Finding money to run ones business in Africa is extremely difficult.
I am sure most entrepreneurs will agree with the statement above.
Finding viable businesses to invest in is almost impossible in Africa.
This is where I can see my financier friends nod in agreement.
So, what's the real story on the ground? Both statements have some element of truth. It appears there is a big knowledge gap in the business community when it comes to identifying and pursuing the right financing options. The type of financing a business can attract is highly dependent upon the level of maturity and/or growth of the business.
Anthony Siaw (CEO of Bridge Capital) engage a group of entrepreneurs who were highly passionate about the topic of financing at the most recent ServLed Friday. He used an illustration of a business' life cycle (very much like the profile of a typical product life cycle) to highlight the kind of financing entrepreneurs should be looking for at various stages of their business. For instance, it is almost impossible to attract debt (unsecured loans) from anyone besides friends and family at the early stage of your business. In fact, although debt is always cheaper than equity, it just isn't available to entrepreneurs at the early stage of the business. And even if it is available, it may be a bit irresponsible to use that option for a business model that hasn't been validated and proven to be scalable.
It appears one challenge most financiers have in this part of the world is the issue of exit. After investing so much in a company, how do I get money back with a big return? In the west, you hear of exciting exits with venture capitalist walking away with hundred and sometimes thousand times the amount of money they invested in startups. This usually occurs when the companies are either purchased by another investor or go public. These kinds of transactions are rare in this part of the world but hopefully will be become common as the venture capital and private equity segment matures.
The issue of entrepreneurs being willing to give up equity in exchange for growth capital seems to be a challenge here too. There is always the suspicion of one being cheated by the investor. "I have my idea, do all this work, and they want so much for the money they are bringing in.." It is however worth noting that without the investor's money (and hand holding in the case of angel investors), the entrepreneur would probably not achieve their dreams of growing beyond a little operation with not much to write home about.
Overall, the session was highly informative and inspiring with a very engaging Q&A session. The full transcript as well as audio recording will be posted on the ServLed website. We'll be looking another discussion shortly at ServLed Friday that focuses on each of the investment options in more detail. We'll be looking at the structures of these options and how an entrepreneur must position themselves to attract the right kind.
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