“As a private equity investor the returns can be high and that is because the risks are also high. Although you would try to protect your downside in a couple of ways there is always a chance that if a company goes bankrupt then as a shareholder you come last.”

She explains that the “flexibility that the market has makes it interesting”, citing the case of local SMEs surviving despite late payments.

“I think that risk is sort of lower here because companies don’t go bankrupt easily. It is known that a lot of big companies and governments here pay really late. So if a company is being paid only after 150 to 200 days it forces them to also pay their suppliers and staff late. So a lot of companies here that should have theoretically gone under can keep pushing because they can push payments. It is interesting that these companies have a longer lifeline.”

Blaauboer says the biggest risks in the region are the high cost of doing business and the fact that SMEs struggle to comply with stringent regulations and are continuously harassed by corrupt government officials.

Looking for ambitious entrepreneurs

The TBL boss explains that for the fund to invest in an SME it really has to believe in the team and “buy into the growth story” of the business. She adds that TBL likes to invest in entrepreneurs who have a shared vision and “ambitious growth in their minds”.

“It doesn’t really hurt if someone approaches us and says they want to grow from one to 10 and then we convince them that it could also be to 100, but they should have at least thought about growth. They should also understand that we would like to take the company to a place where it could potentially be completely sold. So if the entrepreneur says they want to be there always then that could be a problem. We would have to agree on how we would exit.”

Entrepreneurs should also have “self-knowledge and a little bit of humility”.

Blaauboer says misconceptions about the nature and activity of private equity and venture capital funds have changed. “When I first got here I would spend an hour explaining that I was not giving any money or lending any money. Today a lot of sophisticated entrepreneurs understand private equity.”

Blaauboer is the current chair of the East Africa Venture Capital Association, an organisation that seeks to create awareness in the industry, build talent, produce data and lobby government to adopt favourable investment conditions.

According to Blaauboer, the growing number of private equity funds coming to Africa will have a “catalytic effect”. Not only are they a “confirmation of ongoing growth”, their investment in crucial industries will also bolster economic growth.

She advises funds considering investing in Africa to take a long-term approach and have a team on the ground to be close to their investees, especially if they are doing early stage funding. Funds should also hire people who have experience in structuring deals and good local networks to identify the right investees.