Africa is set to become the developing world’s next success story. In 2008, Africa’s combined GDP reached $1.5 trillion – more than India or Brazil – and GDP growth rates averaged 5 percent per year between 2002 and 2009. The IMF expects this outperformance of markets like Brazil, Russia and Eastern Europe to continue in the future. Foreign direct investment into Africa stood at $62 billion in 2008, seven times more than in the year 2000. Already per capita GDP is higher in Africa than in India, as is the number of middle-class households.
Africa hosts 10 percent of the world’s reserves of oil, 40 percent of its gold, and 80 to 90 percent of chromium and platinum metals. Yet, only a quarter of the economic growth is driven by the resource sector. Retail, agriculture, transport, and telecommunication all contribute significantly to the economic rise. McKinsey expects a 35% increase in spending power and 221 million extra basic-needs consumers by 2015. The continent has more than 500 million people of working age today. By 2040, their number will exceed 1.1 billion. A quarter of the world’s arable land lies in Africa. Infrastructure investments on the continent have quadrupled in the past decade to a total of $12 billion in 2008. And the mobile phone, of which there are more than 450 million in use today, is only the prelude to a fundamental ICT revolution underway.
These opportunities can be translated into revenues and profits. Publicly traded companies in Africa achieve an annual return on capital that is on average 65% higher than that of their counterparts in China, India, Vietnam, or Indonesia, according to economist Paul Collier. Globally, Asia has been the main benefactor. The combined share of Africa’s exports to the European Union and the United States fell to 49 percent, from 73 percent in 1990, while Chinese imports from sub-Saharan Africa increased to over $13 billion, from $64 million. Now is the time for Europe to break that trend by becoming a valuable partner for the continent.
Interested in joining the discussion and attending this event?
This is a great interview that really captures the opportunities to do business in Africa. After a request to get this translated, Jochem was nice enough to put this together. Thanks!
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Interviewer: Eh… is it a new way of developing aid, is it equal cooperation, is it a combination of factors, how do you see the cooperation with Africa?
Brian Hirman: Well, at least I don’t see it as developing aid. Apart from the fact that there are of course all kinds of social side effects, but primarily it’s just about doing business. The nice thing is actually that the people with whom we do business are mainly people in their 20s and 30s, who received their education in the US, the UK or Canada, lived there for 5 to 6 years or even longer, and then returned with all the ideas, developments and standards they learned from there to their home country to try to boost internet and mobile telephony. They really aren’t looking for help, they just want to do business. They really approach you like someone they’re going to do business with. I think that’s the most healthy basis to get something started.
I: To what extent does it become a risk that it will be a new way to get things cheaply from there, just like we did before, a few centuries ago. Well, that’s a little bit exaggerated, but to what extent do you have to be aware that it’s only that?
BH: Well, I don’t think we’re getting things from there. I mean, you say it’s exaggerated, but I’ve never really thought about it that way. I also don’t feel I’m bringing something. But as a businessman, I see that Africa has been neglected by many companies, and I also see that there’s happening a lot. They show it in the film clip, and it’s true that there’s an enormous development: the middle class is booming, infrastructure receives heavy funding, a very enthusiastic population that takes these developments on board with both hands where possible. It’s really growing, so especially from a business perspective there’s something happening. And Thomas Hess (?) says it very well in the film clip: it’s like a crystal ball, you know more or less where it’s going, and you know that the ideas that come forward, that you’ve seen them before.
I: It’s like ‘startpagina’ ['homepage'; a dutch website with all kinds of links and information]
BH: yes, or it’s like ‘marktplaats’ ['market place'; a dutch website where people can sell their 'old' stuff]. But the ‘marktplaats’ of Kenya is a fraction of the ‘marktplaats’…[in The Netherlands?] or eBay worldwide, but it’s rising. One thing I know for sure, that I’m not too early… ehhh sorry, that I’m not too late. I just don’t know whether I’m way too early, a little too early, or right on time.
I: I think you’re right on time.
BH: yes, yes.
I: I don’t know whether you’ve inspired me while I’m listening to you, but I increasingly hear people saying that there’s so much we can do together with these countries, and it’s helping us to make something from this world together. Or is that not something that drives you?
BH: Indirectly yes. Primarily it is a business consideration, besides the fact that…
I: But it’s nice that it’s all happening in such an environment?
BH: That’s right, but…
I: Because you can just as easily start something in Europe: French media companies, or English media companies, or…
BH: I think, as for my profession… call it personal development, I’m learning every day when I’m working with these African entrepreneurs, I’m learning so much.
I: Like what?
BH: Well, the point is, we can learn much from them, because… besides the fact that they are 10 or sometimes even 15 years behind, they can skip many sales [?] steps, and in some cases they deal with issues in a smarter way, where we are slower, maybe due to the dialectics of progress. For example, the way they deal with mobile communication. I think we can still learn a lot from that. They are much more inventive in that case. And what I miss here in The Netherlands, is that in The Netherlands everything is getting killed with analyses, business plans, research, and commissions where 20 people can have their say. I’m exaggerating a little, but it’s nice for the imagery. And what I now experience in Africa (and I’m not saying I’m an expert on Africa, but I’m just telling what I’m experiencing over and over again), is that there’s a enormous drive, passion and workers mentality in these people. Especially in Kenya I’ve seen that, where people just do things. That has of course it’s
own problems, because when you just do things you’ll come across the issues later on, but new projects do start. There’s a lot of activity, a lot of entrepreneurship, and an enormous amount of creativity…
I: Is there enough ambition and efficiency, to name just a few of such Western terms? Because that’s what you often hear: to run a business over there in Ghana… try to find a Ghanaian manager who can manage 20 people under him.
BH: That’s true. If you start summing up those Western criteria, then you won’t find a high score over there… that’s absolutely true. However, I think the mentality… and again, I might be talking of a niche here, because I’m talking about digital entrepreneurs, who often had their education in a Western country… the mentality there is really proactive, we need to go ahead. So we better start doing things. And what I like is that when it doesn’t work the way it should or the way they thought it would, they won’t fix it, they start something new. That does have its downside, but the upside is that there’s a lot of development. Many new initiatives emerge. And the energy is fantastic.
