In 2012, Darshan Daya Partner at Capitalworks stated, “We are blessed with a strongly entrepreneurial culture in SA, and many companies which are good operationally need a financial partner to get to the next level.” – Financial Mail – February 24, 2012.

Small and medium sized Enterprises (SME’s) are the dominant form of entrepreneurial activity in Sub-Saharan Africa. Over 90 percent of Sub-Saharan business operations stem from SME activity, making up 50 percent of employment and GDP. The Legatum Prosperity IndexTM depicts that the key to helping entrepreneurship and opportunity thrive will emerge from the ICT platform environments.

Launched in 2010, Vincent Kouwenhoven and Brian Hirman, two successful internet entrepreneurs brought the eVentures Africa Fund to the Sub-Saharan Market. The company is focused on investing long-term equity in established small businesses that have been trading and generating revenue streams, but need to be set on a growth trajectory. These businesses are all involved in the digital platforms. Kouwenhoven says, “A barrier to investing in Sub-Saharan Africa is the general misunderstanding about venture capital by business owners.”

The key focus of eVA is to inject capital into second stage investments, where the companies have identified a niche in the digital market, invested in their start-up and to some extent grown the business into an equitable prospect.

VA: eVA Fund offer capital and then ‘lends’ on your background to assist make the business investments achieve the anticipated returns. Is there no conflict in terms of your involvement with the actual owner/manager(s) of the business?

VINCENT: The eVA Fund offers capital in combination with very active business-coaching, given our backgrounds with internet dating from the start of it all in the west, back into the mid-nineties. Active coaching implies several interactions by email/Skype during the week, with our investee company’s management, as well as face-to-face contact at least every two months, during visits to the companies. Coaching goes from technology, marketing/commerce, business/organization etc. In this sense we operate totally different than most VC’s, i.e. significantly more hands-on. There is an obvious and logical limit to the number of investments we can assist in this way.

VA: What triggered the passion for investing in Africa?

VINCENT: Seeing the deployment scheme of the sea cables in 2008/2009, the lack of truly African internet solutions for African issues by that time (back in 2008/2009), the funding gap in the middle (too big for micro payments, too small for Private Equity, hence venture capital required), which serves best for opportunities for fast growth in this space. Furthermore a passionate belief in the impact internet will have on Africa’s development in general (talking about main Africa now, not particularly SA).

VA: Investing in Africa must come with some challenges. Can you list a few of the most critical to date?

VINCENT: Again, not specifically for SA, but Africa in general: immature market for digital itself (sometimes chicken & egg problem); recruitment of people with a combination of both technological savvy and business skills. In general, tech-wise the levels are up to standard, but combined with business skills is harder to find, sometimes challenges in the area of legal frameworks, but in general fine, with the help of local lawyers/fiscal advisors. In some countries: power issues…and obviously sometimes cultural issues, although we quite often work with native Africans which have studied/worked abroad, which ‘guarantees’ the best of both worlds

VA: This is Africa. How does the investing environment change in terms of Africa as the location?

VINCENT: Obviously the fact that Africa is all about mobile, is a big difference (and potential future advantage) of Africa over the US/Europe.

VA: Obviously eVA operates in different countries. in terms of prospects and current performance, which ones stand out?

VINCENT: In performance terms it might be too soon to judge. We’ve invested in Ghana, Kenya and SA so far, all of which are very promising. Important for eVA is that we have strong networks in these countries, especially now with the recent partnership with 88mph. Otherwise we don’t exclude other countries, and have looked at serious applications from Nigeria, Uganda/Tanzania and Zambia as well.

VA: Are you (eVA) achieving anticipated return targets?

VINCENT: eVA’s investors expect a combination of sound financial returns as well as positive impact (in terms of local employment, business enabling etc)

VA: Please highlight some of the eVA success factors for VC investing in Africa?

VINCENT: Background of the fund managers; combination of having over 10 years VC practice in Europe plus having built, grown and sold their own internet-businesses on the one hand, and an active group of private investors behind us, of whom most of them have also developed and managed, or still manage, successful internet business, also on an international/global scale, who are actively involved in the process. For instance, next week a group of 8 of our investors will join us on a trip to SA and Kenya, to visit our portfolio companies themselves.

