Filling the Middle: Crowdfunding and Invest Africa’s Approach

Today’s featured article is a guest post by Rosedel Davies-Adewebi, Invest Africa

As an avid supporter of social entrepreneurship and impact investing, I have closely followed the economic renaissance many African countries have been experiencing over the last 5 years.  According to The Economist, “Africa’s economies are consistently growing faster than those of any other region in the world. At least a dozen have expanded by more than 6% a year for six or more years.”[1]

Yet the more fascinating part of the story is that Africa is becoming a hotbed of entrepreneurial activity, which in part is fueling the growth of many African economies.  The 2012 Entrepreneurship Index[2] sheds light on the best places around the world for entrepreneurial talent and ranks the Silicon Valleys of the world.  The ranking is based on the value society places on innovation, OCED’s assessment of the ease of an entrepreneur’s access to capital and the days needed to legally start a business.

The index puts the global average at 2.49.  The United States, long considered the world’s leader in entrepreneurship, ranks 2.8.  Three Sub-Saharan African countries, Nigeria, Kenya and Ghana, not only scored above the global average, but also received scores close to that of the United States.

Source:  Silicon Valleys of the World- The Best Places for Entrepreneurship around the Globe.

Not enough capital to go around

Yet despite all the interest and excitement around entrepreneurship, an interesting conundrum is taking place on the continent. The refrain from entrepreneurs, especially those seeking funding in the <$100,000 range, is “No one wants to finance my start-up”, while the refrain from investors, is “I can’t find any good deals;” hence the term “the missing middle.” As the graphic below shows, there is a large disconnect between investor’s preferences and the investment needs of entrepreneurs especially in the <$100,000 and $100,000 to $500,000 range.

I had the chance to witness this first-hand while working in Nigeria in the summer of 2011 with the Tony Elumelu Foundation to develop the strategy for a seed fund targeting entrepreneurs with innovations in maternal and child health. My work involved interviewing Venture Capital and Private Equity practitioners, established business owners and budding entrepreneurs around the continent. Through those interviews it was crystal clear that many innovations would not make it to market based on conventional investment standards.

Crowdfunding as a solution

Crowdfunding may hold the promise of filling in the missing middle. Start-up investing once reserved for U.S. Securities and Exchange Commission (S.E.C) qualified investors and venture capitalists will be open to individual investors who can pool small amounts of funds – usually between $25 and $500 – using an online portal. Start-ups seeking funding in the missing middle range can thereby assemble the necessary start-up capital from a series of individual investors who set their own criteria for investment. Inc.com’s review of four crowdfunding sites reveals that the median amount raised on these sites is $22,000.[3]

Invest Africa’s Pioneering Approach

Invest Africa, a micro-venture capital crowdfunding platform, was started in July 2011 by Sandra Ntsonde, who recognized the potential of crowdfunding to channel capital to promising start-ups throughout Africa. Invest Africa targets the group of entrepreneurs who have outgrown microfinance capital but do not yet qualify for loans and equity investments based on conventional criteria. Investors can get started with as little as $25.  Invest Africa partners with local institutions to identify, vet and monitor promising entrepreneurs. Currently partnerships have been established with on-ground partners in entrepreneurial hotbeds such as Nigeria and Ghana and also in Mali and Benin.

Invest Africa not only provides necessary capital but also provides mentoring to entrepreneurs to facilitate their continued expansion. Projects selected provide a social benefit to the communities served, such as providing jobs and increased access to nutritious foods. The benefits don’t only accrue to the entrepreneurs and their communities, but also to the investors who receive regular updates regarding the growth of funded businesses, repayment of the original investment and points that can be redeemed for rewards through the online platform.

Investors now can be a part of the exciting economic renaissance sweeping many African economies by supporting an entrepreneur through Invest Africa’s unique crowdfunding model. For more information, visit Invest Africa’s website: www.invest-africa.org

Rosedel Davies Adewebi is an advisory board member of Invest Africa.