I: How big is the fund?
BH: The fund is still small at this moment, because Vincent and I have invested a little for now.
I: What is small? Is that a few million?
BH: No, that’s too much. Small really is small, but in Africa you can really do a lot with a small amount of money.
I: But what are your ambitions with the fund?
BH: Indeed the ambition with the fund is to grow. You see, what we’ve noticed, and we see that every day, is that we really are working in a niche, a niche that hasn’t been really discovered yet. Everyone is developing another area, not this one. But it’s noticed by the big funds, but they just don’t know what they can do with it. In a short period of time, we created quite a fuzz around us: suddenly we got all kinds of requests out of the blue, but also all kinds of people that wanted to get in touch with us, from ministries or investment funds. Now it turns out that we are a very interesting party for big investment funds, like a big oil tanker with many millions, to lead the way into that niche of digital. And that’s interesting, because that interest comes faster than we anticipated. Initially, the idea was to fill this fund with a few private investors, giving sympathetic, almost why not-like donations. That can still be the plan, but the bigger fund, on which we anticipated in
maybe a year or two, I think that will start this year already.
I: Let’s hope you can find enough projects to invest it in.
BH: Yes, and there’s passion with both Vincent and I, and also with the people on the continent itself that we’ve associated with, both in Ghana and in Kenya. In Ghana we make a lot of use of Thomas Hess, whom you saw in the film clip, the CEO and expert indeed, and in which we also took a share. And in Kenya we have Andrea Bohnstaed [?], a German lady, who really is an icon over there when it comes to ict and internet, an analyst who often appears in the news. And she’s our agent over there, as she says herself, and I like that term. And that goes quite fast.
Today Kenyans are voting in a referendum on a new constitution, a key step in an effort designed to reform the country’s politics. Most significantly the document if approved limits the powers of the president and sets up a commission to settle land disputes that fuelled past violence.
The referendum was part of a deal that ended clashes after a disputed election in December 2007. Both the president and the prime minister are backing the Yes vote and opinion polls suggest the new constitution will be approved. That said, there is tension leading up to this event and President Mwai Kibaki has appealed to Kenyans to vote peacefully. The government reportedly also sent out an SMS yesterday encouraging Kenyans to stay calm.
In 2007 we saw how these events unfolded and unfortunately few were prepared. I remember working at Africa Interactive, the publisher of AfricaNews.com, in September of 2007. We set up the Kenya Elections platform in partnership with Media Focus on Africa. Remember the Nokia N97 reporting toolkit? We spent our savings on these phones and trained several Africa Interactive journalist on how to use them for text, photo and video production. Spread across the country they would thengo out and produce reports, editing them on the phone or computer, and upload them to our server where we could screen them before publishing to the Kenya Elections website. It was already possible to do this via GPRS but the network proved slow. When events escalated the situation quickly went from bad to worse and it was increasingly difficult to get reports out of the country. Our reporting nearly stopped when the Kenyan government stepped in to shut down the mobile networks. This left us calling frantically and our reporters spending hours upon hours in internet cafes. As police brutatlity escalated so did the risk for our journalists.
For African news reporting this was a critical period of time where we could really see a media landscape changing before our eyes. Mobile was already on the rise and new technologies were begging to be tested. At the same time we could see how governments were responding to crises situations meaning we had to advance and innovate even further. Most importantly the reporting loop needed to be closed. The idea that getting reports out of the country was only the first step in a much larger process. This raised some important questions mainly how do you get the information back to the people who need it most. And how do people living in rural areas even know there are information services they can tap into and especially when it comes down to a crisis situation when seconds or minutes can change lives.
Ushahidi emerged in a growing effort to tackle some of these challenges. The genesis of Ushahidi was a blogpost by now Executive Director Ory Okolloh, after violence erupted following the 2008 Kenyan elections. Together with core team members Erik Hersman and David Kobia, they built and deployed a platform where they tagged citizens’ and news reports of violence on a google map. They were joined by another digital activist, Juliana Rotich, to found the organization and never looked back since.
Needless to say a lot has changed since these early days of crisis reporting. This time around much more time and erergy have gone into the preparation needed to establish a proper infrastructure. Anyone in Kenya can now send in a report via the shortcode #3018. As reported on the Ushahidi website, ‘The Ushahidi platform is able to accept SMS text messages from the “crowd” or any person with a cell phone or computer to record events happening at any location instantly. People are also able to call in reports by voice or via email and Twitter. However, the SMS feature remains one of the most powerful communication tools for developing countries. In Haiti, it was reported that the first thing people would do when they regained power or found a battery was to charge their cell phones.’ It is also significant to mention that there are 600+ Uchaguzi volunteers ready to map concerns and a national network of professional monitors in place to report on events.
The Ushahidi team explains, ‘The Constitution and Reform Education Consortium (CRECO) is providing 500 monitors located at various polling stations around the country as well as administrative support. The Social Development Network (SODNET) is offering Uchaguzi its total partnership and the shortcode #3018 that is being used for SMS messages countrywide. With the support of Uraia, HIVOS and Twaweza; Uchaguzi is the most collaborative deployment of the Ushahidi platform to date.’
Speaking yesterday to Philip from Sodnet, one of the partners working with Ushahidi on this years referendum efforts, he told me, ‘All systems are a go. We have Hivos partners visiting from Uganda, Tanzania and Rwanda around for observation and learning processes. We have three sites! One main control center and two mirror sites. SMS servers and gateways mirrored and all call back services are active. Action points are ready and Media monitoring are up and running.’ See a live streaming of the situation room located at the iHub.
In my view one of the biggest changes from the past is the integration of a media campaign in lead to the actual day of voting. This has been crucial in creating awareness for the short code people can use to report events from anywhere in the country. Here is a photo showing an in-store promotion during yesterday’s crazy shopping spree as Kenyan’s ran to the store to stock up before today’s events. The campaign has also been in the papers and on radio.