VA: Performance wise – can you ring-fence the cumulative ROI for eVA in Africa?

VINCENT: I can, but we don’t share financial data publicly, being a privately funded fund

VA: On the SMME (Small, Medium and Micro) spectrum, where is the bulk of VC capital investments been channelled?

VINCENT: These are medium investments from 250, 000- $1.5 million. Typically these businesses have between 5 – 15 employees.

VA: Has there been any interest by eVA in Social Enterprises and what is the ROI dashboard indicating – in terms of an African context (comparatively speaking)?

VINCENT: We don’t focus on social enterprises specifically, but do place high standards on the fact that our investment companies must have a positive impact on the African eco-systems; best guarantee for that is growth (i.e. high valued jobs) and profitability to be a sustainable business.

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The pan-African private equity firm that invests in small-to-medium sized enterprises (SMEs) on Tuesday said the appointment of Shaun Collyer will considerably strengthen Jacana’s investment team.

Collyer will safeguard quality control and discipline in the execution of the investment process, strategic portfolio management and the development of successful exits in the East and West Africa markets.

Collyer is a South African and the former CEO of Batian Fund in East Africa. His appointment comes just before the envisaged close of Jacana’s new $75 million pan-African SME fund later this year.

Previously, Collyer worked with Pegasus Capital and Three Cities in New York. It is understood that Collyer has closed many buy-side private equity and add-on deals.

These deals were often in situations which that needed restructuring or complex structuring and hands-on operational support.

Collyer will be based in the firm’s Nairobi office. He will also travel frequently across Jacana’s West and East Africa operations.

He will play an active role in delivering Jacana’s investment strategy across its three current funds.

Jacana currently has three funds worth $43 million. And there is also the new $75 million SME Fund for Sub-Saharan Africa (SSA) that Jacana is currently raising from international investors.

Simon Merchant, the CEO of Jacana Partners, said Collyer brings over 18 years of private equity and corporate finance experience in the US and Africa to Jacana.

Collyer said he has been very impressed with Jacana’s broadly experienced team, their unique approach to investing in Africa’s SMEs and impressive track record to date.

“The next few years’ will be an exciting time for Jacana, and I am looking forward to bringing my skills and experience to the team so that we can continue providing value-add private equity investment to entrepreneurs and making the most of the unprecedented investment opportunities offered by sub-Saharan Africa for our investors,” Collyer said in a statement.

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Zimbabweans have already voted overwhelmingly in favour of a new constitution, clearing the way for presidential elections, noted Tino Kambasha, Executive Director at Imara Zimbabwe, co-conference organisers with South Africa-based Imara Africa Securities.

He added: “The peaceful referendum has focused international investor interest on prospects for a new political beginning on the back of an economic recovery that has recently seen GDP growth of more than 7 percent a year.

“We therefore expect strong interest in the conference by fund managers and sophisticated investors from North America, Europe, the Middle East, Asia and neighbouring South Africa.

“The last year has witnessed significant investment inflows into Africa’s so-called Frontier Markets as African growth prospects have remained remarkably resilient at a time when many developed economies are still struggling with the after-effects of recession.”

The International Monetary Fund forecasts that Africa’s average growth rate will top 5 percent in 2013. Zimbabwe’s economy has reportedly been growing at approximately 7.5 percent since dollarisation in 2009.

The conference will be staged at Harare’s Meikles Hotel and will feature visits to new production lines at manufacturing companies that are taking advantage of the country’s economic recovery and the continuing uptick in local consumer demand.

Conference participation has been confirmed by some of Zimbabwe’s leading corporates, including AICO, Dairibord, Econet, Innscor and New Dawn.

Kambasha noted: “Conference timing could hardly be better as the scene has been set for new presidential elections following the peaceful turnout for the referendum on the new constitution.

“Our conference will most probably occur at a time when policy parameters are being spelled out and investors can get a real sense of emerging opportunities in a wide range of sectors, from resources to fast-moving consumer goods, agri-business and manufacturing.

“The response from invitees has been very positive and we expect a strong turnout from investors looking for value and growth opportunities.”

Imara is mid-sized investment banking group with offices in Angola, Botswana, South Africa and the UK and associate offices in Malawi, Mauritius, Zambia and Zimbabwe.

The Group is an active participant in Africa’s financial markets and maintains extensive research coverage of regional equities.

