Africa Business News: Entrepreneurs. Investments. Banking & Finance. Emerging Markets. Start-Ups
Tuesday, 22 October 2013
In any market economy entrepreneurship is invaluable. It should be consciously promoted and nurtured.
Thus the future direction of Nigeria’s economy depends considerably on the quality and impact of entrepreneurship available. In recent times, we are witnessing a new and improved era of entrepreneurship growth spurred by foreign investment, technology and creative financing.
Online retailers like Jumia and Konga have attracted foreign investors while local investors are funding similar businesses like Buyam. Both Jumia and Konga lately expanded their businesses through massive warehouses and a number of pick up centres. Spark, the three-month old Lagos-based investor focused on internet start-ups, wants to raise $10 million. It has raised $2 million from a syndicate of 17 international high-net worth individuals. Earlier this year, the Ministry of Communications Technology secured $3.5 million seed capital to fund its TechLaunchPad initiative. The plan is to get 10 technology-focused businesses up and running by the end of the year.
Partnerships like that between the Tony Elemelu Foundation and CCHUB, an incubator, provides initial early stage funding of $5,000 for technology start-ups. CCHUB also helped organise the VentureOut Challenge, an initiative of infoDev and CRDF Global. Nearest Locator and Prowork, two Nigerian start-ups, are among the 13 finalists that will compete for $10,000 seed fund in Moldova next month.
Venture capitalists and technology firms like BlackBerry, Nokia, Microsoft and IBM in partnership with local and international partners have disclosed plans to build incubation centres to provide mentorship and technology guidance, seed funding and joint selling opportunities for African technology start-ups.
The internet holds promise for start-ups that provide solutions for local problems in, say, agriculture, health, education, finance, transport, governance and media and entertainment. Companies like Jobberman, the four year old start-up, help businesses find brainpower by aggregating information of companies searching for employees and job seekers looking for employers. This makes the job market liquid and allows employers to cut through the clutter of paper CVs, fill job positions quickly and at a minimal cost. Such solutions will find a market. According to a report: The Impact of the internet in Africa, SMEs, convinced of the internet’s benefit, are keen on harnessing it for better management of their data, to reduce costs and increase their profit as well market their business to improve their sales.
Exploiting these opportunities, however, comes with problems. Financing, skills and talents, and infrastructure have been identified as vital to entrepreneurship in African economies, according to a report: Accelerating Entrepreneurship in Africa. In terms of finance, the International Finance Corporation (IFC), the private-sector branch of the World Bank, reckons that finance for un-served and under-served small to medium enterprises (SMEs) is between $140 and $170 billion. Banks, unfortunately, are not in the best suited to fund SMEs. This is due to several reasons such as the risk-reward structure of SMEs; their life span: 9 out of 10 new businesses die within 5 years; source of bank deposits; limited number of fundable business plans and limited market knowledge of entrepreneurs.
Where banks decide to risk funding they particularly seek entrepreneurs that know their industry inside out and have robust business models. In addition their preference is for entrepreneurs with the ability to adapt to market changes, to cope with uncertainty, to forge ahead against all odds, to profitably employ capital, whether debt or equity. Even so, such banks are few and far between.
Spurring entrepreneurship and accelerating innovation requires angel investors and incubators. Angel investors e.g. established business owners, serve as patrons and promoters of businesses in their early stage while incubators are places where start-ups are nurtured and their owners can meet veteran businesspeople with similar interests.
That such an ecosystem of angel investors and incubators is gathering momentum in Nigeria is cheering news. Nigeria’s robust macroeconomic outlook, rapidly growing online population and technology-savvy middle class is attracting the attention of businesses other than fast moving consumer goods.