Granted, there is always more that can be done but this goes a long way in showing the potential for these kinds of services. It is only a matter of time before print media, radio, television and other media pick up on these initiatives and integrate them into their own programming. Not because its a source of revenue but because its vital information critical to their audience. An instance like this becomes a service just as a news program reports on the weather.
We all hope for a peaceful process and I am confident the referendum will run smoothly and Kenyan’s will be able to celebrate this important milestone in their history. At the same time it is great to see people and organizations come together in a mutual interest to give people a voice during such important political events. Even if it’s only to know the first ‘referendum’ baby has been born as reported this mornig on Twitter:) #Uchaguzi SMS report: “Woman goes into labour at Kabete polling station. Voters have pre-named the baby ‘Red Wafula Green” #kenyadecides.
Here is a nice video that gives some insight into the team behind these efforts and their thinking on these important events and the role these information services have to play in the process. Working at Hivos I know we strongly support these efforts and hope to replicate some of the effective tools and strategies in other African countries.
Today we submitted our application for the G-20 SME Finance Challenge on Ashoka Changemakers. This is an important effort looking for the best models worldwide that catalyze finance for small and medium enterprises (SMEs). And where else could we need this more than in Africa? Given it fits the VC4Africa vision perfectly we had to apply. Please see our application and feel free to leave thoughts, ideas, questions or criticisms. We know that this is a long process and we have to learn and adapt along the way. You can contact me at ben@vc4africa.com.
Summary:
VC4Africa.com is a platform for crowdsourcing the due diligence process. Also for sourcing resources (financial and otherwise) for entrepreneurs and their projects. We use PlanCruncher.com to boil business ideas down to one page, members actively discuss projects and score them, our algorithm ranks the best projects in a dynamic Digg.com like feed so we can accurately connect them to investors.
Name Your solution
Crowdsourcing the due diligence of African Ventures
Describe Your Solution
VC4Africa.com is a platform for crowdsourcing the due diligence process. Also for sourcing resources (financial and otherwise) for entrepreneurs and their projects. We use PlanCruncher.com to boil business ideas down to one page, members actively discuss projects and score them, our algorithm ranks the best projects in a dynamic Digg.com like feed so we can accurately connect them to investors.
Region(s) your solution focuses on:
Africa.
Range of turnover in your target firms, in USD
Less than $1 Million.
Number of employees in your target firms
Fewer than 5, 5-24.
Specify the size, average and range of expected loans or investments in each target firm
MICRO VENTURE capital (MVC) financing is more effective than micro credit financing (MCF) in improving developing economies. According to a recent research report by Goldman,Sachs & Co, MVC financing has a 10 per cent higher return, a five per cent lower default rate, 10% less overhead. The cost structure for MVCs is flexible while the cost structure for micro credit banks is fixed.
We are looking to establish a revolving fund that will invest seed capital in tranches. This allows us to continually assess progress and boil down a strong portfolio. This ‘fail fast’ approach sees: 50 investments at 5K — > to 25 investments for 10K — > to 10 investments for 15K. At this stage we look to connect the invested company to the private sector and re-invest any profits into new entrepreneurs.
What makes your innovative solution unique?
Due diligence is one of the limiting factors for those interested in investing in Africa. It simply costs too much to find genuine entrepreneurs with a solid business idea and plan. As a result, most existing funds seek larger deals and better margins. At the same time, MicroCredit is limited in its ability to support high growth businesses and leaves most entrepreneurs with potential standing on the sideline.
VC4Africa works to leverage the power of the crowd, the idea that anyone anywhere in the world should be able to positively contribute to the development of African businesses in some meaningful way. We essentially lower the barrier to entry and successfully engage thousands and eventually millions of people in a process that celebrates Africa’s potential. We also believe that crowdsourcing intelligence generates better results while facilitating invaluable interaction and knowledge exchange.
We make use of PlanCruncher.com to create a standard one-page summary of a business plan for a start-up company that is looking for external investment. Entrepreneurs do this by choosing icons that represent some of the standard answers that a business plan must provide. We integrate these one page ideas with aggregated content from social networks like Linkedin, Facebook and Twitter to measure the depth and commitment to the business. The summary of information allows members to engage the entrepreneur in meaningful dialogue, asking questions, exchanging knowledge, making connections and scoring the project in the process. Each user develops a reputation. Our algorithm aggregates the sites activity and qualifies the input that is needed to rank the projects per country, stage of investment and sector. The output is a dynamic Digg.com style feed that sees the best projects rise to the top of their respective field. We then actively work to connect the best ranked projects with capital. Progress is monitored and tracked by the community needed to reach additional rounds
How does your proposed innovation leverage public intervention in catalyzing private SME finance?
Many entrepreneurs have great ideas and solid business plans. That said, most private capital remains risk averse. In unlocking Africa’s investment potential its important we get the ball rolling and start producing more success stories. Case studies that exemplify the opportunities and potential, but also serve as a road map for others. More importantly, VC4Africa works to establish a pipeline of interesting business opportunities and make them accessible to an international network that might be able to assist them in some meaningful way at whatever stage of development they might be.
For this purpose VC4Africa seeks to establish a revolving fund and would invite public sector support. The monies that go into the fund are used to kick start the investment process for the entrepreneurs with the best and most sound business ideas as determined by the community. We are looking to establish a revolving fund that will invest seed capital in tranches. This allows the VC4Africa community to continually assess progress and boil down a strong portfolio. This ‘fail fast’ approach sees 50 investments at 5K — > to 25 investments for 10K — > to 10 investments for 15K.
Our fail-fast approach ensures the evolution of a viable pipeline ready for private sector investment. We aim to get many ventures going with the best businesses making it through to the final round. Through this process the investments have developed enough of a track record, have shown their merit and progress, to successfully connect them with the private sector in a position to add the additional network, expertise and growth capital needed to successfully transition them into the SME market. Any profits made by the fund are re-invested into new entrepreneurs with the objective of becoming sustainable.