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The Cambridge Associates LLC African Private Equity and Venture Capital Index which was launched today at the AVCA 10th Annual conference in Cape Town revealed that private equity funds in Africa posted an 11.2 percent annualised return for the 10 years ending September 30, 2012; African private equity funds outperformed U.S. venture capital and are roughly in line with the broad Cambridge Associates emerging markets private equity and venture capital index for the most recent 10-year period; except for the most recent periods, African private equity has performed in line with or ahead of Asian and Latin American private equity.

In an official statement, the organizations also reported the index disclosed the strongest performing sectors within the private equity funds in the African index were IT/telecom, industrial, manufacturing and consumer. Other than the consumer sector, all of these have outperformed their other emerging market peers.

Commenting, Michelle Kathryn Essomé, CEO at AVCA said: “This launch marks a monumental moment for African private equity investment. For the first time, investors looking at the continent have a performance benchmark akin to those that well-established emerging markets have enjoyed for some time.”

David Wilton, Chief Investment Officer and Manager Global Private Equity at IFC added, “IFC welcomes the new African Private Equity and Venture Capital index, which is of high quality and joins the ranks of global private equity benchmarks. We expect the index to increase investor confidence, as it shows that returns from private equity in Africa are as attractive, if not more attractive than other regions.”

The African Private Equity and Venture Capital Index comprises 40 institutional-quality private equity and venture capital funds based in Africa that invest third-party limited partner capital. The benchmark excludes captive funds, real estate funds and funds with open-ended structures.

The total fund capitalisation is $7.3 billion, and the vintage years covered are 1995 to 2012. The 40 funds include investments in more than 350 companies headquartered in more than 25 African countries, as well as a small number of Africa-focused companies headquartered outside the continent.

Cambridge gathers data by tapping verifiable data sourced directly from each fund’s financial statements.

The AVCA and Cambridge Associates will issue quarterly performance data, comparing the African returns to other market indices. Returns data are aggregated to protect the confidentiality of individual funds and their underlying portfolio investments.

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A global network of experienced entrepreneurs prepare to invest the time and money required to give Africa’s most promising early stage tech companies the head start they need.

VENTURES AFRICA – A small group of Cape Town-based mobile tech start-ups are next in line to take part in the 88mph programme, which has already given some of Nairobi’s mobile web businesses a major boost.

Founded by Kresten Buch, 88mph is an early stage start-up fund combined with a three-month accelerator programme that assists start-ups by giving them capital in the form of an investment, access to business networks, and the know how to grow their businesses. The programme’s African strategy is to fund strong teams with web-mobile ideas that can scale across English speaking Africa.

To participate in the programme, applicants must complete an application form consisting of 15 questions. Buch says some of the criteria considered before accepting a new applicant include dedication, motivation and whether or not the entrepreneur is willing to take the risk of building his or her business. “Will he quit his job and come work for 50 percent of the salary he earns in a corporate job?” Buch asks.

The name ‘88mph’ is a reference from the movie Back to the Future.

In the film, 88 mph was the all important speed required to travel through time. The team behind 88mph first came to Africa in 2010 when they set up a 48-hour investment boot camp that resulted in an investment in M-Farm – an SMS service that helped small farmers get access to the market prices of their crops. Since then, 88mph has added 15 mobile-web based start-ups to its portfolio and invested up to $500,000 to date. In Nairobi, eight companies benefitted from the programme. These included a mobile music start-up called Mdundo and an airtime credit start-up, Nanovas. All the start-ups from the Nairobi round are currently generating revenue.

88mph prefers to back teams, not individuals, and it is a prerequisite that applicants are able to write code, design or lead a product or team. Buch says that building a company as a sole founder is very difficult, so teams of two to four founders are sought. Altogether, between eight and 15 teams will be chosen to participate in the three month programme.

88mph invests in start-ups still in the early stages, as well as those in the growth-funding stage.

By the time a business is at the growth-funding stage, the business model has been proven and the business is ready to scale. This includes idea stage, prototype, user traction and revenue generation.

88mph focuses on web-mobile ideas because, according to Buch, these are normally scalable and entail low costs to get tested. “It fits our model well with a short three month programme and relatively small investment. Also, if you are to invest early stage, you need to know the space. We come from web and mobile [backgrounds] so we stick to what we know,” he says.

