Too little support for building platforms essential to creating a quality entrepreneurial base, producing a steady supply of investible pipeline, and acting as a trusted interface to the investment community;

Governments have an important part to play and the roundtable proposes a number of areas where we require additional focus and support. It is critical to invest in the development of entrepreneurial networks at a grassroots level where the VC4Africa community and roundtable participants propose to:

1) invest in community hubs, incubators, and accelerators that offer front line support to entrepreneurs, connecting ideas and resources;

2) friends, family and fools aside, introduce funding mechanisms that give entrepreneurs the opportunity to develop traction at early stages. Guide and support entrepreneurs through this process to secure a compelling investment case;

3) launch a regular series of programs, business plan competitions, demo events and other platforms to inspire a culture of entrepreneurship and for showcasing the community’s best;

4) nurture mentor capital. engage local investors in supporting local startups. Support the formation of high net-worth individuals as angel investing networks;

5) look at the process for company formation, intellectual property protection, and tax legislation;

6) support the growth and development of the service sector (admin, legal, fiscal, marketing), highly specialized entities designed to support the startup ecosystem;

7) consider capital restrictions and benchmark with best practices as they exist across the continent. Consider status of the stock markets and to what extent they offer a viable exit path;

8) invest in the education of both entrepreneurs and investors to improve the understanding and dynamics of the angel investing, venture capital and private equity models;

9) introduce co-investing schemes and first loss/guarantee mechanisms to further incentivise private sector investors. subsidize transaction costs where necessary;

10) create an environment that celebrates both failure and success, maintain a long-term vision and cultivate a culture with this shared vision.

These are only a few of the suggestions that came from the EU-Africa Business Forum discussion. Please feel free to comment on these and/or make new suggestions. For example, what role do you see for micro-finance institutions or banks?

As a community we will continue our efforts to push the conversation forward and to seek out the support of both government and private sector actors.

Celebrating a growing technology community in Cameroon

So exciting to see Djoss.tv win the Cameroon Startup Challenge 2012. It was an electric evening with so much positive energy.

My first trip to Cameroon was in the spring of 2011. Amazing to see what kind of progress is being made only a year and a half later. It is exciting to see the ranks of technology entrepreneurs grow in the country. Also the quality of startups has greatly improved and I noticed a serious focus on business models. Several teams have gone through multiple iterations of their product before refining concepts that have real potential to gain traction.

In fact, a recent visitor from Nairobi remarked that the Kenyan entrepreneurs have something to learn from their Cameroonian counterparts. Indeed, it might seem that the constraints placed on entrepreneurs in the country forces them to focus – working faster with less resources. It was also noted technology entrepreneurs in Nairobi are sometimes hesitant to close their computers and speak with actual customers, when most of the teams in Cameroon spend a great deal of time and effort on market research.

Almost not a week goes by that we don’t read about the launch of another fund in Nairobi, an accelerator in Ghana or a competition targeting startup entrepreneurs in Nigeria. Its herd mentality with everyone piling into the same plane. Maybe Cameroon doesn’t get the same attention because people are less familiar with the operating environment or the government has done less to bolster its image. Certainly there is less sector support. That said, the quality of innovators we know in Cameroon are on par with any we have met.

There should be a podium for technology entrepreneurs in every country, and the Cameroon Startup Challenge 2012 is another step for the community in Cameroon. These individuals, in every community, are critical if we are to solve difficult social, economic and environmental problems. They are an important part of our future. Their path is not an easy one and it is important to take a step back and to recognize the progress being made.

It is hard work and these guys are blazing a new path for hopefully many generations to come. Already we see new teams of entrepreneurs staking their ground. These are still the early days of many exciting times ahead. Congrats to the team at Djoss.tvKingMaker and Agro-Hub!

AfriLabs welcomes 9 new members and seeks a director of programs

Today we are pleased to welcome 9 new members to the AfriLabs network and announce that we are hiring a director.  These are the next steps in our effort to build a strong association and to support the continued growth and development of innovation hubs across the continent.

Moving forward, we look to establish AfriLabs as a catalyst for African borne innovation in areas such as mobile/web, design, fabrication, architecture and renewable resources/energy to name but a few. The aim of this effort is to create success stories and decent work for young Africans by focusing on technology and innovation as platforms for entrepreneurship, both as a means of self-employment and as job creation for others.

