VC4Africa is the largest online community of venture capitalists, angels and entrepreneurs dedicated to building businesses in Africa. The platform, which was founded in 2008, connects Africa's most promising entrepreneurs with the resources (knowledge, network and capital) they need to realize their potential.
Companies on VC4Africa are largely early stage startups in sectors as diverse as mobile, web, renewable energy, healthcare, education and agriculture, and usually require investments less than $1 million. As a requirement, every venture registered on VC4Africa must make smart use of technology, be scalable, disruptive in their application of a business model, and ideally should have some sort of social mission.
Ben White, founder of VC4Africa, recently revealed to me that VC4Africa now has members in more than 200 countries and entrepreneurs on the platform have raised more than $27 million from investors to date. He spoke to me about the vision behind VC4Africa, its accomplishments to date, and why investors all over the world should take African entrepreneurs more seriously.
What is the vision behind VC4Africa?
VC4Africa is an organization dedicated to building a robust support system for starting entrepreneurs in Africa. Through engagement with its 17,000 members, and the 2,500 registered companies, the organization understands that access to capital remains a key constraint to their growth. But capital alone will not address the problem. Entrepreneurs building early stage businesses require mentorship from experienced business angels, who are often successful entrepreneurs themselves, and are in a unique position to offer hard advice, strategic guidance, and access to their trusted networks. VC4Africa champions this ‘mentor capital’ driven approach that is needed to give early stage entrepreneurs the hands on support they require.
VC4Africa has observed firsthand the problems African SME ventures encounter in their first rounds of funding. The still too-frequent negative publicity surrounding the continent, the perceived challenges of businesses operating in an African context, higher costs of due diligence, and the inexperience of the investors, are some of the reasons that hinder economic activity. Existing financial infrastructure, and related financiers, can be found on two ends of the spectrum: i) Microfinance and ii) Venture Capital and Private Equity. The seed stage gap (the “S” in SME) and Angel investor segments remain sorely lacking.
The early stage financing gap is clear, but what are the implications?
The problem compounds as i) entrepreneurs don’t have adequate access to the capital required to grow their companies successfully, ii) seed investors (Family, Friends, and Angels) do not have a perspective on follow on funding for their portfolio companies and iii) existing SME investors continue to complain about a lack of quality deal flow at the size they prefer to invest. Innovative early stage ventures that have the potential to yield high social and environmental impact but require less than $1 million in capital are the most difficult segment of the SME pipeline to reach.
Why are banks not the answer?
Often times the ventures have a minimal track record and lack the collateral needed to secure, e.g., debt capital from a local bank. Moreover, local Banks and traditional financiers too often do not appreciate the dynamics of the entrepreneur’s specific business and therefore cannot add the necessary value beyond money. It is exactly through direct equity participation from experienced business angels that entrepreneurs gain access to the capital and experience they need.
Why should private sector investors pay attention?
VC4Africa is about kick-ass entrepreneurs and rock solid ventures. Some African startups that have raised funding through our platform include Soko, Karibu Solar, Njorku, Kiro’o Games and many others. The African startup ecosystem is growing at a rapid pace and will produce large liquidity events for early-stage investors over the next 5-10 years. VC4Africa seeks to provide investors a sophisticated platform for developing a broad portfolio in promising early-stage African companies.
And from VC4Africa’s research we know there are a growing number of companies that have real potential. They have capable teams, well-refined products and services. Most importantly, they generate revenue and are well positioned for growth. VC4Africa lists companies post seed stage, otherwise entrepreneurs who have proven market potential and are well positioned for growth. VC4Africa believes that by leveraging its scalable peer-to-peer networking infrastructure it is possible to unlock the required resources by connecting a global community of entrepreneurs, mentors and investors.
Give us some traction, what has the community achieved to date?
Through the existing VC4Africa online platform, participating entrepreneurs have access to free online tools, mentorship opportunities and the ability to raise capital. The more than 600 investors part of the community (83% actively investing in African based companies) have the ability to follow the progress of the companies over time, conduct due diligence, explore co-funding opportunities, and connect with the entrepreneurs directly. In 2014, entrepreneurs listed on the platform raised more than USD 27 million. This is more than double the reported number in 2013. The trend does not look to be slowing as entrepreneurs closed another $1.3 million in January of this year. More importantly, the venture pipeline continues to mature, where the average deal size increased from USD 130K to USD 200K over the previous 12 months. The average team size for a venture listed on VC4Africa has increased by 54% over the same period, and more than 4,000 jobs are expected to be created by the end of 2015. This is good momentum, but there is every reason to believe VC4Africa is only starting to scratch the surface on a segment of the market with much deeper potential.
How can investors and ecosystem building organizations get involved?
For investors, VC4Africa offers paid VC4Africa Pro Accounts, where investors can get exclusive access to ventures raising capital, receive tailored alerts that match specific investment criteria, can review venture documents online and cut due diligence costs. They can network with fellow investor members and engage entrepreneurs with questions. Registered investors can see who is fundraising, review the terms of the deal, and have exclusive access to private venture documents.
We recently launched a new tool, VC4Africa Partner Pages, which allow third parties to collect applications for their programs using the VC4Africa community. Promo pages can be created by organizations and programs, and can be used to engage with VC4Africa community in an interactive way. We see this as the next step in our effort to make the community more accessible, both for accelerators, incubators and other hubs, investors and funds, competition organizers, corporates, foundations and others.
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