How VC4Africa is connecting African entrepreneurs with investors
Dinfin Mulupi talks to Venture Capital for Africa founder Ben White.
SMEs are said to play a pivotal role in any economy, yet entrepreneurs running small businesses struggle to access financing and most collapse before their third anniversary. Venture Capital for Africa (VC4Africa) is an online platform that facilitates funding and mentorship by connecting entrepreneurs with venture capitalists. VC4Africa founder Ben White told How we made it in Africa’s Dinfin Mulupi about the platform’s efforts to bridge early stage funding gaps and encourage local and foreign investment in African businesses. Below are excerpts. What was the inspiration behind VC4Africa?
VC4Africa is a community that has grown organically over the years. It started at the annual congress of the African Venture Capital Association in Dakar, Senegal in 2006. At this meeting it was made clear that innovative early stage ventures with the potential to yield high social and environmental impact and requiring less than US$500,000 in financing, remain the most difficult segment of the SME pipeline to reach. The perceived challenges of businesses operating in an African context, higher costs of due diligence, and the inexperience of the investors and entrepreneurs are some of the reasons that hinder economic activity.
It is very easy for entrepreneurs to fundraise through VC4Africa. After a one click signup it is possible to register a venture profile and seek out partners. Entrepreneurs should follow the five simple steps to fundraising on VC4Africa, one of the many self-help tools we offer. Once the fundraising request is screened and approved by our team, the venture is put into fundraising mode and made available to the VC4Africa Investor Network.
What are the key milestones VC4Africa has achieved?
The VC4Africa community has evolved into what is now the largest peer-to-peer network of entrepreneurs, angel investors and early stage venture capital firms dedicated to building Africa’s greatest companies. So far, entrepreneurs have raised more than $1 million in funding and joint ventures and investments have been secured by members in countries as diverse as Cameroon, South Africa, Egypt, the United States, Kenya, Nigeria, the Netherlands, Somalia and Zambia.
I am always amazed to see how far this entrepreneurial movement extends, and there are great businesses being built in markets like Burundi and Somaliland. The great thing about the internet is that we can link entrepreneurs and resources beyond the borders of the known tech hubs. Listed entrepreneurs have access to free online tools, mentorship opportunities and private deal rooms.
Registered investors are able to see which screened ventures are fundraising, track their progress and review private documents. To date we have processed more than 1,000 venture applications and more than 500 profiles are published publicly to the website. The ventures on VC4Africa are early stage and require investments between $10,000 and $1 million. The primary sectors include mobile, web, renewable energy, sustainable agriculture and healthcare, among others.
How does the platform make money?
We have seen tremendous growth in our venture pipeline over the last year, and this gives us a unique opportunity to begin rolling out a premium-level service to our investor network, at pricing levels that accommodate the spectrum of individual angel investors up to large institutional fund managers. For example, say an investor wants to conduct a financial due diligence on a company they find interesting. This is something VC4Africa can facilitate via its network of trusted partners like BDO, the fifth largest tax consultancy firm with offices in 15 African countries. We also host competitions and challenges in collaboration with like-minded partners. We are currently working to launch a video pitch competition and would like to host a series of investor roundtables bringing both foreign and local investors together. We are currently working to identify sponsors for these activities that are needed to further mobilise necessary networks and resources.
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.