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Tech4Africa Google Hangout with African Tech Hubs

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Opening address at Private Equity World Africa 2012 – African Investor Day

Here is my opening address at the Private Equity World Africa 2011 Conference in London.

I am pleased to be here. On behalf of VC4Africa, I am pleased to welcome you to this conference. We have a nice program today that will see us cover a lot of ground and I look forward to the presentations, the questions and conversations. If anything, today is a platform for exchanging ideas, networking and getting to know one another. So let us take advantage of our time together.

For me, 2011 was a year that ushered in a new period of change for the African continent. What started with a disenfranchised shopkeeper in Tunisia has spread into a social movement that looks to rebalance realities across Libya, Egypt, Syria, Bahrain and Yemen. But what has become known as the ‘Arab Spring’ has potentially found new roots in Sub Saharan Africa too. Maybe the events south of Cairo don’t get the same international news coverage, but we would be foolish not to recognize burgeoning movements in places like Uganda, Nigeria, Malawi and Senegal. The economic inequality, and a growing demand for access to equal opportunity, has shifted tectonic plates that have seemed immovable for decades. Bottom line, 43% of the African population is under the age of 14 and this is a demographic reality that is changing the face of the continent forever.

With the rise of technology, increasing access to Internet and mobile networks, a connected African society is empowered to take a more active role in defining the future & the political agenda moving forward. This is part of a new energy sweeping across the continent as Africa’s growing population’s aspires to rise economically. For many, gains have already been realized as a swelling middle class can now be targeted for business. If anything, African consumer spending power is real and growing. We are looking at the emergence of the very foundations that allow us to invest in the development of new economy.

At the same time, this reality is not new. If anything, Mo Ibrahim, the Sudanese founder of Celtel, was one of the first to demonstrate Africa’s potential early on. I have had the pleasure of interviewing him twice. The success of Celtel was a private equity windfall, but more importantly it laid the ground work for the type of open communication that is starting to dramaticlly transform African societies today.

Created in 1998, we have to remember that Celtel brought mobile phone service to more than 6 million people when there was almost zero land-line infrastructure. The rapid adoption of Celtel’s mobile devices wasn’t only good business, it absolutely revolutionized the way families communicated from town to town, and the way businesses interact with suppliers, customers and employees. It has transformed the way Africans learn about local health care, the way they bank (often for the first time), and the way farmers price their crops. It is this same telecommunications network that is now being used to mobilize our communities and brings them together around important social and economic issues. This is the kind of story the investment community can be proud of. Good business that changes lives.

The deal wasn’t exactly intuitive at the time. In 1998, only two million of Africa’s 950 million people were using cell phones. Furthermore, Africa’s reputation as a place to do business was almost universally negative in financial circles. After a series of “no’s” from banks who were “ruled by misconceptions about Africa,” as Ibrahim told me, he had no choice but to raise capital from private investors. It wasn’t his preferred way to build the business, but the only way. As he explained in an article for the Wall Street Journal: “We had to fund the company through equity. It is a very strange way to fund a telecom company. The equity backing required the company to endure eight or nine rounds of funding, which always involved re-upping from insiders and often slowed down the company’s hockey stick growth.” But without the investors willing to take on ‘major risk,’ Celtel would have struggled to expand so quickly into 10 African countries.

Thanks to this private equity capital, from the likes of Zephyr, Bessemer Ventures and Actis, Celtel was able to put $800 million into licenses, acquisitions and infrastructure. Revenues grew more than 100 percent each year and Celtel rode the wave of mobile adoption as more than 400 million Africans—almost half of the continent— purchased cell phones. With a revenue run rate of $1 billion (and an annual EBITDA of $250 million) Celtel sold in 2005 to MTC Kuwait for $3.4 billion. The company commanded a premium price, in part, Ibrahim has said, because of its good governance. Just as impressive, 100 percent of the company’s more than 4,000 employees are African. But again, the real impact of this company goes much deeper. Indeed, it is the very telecommunications network that now mobilizes our communities and brings them together in ways that potentially rebalance societies across the continent.

I like to think the world of Private Equity and Venture Capital works slightly different in Africa than it might in other parts of the globe. For one example, many great companies in Africa are still owned by a family. Building trust takes longer and we have to spend more time structuring a deal. Many times pieces are missing and careful analysis has to go into a plan that brings the right parts together. Does less competition for these deals allow for more meaningful exchanges? Is it this kind of patience and hard work that helps ensure better returns and greater impact over the long term? Often times holding a minority stake means we have to ‘do more’ to establish relationships with our clients. We have to prove that our insights, advice and management plans have merit based on valid historical track record. For me, these are qualities we should hold dear to our business.

Indeed, with the gains achieved through an entrepreneur like Mo Ibrahim, and the bold investments we made into transformative companies like Celtel, now is the time to welcome new colleagues to the table. Thus far, an influx of new entrants to the market may well increase competition for deals, but it has also made for some compelling exit opportunities. In recent years, the market has seen an influx of international strategic suitors seeking to enter the region by acquisition. These include not only corporations from Europe and the US, but also corporate entities from India and China. Trade exits will become more and more important. And let us not forget the deal that saw Aureos exit its entire portfolio in one fell swoop.