In this way we work to lower barriers to entry by facilitating the due diligence process, using the web to facilitate interaction and establish a track record of interactions and progress that accurately illustrates the businesses potential.
These are the steps we need to take if we are going to successfully engage private sector capital. At the same time the crowdsourcing approach leverages a world wide network, serves as a learning platform that creates awareness, knowledge and experience needed to engage new people in the process of supporting and building viable African companies.
Companies that do not make it to the final round still benefit from this process. They connect themselves with an international network and can learn from other entrepreneurs, their process and experience, along the way. Some ventures will take longer to establish themselves and can still make use of this program at later stages when they are ready. Simply opening up the discussion, making these processes transparent and accessible, ensures a win win.
What barriers does your proposed solution address?
Asymmetry of information – The platform is open source and the information is available to all members. We make use of the Creative Commons license needed to essentially unlock the knowledge and resources previously locked away for an elite few. Crowdsourcing information further builds a collective knowledge needed to make the subject accessible to everyone.
Lack of SME access to skills / knowledge / markets – The crowdsourcing approach taps into the idea that anyone anywhere in the world can contribute in some meaningful way i.e. offering their skills, knowledge, network or capital. Connecting an entrepreneur to a global network increased the chances they find the right partner or connection needed to grow their business. Also connecting entrepreneurs with other entrepreneurs facilitates learning and knowledge exchange. Our VC4Africa meetups ensures that this process is not only online but also offline. We have had meetups in Kigali, Kampala, Nairobi (2x), Johannesburg, Lagos, Tunis, San Francisco, Atlanta, Washington DC, New York, London and Amsterdam.
Unavailability of financial products tailored to SME needs – The missing middle remains elusive to most existing capital. Crowdsourcing solutions is one strategy for effectively closing this gap. A revolving fund supported with public finance helps to initiate this process and build a viable SME pipeline for the private sector.
Lack of institutional capacity of financial intermediaries – We crowdsource knowledge from across the world and in the interest to support this process on a peer to peer level. This approach serves to aggregate knowledge and experience.
High transaction costs for financial intermediaries to serve SMEs – the Due diligence process is expensive and hinders the investment process. Opening it up and crowdsourcing the process reduces the cost and we believe generates better results.
Provide empirical evidence of your proposed solution’s success/impact at present
- We have 10.000 members consisting of entrepreneurs and investors dedicated to building businesses on the continent
- As VC4Africa we believe it is important we meet ‘offline’ as we do ‘online.’ For 9 months we have been using the BarCamp model (an international network of user generated conferences – open, participatory workshop/events, whose content is provided by participants) to organize our very own series of VC4Africa Meetups. Already we have hosted VC4Africa meetups in Johannesburg, Abuja, Kampala, Nairobi (2x), Kigali, London, Washington DC, San Francisco, New York, Atlanta, Amsterdam and Tunis. We like this open format because it means that anyone can participate.
- We have 23 country incubators where members come together to discuss specific projects and work through business development opportunities.
- We receive hundreds of ideas from entrepreneurs and have connecting thousands of people in the process.
How many firms do you expect to reach?
In the short term we are looking to invest in 200 firms (four rounds). On this initial foundation we believe we can present an accurate investment plan. In the long term we believe we can help thousands if not millions of businesses. We think we can do this because we open the investment system and process to the community. This allows us to seriously scale our work in ways otherwise not possible.
What is the volume of private SME finance you aim to catalyze?
Our first milestone is to facilitate 2.6 million in investment (four rounds) via the revolving fund. There will be secondary effects as entrepreneurs and investors continue to connect on their own terms. Beyond the numbers, and more importantly to the promotion of more investment in the continent, we are looking to generate success stories. We aim to generate examples that serve to inspire others.
What time frame will be required to reach these targets?
We run on a two year plan that would see four rounds of investment. On this foundation we would present an investment plan that would allow us to grow and scale the project to sustainability.
What would prevent your solution from being a success?
Platforms of this sort can be attractive for spam/scammers. We are designing an algorithm that will see each user being independently ranked on the quality of their total input. This process will be used to effectively identify users that should be removed from the system and give users within the community enough information about other members to know how to accurately and productively engage them. Technical strategies aside, building on our strong and dedicated member base is the best way to regulate the community. We have instituted an officers program in which our most active members have stepped forward as volunteers to moderate and manage various aspects of the community. We seek to continually empower members to contribute in this process and take full ownership for the platform.
Describe the social impact of your innovation. Please include both numbers and stories as evidence of this impact
Altoje Computer World
A 30 minute Boda Boda ride to the outskirts of Kampala, towards the east on the main road to Jinja, you end up at Banda Station. There at the intersection of a marketplace and two dirt roads I call Tony. Before I can turn around I see the young man come up to greet me. He is wearing brown leather shoes, slacks and a striped button up shirt. He has a big smile and looks forward to showing me his shop several buildings down the street. I can see that it has several stories, each containing a hallway lined by small business shops on either side. On the ground floor, at the end of the hallway on the right, you find Kampala’s newest software company Altoje Computer World.
The AL stands for Alex, TO stands for Tony and the JE stands for Joseph. I ask why there is an E at the end as opposed to an O. They tell me its because they wanted to include Jesus in the name of the company. So JE stands for Joseph and Jesus. The company was started by five friends who got to know each other during their time at the Makerere University. They finished their studies in July 2008 and graduated from the Makerere University in January 2009. Never able to find a job they decided to try and start their own business. Alex explains, ‘We were searching for jobs but jobs for Uganda is difficult. Why can’t we create our own? We knew it would take years and years to find a job so lets start a company, provide some services and earn a living.’ The jobs that are available aren’t attractive for someone passionate about software. He goes on to say, ‘You could do data entry for 100,000 to 200,000 shilling a month. But this is not the point. We want to build our own business and have a vision now.’ They make sure the shop is always open from 7 am to 7 pm six days a week.
