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Founding: the emergence of African investors

01
Dec 2018

Plenary 2 of the 20th of November 2018 - Led by Jeremy Hajdenberg of Investisseurs&Partenaires Palais du Pharo - Emerging Valley

➢ Mbwana Alliy, Co-founder of Savannah Fund (Kenya)

➢ Kenza Lahlou, Co-founder of Outlierz Ventures (Maroc)

➢ Grégoire de Padirac, Investment Manager of Orange Digital Ventures (Sénégal)

➢ Yves Delafon, President of Africalink and Director of BCI (France-Mauritanie)

➢ Olivier Furdelle, Co-founder of Teranga Capital (Sénégal)

➢ Thameur Hemdane, Founder of Afriqwity (Tunisie)

➢ Ben Marrel, Founding Partner of Breega Capital (France)

Specificities of entrepreneurship in Africa

Kenza Lahlou is the co-founder of Outlierz Ventures, a Maroc-based Pan-African VC fund that invests in tech startups (seed and pre-Serie A) willing to resolve major issues in key industries such as fintech, agritech, logistic… She was recording three African startups’ specificities :

  • “Must have” solutions, not “nice to have” solutions, in response to key issues
  • A B2B business model in a fragmented African market with a low purchasing power
  • A regional and continental approach, not a national one.

What facilitates and hinders investment in Africa

Oliver Furdelle introduced the investment fund Teranga Capital, dedicated to the funding and support of SMEs and startups, whether they are technology-oriented or not, in Senegal. He declared that access to funding was difficult for tech startups but not as much as for startups in traditional sectors (agriculture, health, food etc.). According to him, this reluctance from investors comes from two principal factors. Firstly an economic one: these traditional sectors are considered as risky and less profitable, and would require more important support. Secondly, investors are often facing a lack of investment readiness in those fields. Indeed these projects tend to lack maturation and crucial information about the market, the management and other key elements of a business.

Dealing with such obstacles, Furdelle emphasized on the necessity to find “committed” investors ready to make compromises for impact investment on one hand and to support startups in investment readiness, on the other hand.

 

“The overall funds managed in the world are equivalent to 100 000 billions of dollars, African entrepreneurs’needs represent 350 billions of dollars, that being 0,33% of the total funds managed in the world.”

Among these barriers to investment, Yves Delafon as the administrator of the BCI evocated the role of banks in Africa and regretted their positioning regarding startups funding. He highlighted the fact that the BCI didn’t finance SMEs for several reasons: a high level of risk, insufficient funds, an insecure environment with a lack of guarantees, a lack of classification information etc. While 80% of African SMEs don’t have access to bank loans, he raised awareness about the gap in startup fundings between the “love money” and the average two million dollars funds raised by most financial backers and institutions.

Mbwana Alliy, the co-founder of Savannah Fund, operates in six high-reputation countries that are considered as models for investment. He recorded different elements that, according to his experience, facilitate fundraising and investment in an African country: the choice of relevant subjects, such as the electronic currency in Kenya, the creation of an innovative ecosystem and the presence of big corporations as potential strategic partners. He also invited investors to try unpopular countries that can have yet a strong potential, such as Zimbabwe for example.

Investment similarities and opportunities in Europe and Asia

Ben Marrel intervened as a representative of Breega Capital, an investment fund that manages 200 million dollars and revendicates its ability to support entrepreneurs thanks to its team entirely composed of entrepreneurs itself. According to him, European and African ecosystems show strong similarities, that have encouraged this non-African fund to invest in Africa. He mentioned, for example, the diversity of African countries and cultures that we can also find in Europe. According to him, this multi-country environment encourages the creation of local businesses, whether they are operational, logistic or payment ones. He shared the idea that Europe and Africa must adopt a successful investment model considering the whole ecosystem and facilitating investor exits. While exits are still difficult in Europe, the African continent hosts giants businesses that can be potential buyers.

 

Creating links around funding between Europe and Africa: the example of AfricaLink and Afriqwity

Yves Delafon recalled the creation of Africalink, a network funded by the gathering of 64 SMEs and answering three deep convictions: Africa is the next engine of world growth, European and African have a shared past but also a common future, and African entrepreneurs are dedicated to developing durably the continent. As a bridge between the two continents, the success of this network comes from the ambition to create profitable industries and to support partnerships between South businesses and North ones.

 

Another approach creating links between African and European entrepreneurs: Afriqwity, a digital platform enabling investors living in France, and notably from the diaspora, to invest in startups and SMEs in Africa. Thameur Hemdane came back on the two majors stakes of this project :

  • To identify startups and businesses while considering the investment readiness and the ambition of the projects, not to mention all the issues related to cross-border investment from Africa to Europe.
  • To mobilize investors from the diaspora, who represent a great potential for investment: Indeed African diaspora counts currently over 30 million of members in the world and transfers more than 60 million dollars per year, i.e. three times the amount of the public aid for development. It has 50 billion dollars on its saving accounts in its hosting country and is looking for investment opportunities in its home country.

The objective of Afriqwity is then to encourage people to mobilize a part of their savings into investment opportunities in Africa (SMEs, startups). Thameur Hemdane also calls for an Africa that “finances itself” its businesses thanks to local savings. He organized a forum in Dakar to promote good practices and explain the regulation related to local savings and encourage its mobilization over usual financial resources for development.

Big companies, a catalyst for startup funding in Africa: the example of Orange

“Africa is a huge opportunity for entrepreneurs and investors. It would be a waste for an operator like Orange to keep its assets. It’s a big issue for startups to use these resources to scale up.”

Grégoire de Padirac featured the 50 million-investment fund Orange Digital ventures,dedicated to African projects in Serie A and B. He explained their ambition to be connected to these “future Pan-African champions” and to bring to startups, as a telecom operator, all the necessary capacities to scale up on the continent: access to customers, to their technologies, distribution networks, payment solutions, data, and other assets. According to him, here is the specific role of a big company in Africa: to be useful to the continent and to create mutually beneficial partnerships.

Summary

Over time, the international community has become aware of the major role of entrepreneurship in the development of Africa, as well as investment opportunities resulting from this new economic dynamism. The success of entrepreneurship is said to be relying on must have solutions dedicated to a regional or continent mass market in B2B. In spite of the emergence of investors in Africa, the African startups’ needs for investment (representing only 0,33% of the total funds managed in the world) are insufficiently fulfilled. Indeed investors and banks focusing exclusively on profitability still show reluctance on one side while startups lack investment readiness on the other. Facing these obstacles, it will be necessary to promote a more activist impact investment, bolder in choosing target countries and appropriate for the market realities, with progressive amounts of investment. Furthermore, African entrepreneurs need to mobilize the diaspora (who owns 50 billion dollars in the host countries) and the local savings to develop their project, and to lean on partnerships with big residents companies in Africa to scale up. Finally, they will be encouraged to build stronger links with funding European actors and Mediterranean networks for entrepreneurship and innovation.

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