Is access to financing for African SMEs really improving?
I think a lot of capital is focused on ventures that require $1 million and more, and certainly many find it difficult to allocate effectively. There is an early stage “vacuum” in which a large number of potentially thriving, innovative companies are either constrained to be micro-enterprises, and hence have a limited impact on economic growth and job creation, or don’t come into existence at all. This tends to shut out promising entrepreneurs in the sub-$500,000 financing range indiscriminately or raises the cost of capital to prohibitively high levels, making financing uneconomical. Through our crowd-sourced funding platform, VC4Africa reduces the cost of finding and conducting due diligence on small and growing African businesses, stimulates partnering through virtual and physical meeting spaces, and facilitates pooling of capital in all its productive forms needed to help these businesses realise their potential.
Moving forward, we see a growing number of acceleration programmes, angel investors and early stage VCs coming into the space. These are people who live in the markets in which they invest or are quite familiar with the entrepreneurs in which they are investing. It is still early days, but comparing today with two years ago, the space is actually transforming at a rapid rate.
The entrepreneurial spirit is thriving in Africa today, more than ever before. Entrepreneurs however still face many challenges. In what ways can they be supported?
We need to be investing in the development of earlier parts of the ecosystem. It is the most difficult segment to reach and many existing business models prevent existing fund structures from doing so. Another key area concerns the development of the investor community. To a great extent, local investors are more familiar with traditional sectors. Where foreign investors might be more comfortable backing early stage companies, they know less about local markets.
It isn’t only about capital. With the recent launch of our peer-to-peer mentorship marketplace, entrepreneurs looking for advice to grow their business in Africa get direct access to a pool of business experts from around the world. At VC4Africa’s ‘Mentorship Marketplace’ entrepreneurs can add ‘mentor requests’ that are visible, searchable and actionable by a pool of registered mentors. Business experts experienced in starting companies or with experience in a specific relevant field can sign up as a VC4Africa mentor and provide critical feedback to promising entrepreneurs all across Africa.
Foreign investors are showing a lot of interest in Africa today. What has changed?
It’s all about perspective. In many parts of the world people look to the future and see a glass half empty. Spend more than five minutes with an entrepreneur in any African country and you can see the future holds immense opportunity. It’s about believing in what is possible and working together to achieve that. Combine this perspective with a generally improving political climate, a population of a billion people, rising middle class, increased mobile penetration and improved access to internet, and certainly we can see that there are many possibilities. It is also my belief that most of the elements, to a large extent, can be found already. It isn’t about the things we don’t have, but the things we do have. And if organised efficiently we can get the most out of them. This is where a community like VC4Africa can do a lot to help organise the resources available and connect supply and demand.