Altoje Computer World was the first investment made by VC4Africa. We are pleased to see the company is making progress and recently launched a new website. http://altoje.ning.com/.
VC4Africa aims to connect innovative entrepreneurs (and their ideas) with access to knowledge, markets and capital. The focus is on entrepreneurs with innovative projects that apply new technology, new media, the web, mobile and green energy. We receive hundreds of e-mails from entrepreneurs looking to develop their business, simply cannot handle each case, and are driven by the need to connect them. Social media is the tool.
List all the funding sources that are required for the sustainability of this solution
The founders of VC4Africa (Ben White, Bill Zimmerman and Bart Lacroix) have mobilized 50.000 in their own startup capital. These initial funds are being used to develop a new website for the VC4Africa community, now +/- 10.000 members. We expect to be live with this new platform by September 2010. Additional capital is needed to grow and scale our activities.
Second to core funding we are looking to source capital that can be invested in the entrepreneurs with the best ideas as determined by the community. Here we seek 2.6 million needed to establish a revolving fund where any profits are re-invested in new entrepreneurs.
Demonstrate how your proposed solution has the capacity to graduate from dependence on public finance. What is the time frame?
As VC4Africa develops we are introducing revenue generating models that will push us into sustainability. Initially, we are collecting profiles of investors i.e. a detailed brief on their required investment. We actively link entrepreneurs and their business projects to matched investor profiles. For each successful match made we ask for 1.5% from the investor and 1.5% from the entrepreneur. We also have content deals and event deals in place where we receive a commission on each member that takes advantage of these value added services. We run on a two year plan and reach sustainability in 2012.
Demonstrate how your proposed solution will survive a potential loss of its largest private funding source
The initial funding is already secured so this is not an issue we worry about. VC4Africa started as a passion and a hobby. To this extent it will always exist and serve its purpose of connecting entrepreneurs and investors, a process where we are already adding value. Our interest in securing additional support essentially allows us to do more of the same.
The VC4Africa officers program was established in the interest to engage the most active and dedicated members in the process of managing the community. Any member can apply to become part of this revolving program and it ensures the members keep ownership of the project. If for some reason the founders were unable to keep VC4Africa running there are enough dedicated members to keep the platform running.
Please tell us what kind of partnerships, if any, could be critical to the greater success and sustainability of your innovation
We are looking to establish partnerships in the following areas:
1) Content – Information on investing in Africa is limited. Most of it costs a considerable amount of money meaning only a few people and organizations have access. We seek to unlock this information and make it publicly available via the creative commons license. Especially in so far that it concerns entrepreneurs.
2) Expertise – Many of the entrepreneurs in our network have great ideas or businesses that are well on their way. However, in growing and scaling their business they need access to expertise, mentorship and guidance. Organizations and individuals are needed to support entrepreneurs through the business planning process.
3) Capital – The entrepreneurs with the best ideas are deserving of startup/growth funds. At the same time their propositions bring risk. We seek capital that can be used to get the best entrepreneurs past the first few hurdles they need to overcome if they are going to be able to secure additional private funding.
4) Network – We seek partnerships with networks on the ground. Points of contact that can serve as an important and viable interface. Currently we engage country officers.
Are there non-financial issues that could threaten the sustainability of your proposed solution?
Online networks focused on investment often attract the wrong kind of people. It is important we maintain our efforts to mitigate any spam or scamming activities. In the new site we are building a membership ranking program where each user will build a reputation based on the quality of their total input. This system will effectively create distance between users adding value and individuals who might have alternative motives. This process mitigates any unwanted activity and helps members monitor their own engagement. At the same time, we believe the best way of dealing with challenges like this is to keep an active and engaged community empowered to do their own due diligence and policing. To this extent we have implemented an officers program of dedicated individuals active in managing the quality of the site, her members and content. Finally, we continually work to raise awareness of these issues and remind both entrepreneurs and investors of the risks inherent to the investment process. This includes background information, interviews and featured discussions. In the end investing in African projects comes with risk and it is our task to inform our members to the best of our ability about the strategies and tactics they can apply in making sound business decisions.
Please tell us if your proposed solution aims to scale up through a high growth sector, expand immediately to multiple sectors, and/or scale up geographically
We seek to leverage the power of the Internet which gives us immediate international access. At the same time our focus is on entrepreneurs building businesses in Sub-Sahara Africa. Via social networks we are quickly growing our communities in each country and around specific types of business. We do give an accent to new high growth sectors like Internet, mobile and green technologies.
SMEs are the backbone of most economies in Africa. Innovative and creative entrepreneurial approaches are needed to help African SMEs adapt to global standards and realize their economic impact. SMEs in Africa face different social, ethical and environmental challenges, opportunities and dilemmas than their counterparts in Europe or the US. Their problems are shaped by economic factors (e.g. poverty, debt, industrialization, trade flows), political factors (e.g. level of democracy, corruption, legislation, institutional capacity), social factors (e.g. cultural context, urbanization, ethnicity, basic services, public health, HIV/AIDS), and ecological factors (e.g. drought, desertification, deforestation, resource scarcity, pollution).
Labor costs may be low but often not enough to offset the high costs of transport, raw materials, utilities, and other inputs. African businesses therefore find it difficult to compete in export markets, particularly in markets outside the region, and to compete against imports of a range of goods from other developing regions. Moreover, many African companies, especially SMEs, lack reliable financial data that allows financial organizations to scrutinize the health and prospects of the company. Most SMEs in Africa also lack assets that can act as collateral and mitigate the risk involved. As a result, capital in Africa remains too expensive for most entrepreneurs looking to build a sustainable enterprise.
Africa faces the challenge to provide better economic opportunities to its citizens, through sustained growth led by the private sector and to alleviate the poverty that has long plagued the region. A strong private entrepreneurial sector plays a vital role in this respect, in particular the small and medium-sized enterprises (SMEs) that provide many Africans employment, income and hope for a better future. SMEs contribute around two thirds of national income and provide the foundation for a stable middle class in many countries. They help form strong communities and are a powerful force for poverty reduction. Indeed, SMEs play a significant role in building economic stability and sustainability for the future.
