Crowdfunding for Africa?

Crowdfunding has been around for quite a few years now, but has recently been getting much more attention in the media as new players proliferate and this fundraising medium goes mainstream. Here at Fourth Watch we have been following this trend with great interest, particularly as we watch for players emerging with specific focus on impact investing in Africa. This post takes a look at what we've been seeing and how this might impact on venture capitalists with a heart for Africa.

One category of crowdfunding that has been rapidly expanding is generic platforms that help assemble funding for all manner of ideas from art projects to business startups. A great example of this is RocketHub, which allows users to post their idea to their site where it can be found by potential funders surfing the site. Users also then promote their idea using social media and any other method they can think of, and once the idea is funded RocketHub takes a "platform fee" to pay for its services.

Greenfunder uses a similar model to RocketHub's, but specifically brands itself as being devoted to "green" projects. It has a nice clean interface and accessible graphics and explanations. The definition of "green" projects is very loose, but this relatively new platform seems to already have had pretty good success in getting some projects funded.

A pioneer in crowdfunding for entrepreneurs and a pioneer in the world of microfinance is the mighty Kiva. Kiva taps into socially conscious citizens from all over the world, and uses a huge network of Micro Finance Institutions to delivers loans to people with needs. Part of Kiva's success is undoubtedly derived from its beautiful and highly developed platform (nice summaries and visual, high accountability from local partner MFIs, ability to give credit as gifts to friends, etc.). A distinctive of Kiva as compared to the previously mentioned crowdfunding platforms is that it also has a repayment feature where funders expect to receive their contribution back again so that it can be leveraged into other investments or else withdrawn.

In addition to these more general crowdfunding platforms, there are also numerous specialized platforms. For example, MOSAIC focuses on solar energy investment and has clearly been highly successful in this effort since all of its invesments are now fully subscribed and they have had to put new funders on a waiting list.

So, where are all the African focused crowdfunding platforms?

In our recent search for such specialized providers, we found some very mixed results. A very interesting article and interview on Idea Bounty was a little unsettling and caused some reflection and speculation on how many of the funded ideas on the mainstream sites like RocketHub and others of its type are legitimate. Two quotes from the interview with the founder of a new platform intended to fund South African ventures would have sent me heading for the exit in a real hurry: "I have been very upfront that there will *not* be "transparency"." and: "I don't ever want to see a business plan." I don't know the founder that was interviewed here and make no comment whatsoever on her, but there are some interesting comments under the article. Apparently the site disappeared, and another which jumped into the gap with a hyphenated version of the same name didn't last long either (it now directs to Ching, an online payment site).

But surely there must be a few success stories?! Yes, we did find a couple of fairly well developed operations. The first is VC4Africa - a platform for networking and connections between investors and African businesses that need funding. It also includes a mentorship program, which should increase investor engagement and improve results. There's also a great infographic with some key stats on small business financing in Africa.


The most well developed example that we found was Invest Africa. They take a different angle than most others by openly stating that they do not fund startups. They connect investors with developed and successful businesses that need capital for expansion. They also differ from the Kiva model in that they ask businesses to repay the investments that they get with a percentage of profits rather than using interest rates. This is a refreshing change and a radical departure from the high interest rates they would otherwise be charged by traditional lenders. Invest Africa also provides mentorship support through an online coaching platform. There's a lot to love about Invest Africa. The only problem we noted was that it focuses on the micro investment sector like Kiva or slightly large amounts.

Is this proliferation of equity crowdfunding a threat to African-targeted large private investment funds, venture capitalists and angel investors? At this point we don't see it that way. We feel that the proliferation of crowdfunding will be a great benefit to Africa's small entrepreneurs at startup phase or micro businesses seeking to expand, but that there will still be plenty of under-served space at the top end of the funding spectrum for institutional investors, venture capitalists and angel investors with deeper pockets and the sophistication to do a proper investment analysis.

But what about the middle of the market? Fourth Watch is investigating this space, particularly for possibilities to connect investors in the space between $100,000 to $500,000 - too big for most of the crowdfunding platforms, but a bit on the small side for more sophisticated investors. If you're interested in exploring this space further as an investor, or if you've got an established business in Africa seeking funding in that range, we'd love to hear from you. Or, if you've noticed some crowdfunding platforms operating in this space and focusing on African investments, please point them out to us in our comment section on this post.

Is DFID open for business?

People from the AidWatch/Easterly school of thought must be very excited by Justine Greening's (UK's Secretary of State for International Development) speech yesterday at the London Stock Exchange. She is advocating a much more businesslike approach to international aid by DFID.

In our opinion this is absolutely fabulous stuff, and we are big fans of Justine Greening. Looking forward to seeing new PPP development programs emerge from DFID!

Here are a few snippets from her speech:

"I’ve said from the word go in this job that Britain’s investment in International Development isn’t just the right thing to do –but it’s the smart thing to do too. I've been clear that I want to see our investment in the right places, on the right things, spent in the right way. So, I've started driving better value for money within DFID, by strengthening Ministerial oversight of business cases and contracts, and improving our supplier procurement. But I also wanted to take a closer look not just at how we go about our development work, but what that work comprises. Today I want to talk about why I will be shifting DFID’s work to include a much stronger focus on economic development and the steps we are going to take to get that strategy in place."
Fourth Watch Response: We particularly love the first sentence in this quote. Most (all?) developed countries spent exponentially more on military than on international development. Is this the ideal approach to achieve peace for our citizenry? We think the balance off.