While most investors tend to steer clear of start-ups because of the perceived high risk of failure, 88mph specifically targets these companies.

“The risk is very high, but the return on early-stage start-ups can also be very high,” says Buch, adding that to mitigate some of the risk, 88mph invests a smaller amount across several start-ups. “We are tech entrepreneurs, so we feel it is the early-stage game where we can make the biggest different and create the biggest value.”

To determine how much is invested into each company, Buch’s team looks at a minimum amount that can give the start-up a “runway” of six to eight months, based on their budget, which is discussed before 88mph invests. A maximum of $100,000 is invested per start-up. 88mph is a privately backed fund, which comprises a minimum of 30 percent of the founders’ money. For the remaining 70 percent, the aim is to raise as much local money as possible. “In Nairobi, the fund is 70 percent local investors that have put money into the 88mph Nairobi seed fund. In Cape Town we are still talking to local investors to get the percentage of local investors as high as we can. Local investors generate more value,” says Buch.

The investors take an equity stake in the start-up businesses in return for their funding. At the end of the three-month programme, 88mph hosts a demo day where the start-ups are given access to a group of investors to showcase what they’ve achieved so far and hopefully to secure follow-on funding for expansion of their businesses. As they grow, the businesses continue to receive support from their investors but not on the same scale as during the first three months. “The 88mph business model is to get start-ups to succeed. If [they don’t], then we don’t make any money. So we of course try to help after the start-ups are done with demo day,” Buch says.

According to Buch, the programme focuses on each company’s individual needs and also helps connect the start-ups to people who can be useful for their growth.

“It’s very action-oriented, trial and error and pushing the team into the market,” he says. In Cape Town, the 88mph team has managed to secure a partnership with Google. This enables the right space and Internet resources to build tech companies. It also provides access to Google’s experienced web professionals, who can mentor the start-ups.

88mph was first launched in Nairobi in 2012. “Kenya is the leading tech hub in East Africa and the country with the highest penetration of mobile money, so it seemed like a good place to start,” says Buch. Only one programme is run at a time – Nairobi ended on 13 December 2012. Cape Town will start in February 2013. Buch is already scouting where to go next. “I am looking at a city in West Africa, either Accra or Lagos,” he says.

Looking ahead, Buch says he wants to expand the programme and make the value proposition to start-ups even stronger. He says VCs have also shown interest for a feeder fund to feed the individual programmes in the different cities. “They are interested in what we do as we help build deal flow for them and they like to get insight on what works and doesn’t work in this space in Africa.”

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VC4Africa wants to close Africa’s startup-funding gap, bringing quality entrepreneurs and qualified investors closer together. In addition to self-help tools, business modeling workshops, and member hosted networking opportunities, registered entrepreneurs are also eligible to receive dedicated support via the VC4Africa Mentorship Program.

Entrepreneurs in need of a capital injection are also able to initiate a fundraising request through the VC4Africa service.

The ventures on VC4Africa are early stage and require investments between $10,000 and $1 million.

Both entrepreneurs and investors can make use of VC4Africa’s support infrastructure when closing an investment deal. In this way, the organization works to lower barriers to investing in the continent’s most promising entrepreneurs.

The organization which launched in May 2012 recently published a list of 40 active investors in the community.

In addition to a growing number of Angels, the network also includes more established firms like 4Di, Accion, African Media Ventures Fund, Alden Impact, Alitheia Capital, Annona Sustainable Impact Fund, CMA Investment Holdings, DOB Foundation, Elea, eVentures Africa Fund, Fanisi Capital, GroFin, incluvest, Innovation 4 Africa, Jacana Partners, Kitendo Capital, Kukua Fund, Matamba Anonaka Technology Holding, Premanco Ventures, Sanaga Ventures, Sand Hill Angels, Social Venture Capital, the TBL Mirror Fund, TLcom Capital, Toronto Enterprise Fund, TVC Labs and Verod Capital, amongst others.

Entrepreneurs have already raised more than $1 million in funding through VC4Africa, and joint ventures and investments have been secured by members in countries as diverse as Cameroon, South Africa, the United States, Kenya, Nigeria, the Netherlands, Somalia and Zambia.