Paul Collier, in his book The Bottom Billion argues that the bottom billion needs private capital and says, ‘clearly there are brave people within these societies who are struggling to achieve change. It is important to us that these people win their struggle, but the odds are currently stacked against them.’ He goes on to explain the numerous challenges ahead, but introduces a valuable line of thinking that builds the case for supporting local entrepreneurs seeking to implement solutions that are designed for a local context, the needs of a billion consumers rising as a middle class.
Andrew Mwenda, the chief editor of the Independent Magazine in Uganda, argues we need to replace ‘Poverty Reduction’ with ‘Wealth Creation.’ The focus needs to be taken off of symptoms (food, medicine and peace keepers) and in the effort to start addressing the real underlining problems i.e. the ability to generate an income, a trading opportunity and the ability to find a well paying job. His argument is clear; wealth is a function of income. The focus should be placed instead on entrepreneurs as agents of wealth creation. Entrepreneurs make up about 4% of the population and 16% of the population then follows as ‘entrepreneurial imitators.’ Any development efforts should thus be focused on these individuals and the areas of the economy where there are opportunities to productively grow. An emphasis should be placed on private investment and on the institutions and tools that can empower these individuals to do business.
In order to promote the development of the private sector access to finance is crucial. This can take many different forms form bank loans to overdraft facilities. Unfortunately, Africa is still seen as a risky and expensive place to do business. Indeed, transactions costs are often higher than elsewhere. Speaking to entrepreneurs actively working to set up their business I find that getting a loan from a bank in Africa is like getting a root canal. They always take more than expected and the process is painful at best.
As reported in Uganda’s the New Vision Thursday, 24th June, 2010, ‘Data shows that the lending rates remained high over the past year, standing at over 20% but consistent with trends over the past five years. Despite a slight decrease over the financial year from a peak of 21.8% in August 2009 to 19.6% in January 2010, lending rates remain high by international standards and significantly higher than in any of the other four East African Community partner states, where the average is about 15%.” East Africa is not alone and entrepreneurs face these rates or worse across the continent.
And don’t think its only the small business who struggle, I remember interviewing Mo Ibrahim, the founder of Celtel, and hearing about the challenges he had getting funding for a telecom proposition that was already in the black and operating in thirteen countries, otherwise the lucrative foundations for what is now Zain (recently acquired by Bharti). Amazing to learn that a company that eventually made 100 people millionaires the day it was sold had just of a hard time finding the financial support and business trust needed to make it happen. Of course few would turn him away if he called this afternoon, but where was the support when he started out and how many other entrepreneurs on the continent are in this situation today?
Venture Capital can be characterized as long-term, risk equity finance in new firms where the primary reward is capital gain.
Complementary to existing lending facilities and micro-finance programs, there is a growing need for Private Equity and Venture Capital, to fuel the development of the private sector in Africa. Equity investments can be instrumental in helping small enterprises grow into medium-sized enterprises and semi-formal into formal businesses. An important role in this respect can be played by Venture Capital (VC) Funds. They can support business opportunities through investment relations with private companies in the South and the North, introduce new business concepts and offer mentorship and guidance many entrepreneurs need to tackle tough challenges they will face along the way. Hence the VC impact on the business environment can be significant.
Looking to support the continent’s aspiring entrepreneurs there is reason to believe we need a lot more of it. Looking at a map like this we can see there is still a long way to go.
In African countries near the equator, darkness starts at 6:30 in the evening. An estimated 500 million Africans lack access to electricity and can only work, read and cook with kerosene lamps. But that fuel is expensive, dangerous and bad for health. The solar lamps provide a lasting solution to these problems.
According to calculations by the World Bank 17 billion U.S. dollars are annually spent on kerosene lamps in Africa. Some light manufacturers, including the Australian Barefoot and Dutch Philips company focus on this growing market.
After some hard years of work Africa Interactive takes home the Diageo Africa Business Reporting Award for the Spark Africa series! Spark Africa is a 20 episode video series dedicated to sustainable economic developments and innovative projects in Africa.
Each episode shows the ‘spark’ of potential entrepreneurs who think about African solutions for African problems. Examples of foreign businesses who successfully invest in African countries are also shown.
Spark Africa is published on leading Dutch news websites like Volkskrant, RTLZ, NuZakelijk en Wereldomroep. This video series aims to balance the traditional image of Africa as a lost continent. Spark Africa shows the energy, innovation and opportunities of the continent.
All items are made by freelance African camera men/women, presenters and technicians. There is filmed in Algeria, Ethiopia, Ghana, Kenya, Malawi, Mali, Nigeria, Sierra Leone, Rwanda, South Africa, Tanzania, Uganda and Zambia.
Initiator of this series is Dutch media company Africa Interactive. Check out a few episodes and a big congrats to the team It is a big award and well deserved.
Andrew Mwenda, a previous editor of Uganda’s Monitor newspaper and the Chief editor of the Independent magazine, has come to symbolize a new generation of African thinkers. He asks, ‘What man or nation has ever become rich by holding out a begging bowl?’
He argues that more aid to Africa, whether it comes from the West or China, will not solve the continent’s problems. He says, ‘It should not give us too much hope because, at root, foreign aid is an ineffective instrument that distorts recipients’ incentives for the worse.’ He goes on to explain that aid is given with the assumption that its recipients lack the necessary resource base needed to generate tax revenue. This lack in revenue is in effect what limits African governments ability to meet public expenditure needs. Mwenda argues that insufficient tax revenue is caused by poor tax administration, bad policies and institutions that otherwise work to undermine the country’s economic growth. The revenue that is collected is then poorly spent on the wrong priorities.
