Wherever I go in Africa, one of the consistent comments that I hear from young entrepreneurs in the technology space is that there is no way to get started. There is little seed capital and very few angel investors to be found. That’s a problem – and it’s true in East Africa as well as South Africa.
In a conversation with John Balen, General Manager of Canaan Partners – a top tier Bay Area venture capital firm, over breakfast this morning at PopTech Fellows we discussed a few of these challenges. Canaan has operations and offices in India, Israel and the US, which means that they have some experience working in areas with non-traditional VC ecosystems.
Problem: The Investment Community
It turns out that one of the main problems in places like Africa, which is somewhat similar to places in India, is that the investors have to be educated first. Seed capital and early venture funding is a high risk proposition. There are few investors who care about technology, and those that do are interested in the later stages of investing.
A common problem in Africa is finding young entrepreneurs with a good idea, generally technical in nature, and they need about $5000-$10,000 to handle operations and build out of their technology in the first 6 months to a year. If they can find a local funder, that person generally wants an inordinate amount of equity in the operation – anywhere from 40-80%.
Some serious education in the investor circles in Africa needs to take place.
Lastly, there should be some recognition that a lot of the young entrepreneurs need some help. Beyond the funding, just giving some help in learning how to set up and grow a real business is hugely important. Introducing potential partners, helping broker deals and giving advice on how to hire employees are ways that investors grow into being a true partner – and African entrepreneurs badly need this too.
I’m interested in seeing some Y-Combinator style venture funding companies AND communities developing around different regions in Africa. Groups that only fund the very early stages of development ($5000 – $15000) for very short periods of time (3-6 months).
I know there are some individuals doing just that, but let’s talk about communities around this space. What I think would be interesting would be to see these individuals band together and create real communities that connect with and plug in to the community in much closer ways. Become part of the local technology ecosystem and really learn how to find promising individuals and foster them to greatness – and make a lot of money along the way.
As John Balen said, “It’s hard for large VC funds to invest in small enterprises.” This is especially true in Africa, so why not figure out a way to foster earlier stage investments as a community of smaller investors?