Since January 1st, 2013, 8 ventures initiated fundraising campaigns. 3 have since secured lead investors and currently 5 new deals are under negotiation.

VC4Africa collaborates with leading incubators like ActivSpaces in Cameroon, MEST in Ghana, the Nailab and the GrowthHub in Kenya, Innoventures and Ice Cairo in Egypt, Ice Addis in Ethiopia, Mara Launchpad in Uganda, Wennovation Hub in Nigeria, CTIC Dakar in Senegal, Enviu in The Netherlands, among others.

VC4Africa is also a member of the LIONS Africa partnership and supported the inaugural DEMO Africa 2012 event.

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In two days’ time, the Pan African SME Fund headquartered in Kenya’s capital, Nairobi, has separately inked deals with two commercial banks for onward lending to SMEs- a business segment that dominates the economy of the largest economy in Eastern Africa.

On Thursday, the AGF put pen to paper for a Sh200 million ($2.3 million) guarantee loan with Kenya’s largest privately owned bank, the Commercial Bank of Africa.

The deal unveiled to journalists in Nairobi takes the Fund’s guarantee loan portfolio in two days to Sh300 million (about $3.48 million).

This is after it reached a similar agreement with mid-sized, 39-year old Investments & Mortgages (I &M) bank on Wednesday for Sh100 million ($1.1 million).

The AGF Chief executive Felix Bikpo backed innovative and diversified SME banking products to be the engine of economic growth not only in Kenya but across Africa.

This will be realised by creating new job opportunities, developing capital markets, boosting government revenue and foreign exchange reserves.

The role of the SMEs is not contradicted even in the public sector. The Kenyan government has long adopted the sector’s development as a key pillar for creating wealth and employment under sessional paper number two of 2005.

Under the country’s long term development blueprint, the Vision 2030 (2008-2030), SMEs have been underpinned as integral in achieving a targeted ambitious 10 per cent annual growth in the country’s under-performing economy.

However, the sector has long been shunned by lenders due to a perceived high risk profile.

A preliminary study on Structured Credit Guarantee Schemes in November 2011 by Strategic Business Advisors (Africa) Ltd, for example, established that the sector faces up to Sh500 billion ($6 million) in financing gaps, hindering their expansion in the process.

The growing interest from commercial banks could therefore be a relief.

“We are aware of the struggles that many entrepreneurs in the SME sector face in raising capital for their businesses,” CBA chief executive, Jeremy Ngunze said at the bank’s headquarters in Nairobi. “It is as a result of the inadequate access to finance that CBA is happy to be associated with AGF, because our agreement will help businesses get innovative credit solutions and thereby support their growth.”

Financial guarantees for SMEs is key to supporting economic development and poverty reduction in Africa, Nguze reaffirmed.

He added: “AGF not only provides support towards banks facilitating credit to the SME sector but also work with them in building capacity which we are looking forward to.”

When it launched in June last year, AGF had a capital of $50 million(about Sh4.3 billion) but set a target a 10-fold growth to $500 million(about Sh43 billion).

Initial investment into the Fund came from the African Development Bank, Spanish Agency for Development Cooperation (AECID) and the Danish Development Agency (DANIDA).

The two lenders join their bigger publicly trading rivals who have already secured foreign funds for onward lending to the “in-demand”SME sector.

They include the country’s third largest bank by assets, Co-operative Bank, that signed a seven-year loan of $60 million (Sh5.15 billion) from the International Finance Corporation (IFC), the private sector lending wing of the World Bank Group, on December 5, 2012.

Earlier on May 28, Equity Bank, the largest lender by customers, had also reached a $100 million (Sh8.6 billion) loan agreement with IFC to boost lending to small businesses and expand its regional business.

But all the banks have kept cards close to their chest on interest rates to be charged, insisting on a reasonable rates.

The new window may therefore minimise financial woes for about 40,000 formally registered SMEs (Sh10 to 100 million in capital) with their exposure to credit financing pegged at about Sh50 billion ($583 million) against an estimated demand of Sh250 billion ($3 billion).

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Foreign interest in African stock markets such as those in Kenya, Nigeria and Zimbabwe has main stayed trade dealings since the beginning of this year.

Edem Lassey, an analyst from Investec explained earlier this month that equity markets across the African continent had generally shown significant growth so far this year.