He goes on to explain that, ‘the failure of Western aid in Africa has little to do with the conditions attached to it, but a lot to do with poor governance on the continent. Look at China giving Sudan money to build a multi-million dollar presidential palace. That surely does not promote economic growth and development in that poor and conflict-ridden republic. You might criticize China, but over the years, Western aid to Africa has done more or less the same thing i.e. helping corrupt African rulers build palaces, fly executive jets, and acquire prime real estate in New York while the citizens of their country go hungry and die of disease.’ The result is that African governments answer only to their ‘financiers.’ It is this final point that is really starting to gain ground in the development debate. The link between governments and citizens needs to be rebuilt if there is to be any kind of real accountability, the kind of democratic dependency that binds a country’s ruling party to its citizen base.
Mwenda goes on to argue that the real potential for development is in fostering trade and business. And that local government is to blame for the continent’s inability to join the global system on a wide scale. It is also misleading to think that China’s loans are particularly generous. He says, ‘Africa’s inability to trade itself out of poverty is not due to bad trading practices by the Western world. That is only an excuse that is theoretically convincing but analytically and empirically false. The real cause of Africa’s trade predicament is mismanagement of policies and institutions that form the relationship between government and exporters.’ He goes on to explain, ‘For example, Africa’s major exports are agricultural. Governments in Africa have for many years pursued policies that reduced farmers’ incentives to produce both food crops and export crops. Bad government is to blame for the continent increasingly becoming a food importer.’ He argues that even when western countries have given Africa preferential trade arrangements the continent has been unable to take advantage of them. He references the Cotounou Agreement and the fact that not a single country in Africa, including Botswana, has met their quota.
In the case of his home Uganda, the country has been given a free trade quota to export 50,000 metric tons of sugar. Unfortunately, the country has failed to export a single kilo. He explains that, ‘Under the Africa Growth and Opportunities Act (AGOA), African countries have 6,000 products they can export duty free to the U.S. market. Most African countries have failed to take advantage of this opportunity and their benefits have been limited. This is because external trade – whether with China or the West – only offers an opportunity. Which country will take advantage of the opportunity depends on its internal institutional capacity. Unfortunately for Africa, this internal capacity is lacking all around. We need to stop looking outside of the continent for solutions. Africa needs internal reform before it can benefit from the rest of the world.’ More specifically, the need to identify local solutions stems from a growing need to identify local talent that can lead the way.
It is on this foundation that Andrew Mwenda puts forward his theory that we need to replace ‘Poverty Reduction’ with ‘Wealth Creation.’ The focus needs to be taken off of symptoms (food, medicine and peace keepers) and in the effort to start addressing the real underlining problems i.e. the ability to generate an income, a trading opportunity and the ability to find a well paying job. His argument is clear; wealth is a function of income. The focus should be placed instead on entrepreneurs as agents of wealth creation. Entrepreneurs make up about 4% of the population and 16% of the population then follows as ‘entrepreneurial imitators.’ Any development efforts should thus be focused on these individuals and the areas of the economy where there are opportunities to productively grow. An emphasis should be placed on private investment and on the institutions and tools that can empower these individuals to do business.
Like Paul Collier and William Easterly, Andrew Mwenda argues that the emphasis should be shifted from ‘top down’ to a ‘bottom up’ approach. Less focus should be made on relations with a country’s president and more emphasis should be placed on Mwenda’s ‘wealth creators’ and Easterly’s ‘searchers.’ These individuals on the ground have the power to seek out local solutions. They are in a unique position to take advantage of local opportunities and tackle local needs and challenges. This new line of thinking is relevant to development efforts generally and the ICT4D debate in particular.
Andrew Mwenda is the publisher of the Independent, a critical voice in Ugandan media
A growing body of work suggests the traditional development approach fails to address the problems of poor countries. The current debate on development cooperation brings into question the very fundamentals on which the sector is grounded. This background is critical to understanding the rise of ICT4D and the role of ICTs in development. In many ways, this new development field stems from the same traditional framework meaning its own purpose, design and practice needs to be reviewed.
In the 1960s economists such as Peter Bauer and Milton Friedman first questioned the effectiveness of development aid. Recent econometric studies now support their view and make the argument that traditional development aid does not impact the speed at which a country develops. On the contrary, development aid can actually be detrimental to its progress (including an unbalanced appreciation of the recipient’s currency known as Dutch Disease). This in turn increases corruption and actually works to stall political, economic and social reform. Authors that contribute recent thinking to this important conversation include the works of Easterly, Sachs and Collier. Each author aims to address a quickly changing environment that most notably includes the rise of new super powers. Specifically, countries like China, India and Brazil that have shown specific interest and influence (political and economic) on Africa. Their interest in the continent works to upset traditional relations (N. America and Europe) and has sparked a new era of competition. This has spurred a new grab for power, influence and resources not seen since the days of European colonialism.
In addition to a fast changing political landscape, increasingly influenced by south-south relations, the continent continues to grapple with ongoing conflict, civil unrest, fundamentalism, gap between rich and poor, food shortages, lack of clean drinking water, the ongoing HIV/Aids epidemic, increasing violence, an energy crisis, ecological crisis, climate change and other economic, social and political challenges. These issues are underlined and exacerbated by the world’s simple inability to eradicate poverty on a large scale.
UN advisor Jeffrey Sachs argues in his book The End of Poverty that there is a need for an even bigger push in investment in local infrastructure. This approach can be described as ‘utopian engineering’ and calls for grand schemes needed to fill ‘large gaps.’ He believes that these challenges need to be tackled head on if they are to be resolved in a short period of time. That infrastructure is the key to getting people involved in a global economy. He argues that the poor need to be helped into the global marketplace at which point their productivity will rise and they can take care of themselves. In a later book Commonwealth: Economics for a Crowded Planet, Sachs takes a broader approach, lessening his emphasis on investment in infrastructure, and dedicating more analysis to climate change, population growth and environmental degradation.
William Easterly takes an opposing view and averts the large-scale ‘top down’ approach of his colleague. He warns against too much planning and believes the deterministic line of attack too often ignores the local context. Instead, he argues for a process of trial and error, an effort to find and search out solutions that can then be replicated and copied. He argues for a ‘bottom up’ approach that responds to demand on a local level. To this extent, planning is only a means to an end. Real development comes from the ‘searchers’ on the ground seeking out local solutions for local problems.
