Samson Abioye found himself in what is familiar territory for most African entrepreneurs towards the second half of last year: he was struggling to find anyone to finance his “great idea”. Banks would not touch pass.ng, his mobile app to help Nigerian students cram for an important university exam.
Then in October he secured $20,000 from 400ng, a joint venture between Africa-focused seed funders L5Lab from Lagos and Nairobi-based 88mph. 400ng took a 25 per cent stake in pass.ng, which charges students the equivalent of $1 a week or $2.50 a month for access to revision materials.
Luckily Mr Abioye’s operation was lean — he is both chief executive and the de facto chief technical officer — and so the funds kept pass.ng afloat until the beginning of this year when L5Lab awarded him a further $25,000, this time in return for another 10 per cent of the equity.
The financing helped pass.ng to be prepared for the crucial February-to-March period ahead of university exams in Nigeria. “So we managed to break even in February and in March we made $60,000 in revenue,” says Mr Abioye. “In April, after the revision peak we still made $30,000 and since we didn’t want to have down time we started developing other products.”
Mr Abioye appears to be set on the road to success. “We’re in partnership with a telephone company, Airtel Nigeria, which is promoting us and we have plans to go international — to expand to Ghana, Togo and Ivory Coast,” he says.
“Next year we’ll probably be looking for $1m,” he adds, to help finance further expansion.
In May of this year, Kenya-based Chloé Spoerry was arguably in even more dire straits. With help from 88mph she had restarted HiviSasa.com, a twice-failed local-level news service, and was having to finance the company using her own money.
She was willing to take such a risky step because she had two interested investors: Novastar Ventures, a Nairobi-based venture capital company, and the Omidyar Network, a philanthropic investment firm set up by eBay founder Pierre Omidyar, but the due diligence was taking months.
“We ran out of money at the end of January but I decided to keep going because we never got the red light from the investors, the process was just long and slow,” she says.
Her perseverance was repaid when, at the beginning of June, the investors signed off on $450,000 of funding in return for a 40 per cent stake in the company.
A lot of people have money to invest but they don’t understand the investment– Kresten Buch, co-founder of 88mph
Until recently, many of the successful start-ups, such as iCow, an app, which connects farmers with agricultural, market and meteorological data, often relied on organisations such as foreign governments’ aid departments or charities such as the Bill and Melinda Gates Foundation.
But that is changing. Kresten Buch, a co-founder of 88mph, says that while the amount of corporate venture seed funding available to the many African start-ups emerging almost everyday is “tiny” compared with elsewhere in the world, it is nonetheless increasing.
“There’s a realisation that there are so many programmes and businesses out there [investors’] business models are changing,” he says.
Having said that, most of the money invested in start-ups is from abroad. “There’s some local venture capital in South Africa and Nigeria but in Kenya and elsewhere it’s mostly foreign.”
“A lot of people have money to invest but they don’t understand the investment. They like to invest in things they understand. But as more companies taste success that will change. It’s just a matter of time.”
Aly-Khan Satchu, a Nairobi-based business adviser, agrees. “African pools of capital predominantly [come from] tech-type people. But it’s only going to take one of these companies to be sold for a tipping point to be reached and that will change.”
Fundz, which invests in start-ups across the world, has provided seed funding to entrepreneurs in Nigeria, Kenya, Cameroon and Togo. David Mark, the chief executive and founder, believes that there is a big shift going on in terms of finances.
“Traditional financing is going to be dominating the show for the foreseeable future but democratisation of financing is happening,” he says.
Mr Buch has noticed that one feature of the new funding models is that elements of the corporate model are creeping in, with banks such as Barclays starting venture capital entities.
For people looking to invest in African enterprises, Mr Mark believes the key is to keep a strong connection to the venture. “As a start-up owner, you don’t just want an investor, you want to have someone who’s going to have an input as well,” he says.
Mr Buch says another “critical factor”, in those countries where he has selected enterprises to invest in, is the deregulation of the telecoms sector.
“In South Africa, it has made cheaper phone rates and cheaper smart phones. These countries are investing in infrastructure and that’s where people have access to products.”
Mr Abioye hopes to be one of those entrepreneurs who will eventually help trigger the financing tipping point.
“I see a public listing in about six years’ time,” he says, but cautions: “It will take a lot of hard work.”
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