"So, there’s a lot to do but there's a lot we're already doing. DFID's work on technology investments has already helped to unlock smart business investment in developing countries. Look at Vodafone and the hugely successful M-PESA mobile banking phone service. DFID match-funded Vodafone's initial investment  and there are now 17m users in Kenya and a third of Kenyan GDP is expected to pass through the M-PESA system. A mobile bank account essentially for millions who otherwise wouldn't have one. One that they can do business and trade with."
Fourth Watch Response: We love the concept behind this kind of public-private partnership. This is an excellent way for governments to leverage public spending and tap into the capital, skills, and efficiency of private enterprise.


"If you ask people in developing countries what they want, they’ll give you one top priority – it’s a job. It doesn’t matter whether you ask men or women, they give the same answer. People, wherever they are, want the opportunity to be financially independent, and to have the dignity of being able to provide for themselves and their family."
Fourth Watch Response: This is the part where the AidWatch types get really excited. So do we. 

"Firstly, reducing overall barriers to trade and investment – whether regulatory, infrastructure, legal or institutional. Secondly, unlocking the ability of entrepreneurs and business people in developing countries to themselves drive economic growth through their own businesses being more and more successful. Thirdly and critically, I believe it also means greater investment by business, and I want to see UK companies joining the development push."
Fourth Watch Response: Yes, yes, and yes.

To read the full text of the speech, click here:
Justine Greening Speech at the London Stock Exchange, 11 March 2013

Africa in one hundred years?

This morning I stumbled across an opinion piece on the Russian International Affairs Council's (RIAC) website entitled "Africa in one hundred years". I find the idea of predicting the socio-economic and political future of Africa five years or even one year from now to be an interesting exercise, so I felt I had to take a further look to see what bold projections the RIAC might dare to make about what the continent will look like a century from now.

Near the beginning of this article the author comments on the possibility of a multi-ethnic federalism as a solution to the chronic problems of political instability since independence, stating that  it is an "illusion... that in case of coincidence of these (*political and ethnic) boundaries there would be peace and order in Africa". He cites the Soviet example as evidence, and one could easily add the Yugoslav experiment to that list.

He goes on to cite several examples within Africa, suggesting that struggles over resource control may be a more likely cause of many recent conflicts, and that an ethno-centric view would be far too simple of a rationale.

Since I was originally drawn to the article by the promised one hundred year forecast, I was a little disappointed to find only minimal commentary on the future picture. The author's comments about the unfolding of a new resource colonialism and the subtle suggestion that the new colonial master would include the Chinese and Indians was certainly an interesting piece of speculation however.

Of the entire article, I found the concluding sentence contained the one thought that really grabbed my attention: "If multinational corporations and governments of the world's leading powers are able to agree on joint exploitation of African natural resources, it will be a great boon for Africans and for all the people of the planet." It would be fascinating to see research on how this could work as a way of preventing resource conflict in Africa in the century to come. Could a variety of joint ventures between American, European, Chinese, and other multinationals be a way of preventing resource-driven territorial neo-colonialism and of therefore ensuring peace for the continent? It's certainly interesting fodder for further reflection, research, and debate.

Link to the Article: Africa in one hundred years


Who/what is the RIAC?
** excerpt from the RIAC website about us page**  "Russian International Affairs Council (RIAC) is a non-profit membership organization. RIAC activities are aimed at strengthening peace, friendship and solidarity between the peoples, preventing international conflicts and promoting crises settlement. RIAC mission is to facilitate the prospering of Russia through its integration in the global world. RIAC is a link between the state, expert community, business and civil society in an effort to find foreign policy solutions."

Private Sector Cooperation in Public Sector Development Aid

Today I wish was in Washington D.C. to attend the launch event for the Center for Strategic & International Studies' (CSIS) newly released report entitled "Our Shared Opportunity: A Vision for Global Prosperity". The report is said to push for the US government's official development assistance (ODA) to work more closely with the private sector.

The report quotes stats from the Hudson Institute’s Index of Global Philanthropy and Remittances, which shows that the flow of capital investment from the private sector is now much greater than the flow of ODA; it says that 87 percent of capital flows to the developing world are private. The report also encourages viewing aid recipients rather as economic partners, and recommends that aid should be reoriented towards encouraging economic growth by partnering with private investors and building existing incentive programs.

William Easterly must be jumping with joy since the report seems to validate a great deal of the criticism of foreign aid that he detailed at length in his book "The White Man's Burden" over five years ago. Aid critics like Easterly have for years been calling for more businesslike approaches to development assistance. Of course this isn't totally new ground for CSIS either, as their report from just over a year ago entitled "Leading from Behind in Public-Private Partnerships" also identified that there is a huge missed opportunity in that governments do not leverage private partnerships as a force multiplier of their aid programs in any significant manner.

Perhaps this is about to change? Here at Fourth Watch we certainly hope so. Although we agree with Jeffrey Sachs' argument that ODA needs to be increased significantly, it is the Easterly/CSIS approach to delivery that seems to us to be the more effective method of deploying it. It will be interesting to see what media pickup comes in response to today's launch event, particularly in connection with the much-covered recent sequestration of the American government's budget.