Participating Labs:

Here is an overview of the participating hubs.

» Nailab Incubation in Nairobi, Kenya
» HiveColab in Kampala, Uganda
» iHub in Nairobi, Kenya
» ActivSpaces in Buea, Cameroon
» BantaLabs in Saint Louis, Senegal
» mLab EA, Kenya
» Wennovation Hub in Lagos, Nigeria
» RLabs in Cape Town, South Africa
» Malagasy i-Hub in Antananarivo, Madagascar
» ICE Addis in Addis, Ethiopia
» Meltwater in Accra, Ghana
» CCHub in Lagos, Nigeria
» BongoHive in Lusaka, Zambia
» iLab in Monrovia, Liberia

Hiring a director:

The director is asked to lead the continued development of AfriLabs as a network-based organization. Key to this position is to establish strategic partnerships needed to grow the organization and allow for the implementation of programs.

Additionally, the director has the following responsibilities:

» Preserve the founding principles of the AfriLabs charter;
» Establish a work plan for 2012 – 2014;
» Manage programs and engage AfriLab members in their deployment;
» Facilitate outreach and applications of new labs;
» Manage relations with strategic partners and establish new partnerships;
» Lead fundraising efforts for AfriLabs and its members;
» Responsible for any and all reporting to stakeholders;
» Coordinate the annual AfriLabs meeting, host quarterly meetings with the board of directors and facilitate monthly calls with member labs;
» Manage the AfriLabs website and related social media channels;
» Generate, share and promote success stories;
» Support the continued development of the AfriLabs network in any way possible.

About AfriLabs:

AfriLabs is a network organization that supports innovation hubs in Africa. A few details on the organization:

» Non-profit registered;
» Consortium of independent African innovation hubs, co-working spaces, accelerators and incubators;
» Individually, each hub serves as a nexus for innovators, entrepreneurs and investors;
» Goal is to support the growth of the hubs, their respective members and surrounding communities.


Venture Capitalist take a look at the challenges investing in African tech

VC4Africa was pleased to host the panel, ‘Strengthening the VC pipeline’  at the 9th Annual Conference for the African Venture Capital Association meeting hosted in Accra. 

I was joined by Yemi Lalude, Managing Partner of Adlevo, Tayo Oviosu, Founder and CEO of Paga, Karima Ola, CIO of the African Development Corporation, Mathew Boadu Adjei, CEO of Oasis Capital and Arjuna Costa, Director of Investments at Omidyar Network. The time we had was limited for getting into all of the issues we wanted to cover, actually there is more than enough content for a stand alone conference on the subject, but here are some of the points I felt were raised during our different conversations.

–       Within the emerging African focused VC space there is a inherent leaning to scalable concepts and a natural orientation toward financial services. As penetration rates increases across African countries, banking services are the first step to unlocking e-commerce activity that will drive the ecosystems development.

–       Challenges with market size remain a key constraint. Ghana at 8.4% Internet penetration is looking at somewhere around 1.2 million users compared to the 4.3 million found in Nigeria. The numbers are far less in countries like Tanzania, Ethiopia or Uganda. Innovation can come from anywhere, initially incubated and tested in Accra, Kampala or Dar, but how can a venture then find its way into bigger markets next door?

–       Operating in a country like Zambia can be extremely expensive. Sales operations might be in Lusaka, but don’t be afraid to put the back office in CapeTown. Where Nigeria is where a company might want to expand its network of merchants, the programmers and technical staff might be based in Accra.  Staff are easier to find, higher quality and therefore cheaper. And it can be as simple as the company needing better power supply and reliable infrastructure.

–       There is a need for more qualified entrepreneurs. For the organizations that can, investing into the support ecosystem remains important. Platforms like incubators are critical to developing new networks of entrepreneurs. That said, do the existing platforms successfully produce new ventures and how do we make sure entrepreneurs graduate and get into the market successfully? A stronger link to business development is needed and is a point being addressed by incubators like ActivSpaces in Buea, the Nailab in Nairobi and MEST in Accra.