We have to remind ourselves, and our new colleagues, that to be successful in African markets takes time, we build on relationships and on true and shared visions of the future. Indeed, our businesses must benefit the 43% of the population now coming up and rightfully in search of their own. After all, we share the same future we have the opportunity to discuss today.

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.

The Rise of a Startup Culture in Africa [Video Presentation]

Technology + Entrepreneurs + A vision = Startups in Africa in need of Venture Capital.

This is a one line summary of the presentation I recently gave at the 1% Event in Amsterdam, the Netherlands. In the presentation I talk about the rise of the techprenuer in Africa and the cheetah Generation that is now empowered with the knowledge and tools they need to change the world. This presentation builds on a lot of the ethnographic research I did in Kampala, Uganda and my experiences working on the ICT Entrepreneurship program at Hivos. I also talk about AfriLabs as a network organization connecting technology incubators in Africa and VC4Africa (Venture Capital for Africa) as a platform for crowdsourcing network, information and capital via the web.

Join the 2nd VC4Africa Meetup Kampala

The first VC4Africa meetup was organized in Kampala, Uganda @ Katch the Sun. This was already in June of 2008 and it’s exciting to see similar meetups have already been organized in 26 cities around the world. In true VC4Africa fashion, local members have taken it upon themselves to carry the meetup idea forward. Yvonne was one of the entrepreneurs who attended the first event and now she is working with Reinier Battenberg and others to organize a follow up event which I think is great.

This time we will change location to Palms and Crocs (in Nakasero) in the Downtown area. The meetup is on the 26th of October between 6:00 PM and 9:00 PM. As with all meetups, there is no agenda, no fee or speakers. Just good old fashioned networking And remember, Yvonne and Reinier are helping host the event but each member is responsible for paying their own tab.

Want to sign up for this free event?

Making SME finance work in Africa

Last week I presented at the Making Finance Work in Africa conference in Addis Ababa. This was a unique opportunity for the African financial community to come together and discuss ways forward.

Specifically, taking a step back to review what has been achieved the past few years, to outline challenges that remain to be tackled and to identify areas still in need of attention. Also to get a handle on the possible strategies that can be employed in the efforts to address them. If anything, it was made clear that there are no prescriptions and anything but a one size fits all approach. Its about thinking local, taking a careful look at the context and the solutions that might address specific needs.

Thorsten Beck, the author of Financing Africa through the Financial Crisis, put forth the argument that, ‘In the industrialized countries of North America and Western Europe, financial innovation has acquired a bad connotation after the recent crisis, being associated with CDO, CDS and other three-letter abbreviations, which few understand.’ He continued, ‘ However, innovation is more than that and comprises numerous new products, new processes and new organizational forms. Innovation can be an enormously positive force, even in the financial system and especially in Africa. However, in order to reap the benefits of more innovation, a different regulatory approach is needed than currently present in most African countries.’

S. Kal Wajid, the Division Chief of Africa at the IMF, recognized the role of innovation and technology as key components in furthering financial sector development. At the same time he cautioned the attendees to carefully evaluate the risks and to not lost sight of the macro economic agenda. Thorsten agreed but expanded, ‘We can’t lose our focus on the macro economic agenda. At the same time we can look at innovative options for financial sector reform and to consider more activistic approaches.’ He highlighted one opportunity in which banks could share a common payments system that would reduce infrastructure costs, help expedite payments and thereby lower transaction costs. But again, what might serve as a ‘fast gain’ solution for one country could be less relevant for another.

Finding ways to better serve SMEs was also raised as a top priority. Gaiv Tata, the Director of Finance and Private Sector Development at the World Bank, highlighted the issue when he explained that 50% of SMEs in Malawi still rank access to finance as the leading challenge in their ability to realize potential. In Ivory Coast it’s 60% and in Benin the numbers approach 70% of SMEs that identify access to capital as a key constraint. Jason Wendle of Dalberg added, ‘the biggest challenge facing SMEs is collateral. Banks see the SME market as an attractive segment but still have difficulty assessing the risks.’ Leveraging technology, psychoanalytic testing and smart due diligence processes were offered as positive sector developments that combined could start to address this issue.

Still it was clear, Banks don’t necessarily appreciate the business of small scale entrepreneurs. Their products are limited and do not always offer the terms an entrepreneur requires to really grow their business. For example a big order that comes in and the business in need of a fast loan so they can scale production and service the contract. Difficult circumstances arise when the entrepreneur has to still wait months before the financing is organized on often unreasonable terms.

But there is much optimism. SMEs consistently show good returns and finding businesses that can generate a profit is really not the issue. The focus is instead on identifying smart and effective ways that better connect financial services with the entrepreneurs that can really put money to work. It’s connecting the dots that will see more SMEs creating jobs, paying taxes and building the sustainable businesses for the future.