Paul Collier, in his book The Bottom Billion offers a third perspective. He identifies four traps of poverty that includes civil war, abundance of natural resources, landlocked location of countries and poor governance. Collier underpins his book with statistical analysis and offers new and broader thinking about development. He looks wider than conventional aid and makes an appealing argument for more engagement with the private sector. He argues that the bottom billion needs private capital and says, ‘clearly there are brave people within these societies who are struggling to achieve change. It is important to us that these people win their struggle, but the odds are currently stacked against them.’ He goes on to explain the numerous challenges ahead, but introduces a valuable line of thinking that build the case for supporting local entrepreneurs seeking to implement solutions designed for a local context.
Specifically, he recognizes the idea that the pyramid structures and top down approaches used in traditional development are quickly becoming models of the past. Increasingly, people possess the ability to take development into their own hands. It is through economic activity that Paul Collier argues the most progress can be made. He explains, ‘International trade has taken place for several thousand years. However, the most dramatic transformation of the size and composition of trade has been during the past twenty-five years.’ He goes on to say, ‘For the first time in history, developing countries have broken into global markets for goods and services other than just primary commodities.’ It is this most recent development that gives the world’s impoverished an opportunity to make real economic progress.
Collier makes clear that until 1980 the role of developing countries was to export raw materials. He explains that in contrast to popular belief 80 percent of developing countries exports now consist of manufactured goods. At the same time developing countries are increasingly able to export services. He explains, ‘so trade based on primary commodity exporting is likely to generate quite a lot of income inequality. And its scope is inherently limited by the size of the market: as exports grow, prices turn against exporters. By contrast, manufacturers and services offer much better prospects of equitable and rapid development. They use labor rather than land.’ A successful transition into secondary and tertiary sectors remains the key challenge for the continent moving forward.
After several decades of development efforts it is clear that these problems can never be solved by official development assistance. On the contrary, there are an increasing number of reasons to believe that official development aid is one of the key hurdles that inhibits real development on the continent. Specifically, the argument that African governments only answer to foreign aid donors as opposed to their own electorate. The priorities and responsibilities of African governments are warped and influenced by outside actors effectively breaking the relationship between government and citizen in the process.
It is also important to recognize that the problems previously associated with poor countries (rightly or wrongly) are the same problems now faced by countries in the North. Thomas Friedman, in his book ‘Hot, Flat and Crowded’ makes clear that poverty is a global issue and that all countries face growing concerns of population, food security, the energy crisis and global insecurity. This changing landscape questions all assumptions and requires a complete ‘rethinking’ of traditional development at best. This shift is accurately described by the slogan used for the 40th anniversary of the IDS (Institute of Development Studies, Sussex, UK) that reads, ‘Problems are not a monopoly of the South and solutions are not a monopoly of the North.’
These different authors work to effectively question the approach of traditional development aid and illustrate new areas now open to debate. These authors make clear that we need to reach outside of traditional development thinking and look beyond the traditional sector and actors. New language, new theories and new players are required to redefine development for the 21st century. It is important to recognize that now global issues are also at play. In an effort to tackle these challenges a new focus is placed on local entrepreneurs and wealth creation. And as opposed to the top down approach that has failed in the past, a new focus should build from the bottom up. These texts are instrumental in introducing a needed shift in thinking. It is unfortunate its taken nearly 50 years to realize that changes need to be made. Let us hope it wont take another 50 years to reflect on the actions we take today.
African entrepreneurs are driving a second technological revolution in Africa. Where ICT’s were once imported from abroad and artificially embedded as telecenters a new trend is underway.
Local talent are actively working to deconstruct technology in ways they can rebuild it with a purpose. Designing from within the context and for the context gives it meaning.
A growing network of investors see this potential and are now working to engage the entrepreneurs with the best ideas and in a growing effort to tap this new potential.
The iHub, Nailab, Limbe Labs, Appfrica Labs, Banta Labs, MEST and other incubators on the continent are the front lines in this business. They bring together entrepreneurs in ways that they can effectively incubate new projects and ideas. They also serve as a critical nexus where knowledge, skills and capital come together. Otherwise an effective interface to the outside world, the public and private sectors and government.
Afrilabs brings this emerging network of labs together in the interest to promote these local initiatives, coordinate activities, share lessons learned and promote success stories.
VC4Africa.com is a peer to peer platform for connecting entrepreneurs and investors. The revolution is here and the time is now.
At Venture Capital and Private Equity in Africa (VC4Africa.com), an online community for investors and entrepreneurs dedicated to building business on the continent, we believe it is important we meet ‘offline’ as we do ‘online.’
For 9 months we have been using the BarCamp model (an international network of user generated conferences – open, participatory workshop/events, whose content is provided by participants) to organize our very own series of VC4Africa Meetups.
Already we have hosted VC4Africa meetups in Johannesburg, Abuja, Kampala, Nairobi (2x), Kigali, London, Washington DC, San Francisco, New York and Atlanta. We like this open format because it means that anyone can participate. Any member of VC4Africa can organize a meeting in their area whenever they feel there is a need.
A VC4Africa Meetup in Amsterdam
For the first Amsterdam meeting we hosted 18 entrepreneurs with vetted business plans. And not just from East Africa but from Mozambique, Ghana, Congo and Niger too! Can you believe that?
Needless to say, this was a great chance to connect them with possible partners and investors. Also friends and other people curious to meet them.
We had over 50 members join the networking event and facilitates many discussions between entrepreneurs and investors. We also had the chance to introduce the new VC4Africa logo and handed out t-shirts and stickers to members attending!
As with all VC4Africa Meetups, they are simply a place for members to meet one another and share thoughts and ideas. No speeches, no agenda, nothing planned. The loose structure allows for lots of networking. Just remember, everyone is expected to pay for their own drinks:)
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It is a big award and well deserved. 
