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FIP 102: Why donor money is distorting the entrepreneurship ecosystem in East Africa, with Fiona Mungai of Endeavor

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Fiona Mungai joined endeavour with six years of experience working in Private Equity and Asset Management in East Africa. Fiona started her career at British American Asset Managers and then at Actis — a leading pan emerging markets private equity fund, She he been a founding member and Board Director of the East Africa Venture Capital and Private Equity Association that has 100+ members.

On this episode you’ll learn:

  • Endeavour supports high impact entrepreneurs. Why? Because high impact entrepreneurs are able to create thousands of jobs, can come up with a business model that is scalable, and can create millions of dollars of revenues.
  • High impact entrepreneurs will also support the entrepreneurship ecosystem, by creating an entrepreneurship culture within their organisations, empowering their employees to think about spinning off to create their own businesses, are willing to mentor the next generation of entrepreneurs and re-invest capital back into the ecosystem.
  • There are very few venture capital or early stage funds operating in East Africa. Even those that do label themselves as venture capital, have the risk profile of private equity funds. Which means they do less hand holding and have a lower risk tolerance.
  • As a result, many entrepreneurs in East Africa have to look for investors aboard, for example in the US or Europe, and growing their networks and relationships with these investors from afar can be a challenge.
  • Endeavour connects businesses with international investors, by organising roadshows for entrepreneurs and networking events with investors in the Middle East, Asia, Europe and the US.
  • International investors have a certain expectation for how companies should be packaged, which companies in East Africa need to know about. This includes things like governance structures, leadership and HR structures, business model optimisation, and business model valuation.
  • There is alot of soft money (grants) supporting entrepreneurship in the East Africa ecosystem. Those providing the soft money may also be advising the entrepreneurs, but don’t necessarily have experience running a business that has scaled. The prevalence of grants to scale businesses can create a dependency, that hinders the ability of the business to scale.
  • Endeavour also advocates for entrepreneurs to pay it forward in (a) investing money back into the ecosystem after an exit / liquidity event, and (b) mentorship, by supporting up and coming entrepreneurs with advice and access to networks.
  • Relationships takes time, so you need to be on the road meeting potential investors at least 12 months before you need the funds. The feedback you receive from investor conversations can feed back into your business and will serve you well as you go back on the road.

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FIP 101: Experience from a recent investment raise with Dr. Christie Peacock of Sidai Africa

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This week on the Finding Impact Podcast, we are talking to Dr. Christie Peacock, founder of Sidai. We’re going to do an interview about her recent experience of raising a round for her social enterprise Sidai Africa. Sidai offers farmers solutions to the challenges they face growing crops and livestock productively and profitably. So Sidai trains farmers to help them farm more profitably, and provides support to franchisees, stockists and suppliers to help them grow their business. And they manufacture and sell a wide range of quality crop and livestock products.

On this episode you’ll learn:

  • Christie’s experience in trying to raise a round of equity investment, especially when not selling the latest “cool” app but selling a very practical and fundamental product for farmers which is a low margin business.
    • How many funders she spoke to, and the timeline.
  • Selling SIDAI to investors: the original business plan projection was that SUDIE was not going to be profitable for at least eight years although investors want to see profitability sooner.
  • Her advice to investors:
    • Perhaps the cost of impact capital is sort of going up because of early failures.
    • Instruments being used from the commercial sector are not so appropriate for social business which typically take longer to make money.
    • Similar to sophisticated grant makers, investors should have clear deadlines, milestones, timetables, etc., and make those steps as short as possible.
  • Her advice to social entrepreneurs about hiring a very good and experienced transaction advisor with a good track record:
    • They can really help you in structuring the investment and getting as good an evaluation as you can get, and
    • Can help in having the capital structured that’s helpful for the business and not just structured in the way the investor wants it.
  • So many impact investors that are new and are start-up’s themselves.
  • The “good no,” which only took six weeks, versus the “bad no” after 12 to 18 months of engagement.
    • It should only take one to two months if you’ve got all your documents in order, and people can come and visit.
  • Open Road Alliance and their report called Roadblocks which talks about some of the challenges that they funded:
    • The issue of investors stringing along social enterprises and then dropping them because the decision making is so far away from the people on the ground.
    • The specialty of Open Road Alliance is emergency bridge funding to fill a gap for entrepreneurs who have hit a roadblock for whatever reason, but there has to be a genuine external factor blocking the flow of investments that will be ultimately removed.
  • Communicating the challenges you’re facing as an entrepreneur in the East African market can be difficult because most of these investment firms originate their capital from overseas (not local Kenyan capital) and often these foreigners don’t come to manage the firms and it’s unlikely they have hands-on direct business experience.
    • The way to get around this structural issue is to have at least a local advisory board of local entrepreneurs who really know the sector that the funders are investing in and ideally you’d have a local investment committee to look at things quite independently.
  • The global investment network needs a code of good practice on investor / investee behavior, such as:
    • The clarity around the steps in the process,
    • The time required and when,
    • Level playing field,
    • Open communication,
    • Mutual respect, and
    • Good conduct.
  • Shout out to Christie’s excellent impact investor: AHL venture partners

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

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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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FIP 74: Gender Smart Investing with Suzanne Biegel

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On this episode we continue our podcast takeover series with Tamsin Jones of The Boardroom Africa. Her guest today is Suzanne Biegel of Catalyst at Large. Suzanne has more than 25 years’ of experience as an entrepreneur, investor, board member, and hands-on operational manager. Her consulting, speaking, facilitation, writing and field scanning is in gender lens investing, globally and spans work with a variety of institutional actors.

On this episode you’ll learn:

  • About what it means to practice smart investing for gender impact. Suzanne provides tactics and strategies to help us improve.
  • The importance of having a culture that is built to last. Suzanne has learned through experience that there is strength in diversity.
  • If you don’t have a management team that reflects who you are representing, you might be missing something. Inherent value in having different perspectives.
  • Suzanne tells us about the benefits of analyzing your business through a gender lens.
  • If you are designing products for women and girls, wouldn’t it make sense to have them involved in the design process?
  • Pay attention to ‘hidden influencers’ along the way. These might not be your customers, entrepreneurs, or end clients, but could be the controllers, HR staff or accountants in the company. Are they benefiting from the resources and support? Who is in your supply chain?
  • Is your company paying attention to women’s needs? Transportation? Child Care? Is there a safe way for women to get to and from work?
  • From a customer standpoint, how are you speaking to your women customers? Are you being respectful? Are you hitting stereotypes? Start by asking questions.
  • The data shows that once you get product market fit right for female customers, they will be more loyal. Once you secure a female customer, they tend to be more communicative about the product to others and in essence become an ambassador. They are more likely to recommend products and more likely to buy more.
  • Be purposeful in where you use your energy. There are a lot of people on the same journey as you. Find partners and work collaboratively where possible.
  • Start with a problem that you are really trying to resolve and go towards it relentlessly.
  • There are endless events and resources worldwide. People are realizing there is power in connectivity! Visit a few of Suzanne’s resources below…

Links to Resources:

Resources for Investors:

 

Connect with Suzanne:

  • @womeneffect
  • @zanne2
  • #genderlensinv