–       There is a growing amount of capital looking to engage ventures at an early stage. It might not be enough, as many entrepreneurs are quick to make clear, but certainly the environment is improving. Two panelists had angels. One happened to be from the US and one happened to be Dutch.  Both offering a million USD plus. But we also met local Ghanaian angels investing in early stage ventures here in Accra and we see a growing number of ventures finding early stage support this way. No surprise we see the rise of local angel networks like the Ghana Angel Investor Network (GAIN). A challenge for many entrepreneurs is in developing these contacts and here more could be done to matchmake on a local level. At VC4A we do this via meetups brining the member base together in an informal way that sees lots of business cards exchanging hands.

–       Government does have a role to play. Legislation that helps to protect IP is critical. But also efforts like the Ghana Venture Capital Trust Fund. A facility that has helped Ghana based investors top up their funds. More success stories would give governments the opportunity to bolster these programs and expand them. In Kenya the government has gone so far as to promote the development of Konza, an entire tech city.

–       Tech is different than sectors like housing, education, agro, etc… Where the first subscribes to a culture more attune to Silicon Valley, the other, more traditional sectors, are more often family run businesses. The approaches to building a portfolio are quite different. The business model and exit plan are also adjusted. Taking from revenue might be more attune for a business when run by a family that isn’t actually looking for an eventual acquisition.

–       Average size of ventures on the tech side are still quite small in size. The economics for a pure play early stage tech fund in many cases doesn’t make sense. As a result, some investors have a carve out and allocate a % they can put into early stage technology ventures. Fitting the investments into a larger portfolio can improve a fund’s balance sheet and be more appealing to investors.

–       Costs are high. Traveling in Africa is more expensive than traveling across the US. Hotels are not cheap. Qualified staff are not cheap. Secure power and working infrastrcuture can add to the cost base. These costs stretch what can be facilitated with a traditional  managetment fee.

–       Exits were not a primary concern, although many investors question the point. That said, If you build a business with real scale, there is confidence exit opportunities will emerge. Possibly an exit within the industry as larger funds look to fill their own pipelines with qualified ventures. If you don’t have a long view, and an underlining faith in the market, you probably shouldn’t be involved.

I will look to build on these points moving forward and as always I invite your feedback, thoughts, questions and ideas. Certainly, progress is being made every day and this conference and our time in Accra was testament to that.

VC4Africa and the emergence of an African startup culture

Want to know more about VC4Africa and our work to support starting entrepreneurs? Here is a presentation we recently recorded. I outline some of the recent trends and developments we are witnessing in the space and some of our thinking on how we can do more to support the emergence of an African startup culture.

Fast Moving Targets: Africa as promising investment frontier

Here is an interview I did last week with Fast Moving Targets, a new series dedicated to showcasing innovation in media, technology and communications. They are very much tapping into Amsterdam as a creative media lab and the beginnings of a promising startup culture here in the city. Importantly, they ask the question, ‘what’s going on, what does that mean for whom and how do you actually get new trends and technologies to succeed?’

It’s great to see initiatives like this come online. It adds to The Next Web (many people do not know they are based in Amsterdam) and Hackers and Founders Meetups as important platforms for engaging the community, identifying key developments and highlighting protagonists in the space. Fast Moving Targets is an initiative of ‘The Crowds‘ and hosted by Erwin Blom and Roeland Stekelenburg. They have a great production team and it was nice of Johan Schaap, the founder of Probaton, to make the connection.

The show is filmed live which gives it an interesting character and streamed via the site. They film the chit chat before and after the actual show (so be aware:) and take questions from people watching via Twitter. The show has an interactive and relaxed feel to it. Mostly because of the Palm beer. It was also great practice for my Dutch!:) Here is the description as posted on the site: ‘Ben White van VC4Africa probeert werelden bij elkaar te brengen. Investeerders en ondernemers. Europa en Afrika. Omdat hij ziet hoe groot het talent in laatstgenoemd werelddeel is, omdat hij overtuigd is van het zakenlijk potentieel, maar ook omdat hij een idealist is die van Afrika houdt. VC4Africa gaat over geld, maar nog veel meer over netwerken. Met al duizenden aan boord. Een aflevering van Top Names van Fast Moving Targets.’