FIP 99: How local founders can attract foreign impact capital, with Andreas Zeller

This episode shines a light on why local founders, who have excellent businesses, struggle to attract foreign impact capital. Open Capital Advisors has been advising in Africa for 9 years now, helping entrepreneurs grow, and helping advance economies, whilst also helping build a generation of business leaders in Africa. Based in Kenya, Uganda and Zambia, covering 20 countries in Africa and have worked on 450 engagements to date.

On this episode you’ll learn:

  • Village Capital studied the amount of impact investment money going to local founders, which showed less going to local founders. Some of the reasons is the lack of understanding by local founders about what is needed to raise capital, not being active in the networks that foreign investors are active, and knowing how to communicate effectively. Alot of OCA’s work goes towards bridging this gap.
  • Many impact investors from North America or Europe don’t have local offices and are not familiar with cultural norms or business practices in country. When they do, local staff are not part of the decision making process, so when they take deals to their investment committee, made up of members who are not familiar with the context, they’re often rejected.
  • Founders need to get good at how they describe themselves to foreign funders, how they articulate their value prop, how much info they need to share.
  • Another challenge is that local founders might expect to build a relationship over several interactions, whereas foreign impact investors might expect to develop a relationship over one meeting, because their time is limited in country.
  • Local founders might not have international brand names on their CVs like international founders. They may still have very good CVs with experience at reputable local companies or universities, but are not known about by international investors.
  • The due diligence process can be more effective by helping local founders understand what is necessary, what information needs to be shared and when.
  • Local events can be organised to allow for more touch points between local founders and investors.
  • One of the biggest frustrations of all the local founders that OCA works with is for an investor to quickly say No, if its a No, instead of wasting their time for 3-6 months on a lengthy process process.
  • A greater understanding of the language used by investors would help the whole process. But investors should not expect Founders to be finance specialists to enter into these conversations.
  • A primary reason why investors might give a No to local founders is lack of documentation and record-keeping. Also, a simple inability to communicate with local founders effectively. Also lack of trust, that local founders might not be willing to give a share of their business to international investors.
  • Local founders should also be clear about what they mean by impact, including how it will be measured – which is much harder than financial indicators.
  • Local founders should do their due diligence on investors, who you really trust, who believes in you and your company, and what they fund.
  • Funders who fund broadly, either early stage or later stage, who’re open to any stage of business, often, in fact, do have a sweet spot.
  • Getting support can help local founders, be it a mentor, an accelerator, or a business support provider, who are plugged into the investor community.
  • Andreas has seen a shortage of qualified Chief Financial Officer type human capital, who are people who can run analyses, help businesses make decisions, or form strategies. They created Arcadia to fill this gap.

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