“If you look across African markets you will see that … (since mid-January) stock markets are up in quite a few of the bigger markets — 10 percent across the board — as global investors and local investors have more risk appetite,” he said

This is despite usual concerns among international investors over uncertainty normally occasioned by apprehension over political instability.

“The lack of liquidity on Sub-Saharan Africa’s (SSA) stock exchanges is a major challenge for investors, deterring many from involving themselves directly in African equity investing,” said analysts at Renaissance Capital.

They suggested that in a bid to “overcome the illiquidity issue of investing in Africa directly” international investors keen to snap up equity in African stocks were using “South African or global multi-national companies that have exposure to African economies as investment conduits to gain exposure to the… fundamental Africa story”.

However, this strategy is viewed as having “drawbacks” with the analysts favouring “direct Africa equity investment”. Fund managers handling African equity investments on behalf of international investors say local investors are being left behind in the latest rush for equity investments across the continent.

John Legat, the manager of Imara African Opportunities Fund said data indicated that foreign investors were active on equity markets in African countries.

“It’s clear from volume and trading data, certainly in Nigeria, Kenya and Zimbabwe, at least, that foreign investors continue to dominate,” he said.

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The private investment firm had originally set raising $750 million as a target, however, interest in the African market from foreign investors was such that the target was easily surpassed, with a total of $800 million collected.

According to the company, investors are initially attracted to the stability of the South African market as a debut opportunity in sub-Saharan Africa, where investment options are increasingly expanding.

“South Africa has obvious advantages in the context of infrastructure and corporate governance. Investors see those as a huge plus in terms of tackling sub-Saharan Africa,” said Andre Roux, Chief Executive Officer of Ethos, reports Reuters.

Roux also revealed that the location of foreign investors hoping to enter Africa is changing, the main source of funds which was previously the US now being balanced out by Asian and European investors.

“Previously a large portion of our international fund money came from North America…It’s now much more evenly spread. Asia is now an important contributor to our funds where previously we had no contributions from Asia,” he disclosed.

The Ethos fund has already seized on two South African investment opportunities, one in a company operating in the construction industry, and the other based in the corporate branding sector.

According to the CEO, the fund targets companies valued between $100 million and $450 million, and will now start hunting for opportunities outside Ethos’ home market of South Africa.

In particular, Roux noted, Ethos may target opportunities in East Africa, which has recently benefited from a string of oil finds; while the continent’s leading oil producing nations based in West Africa, such as Nigeria and Ghana, also hold significant interest.

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Global financial services firm Morgan Stanley has raised $5 million in funding for the investment while IFC, the largest global development institution focused exclusively on the private sector, is to invest up to $2.5 million.

“I cannot think of a better time to develop this business in Africa. Africa is the world’s last frontier for agriculture, with only one quarter of its yield potential achieved and seventy percent of its farmland as yet unused”, said Dr. Eleni Gabre-Madhin founder Eleni LLC

Commenting on the deal, the Managing Director of Morgan Stanley Mr. Gary Offner the company is “pleased to join with IFC in supporting eleni and its vision of improving transparency and liquidity in agricultural markets in the developing world, where food security is often a pressing concern.”

According to Georgina Baker, Director Trade and Supply Chain IFC, the investment will enhance productivity and risk management while making finance more accessible for farmers and helping them to increase their share of profit and get paid more quickly.

Beyond the initial funding, each country or regional exchange project will involve the formation of a private investor consortium. Eleni aims to rollout exchanges progressively across Africa and elsewhere in the coming years.

It is also anticipated that a third investor, the 8 Miles Fund, an Africa-focused private equity fund, will join the investment round within a month, together with envisaged support from the African Development Bank.

Building on the success of the highly acclaimed Ethiopia Commodity Exchange (ECX), which she founded and managed from 2008 to late 2012, Gabre-Madhin and co-founders Mr. Keith Thomas and Mr. Jawad Ali have recently launched eleni, which is positioned to be the industry leader in designing, building, and supporting the operations of commodity exchange eco-systems in frontier markets.

The Company’s business model is based on delivering turnkey projects on a Public-Private Partnership (“PPP”) basis, combining private investment with the best of know-how, technology and management, to support exchange projects. The Company expects to launch several such projects in 2013.

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