Investing in Africa: The Case For A Bottom-up Perspective And The Role Of Financial Management And Data.
When you think of investing in Africa, what do you first think of?
I will assume, “Getting more funding into the ecosystem, reaching out to more founders, etc”.
However, let me take you on a journey to view the other side of investing in Africa.
In 2019, I started an experimental project, a small SME fund for student businesses. We had access to finance and the willingness to invest in early-stage businesses, but something we are missing.
I wasn’t exactly sure of the name of this missing element until in 2020, I joined a fantastic mind to start another project, Startup Builder 360. If we remember, 2020 was the year of the Pandemic, and around March, when we started, was when the Pandemic began to get more severe for the rest of the world and take the shape we now know today.
At startup Builder 360, our initial goal was to help high potential startups raise capital and become huge, but as the Pandemic raged, we began to look more closely at the majority employers of labour, SMEs.
We began to look at how we can get investment for these businesses facing hard times to prevent their closure, and this was when we encountered the missing element I first observed in 2019 again.
At first glance, we could have summarised this element as “Lack of Investment Readiness”, but as we began to ask more questions, we realised that is a symptom and not the problem.
How do you measure the investment readiness of a company? Yes, you got it right by looking into their finances.
Now, how do you measure the finance of a company? By collecting and analysing its financial data.
For a typical SME in Africa, especially in our primary area of focus, Nigeria, how is the financial data collected?
From our interactions with many SMEs in Nigeria, we observed that the financial records are collected on Paper.
Now, is this bad or good?
While this has its advantages and disadvantages, we will be looking at the implication for investment in Africa.
Paper-based records are way easier to access and update than their alternatives. But how do I perform a financial model on Paper?
How do I, a potential investor, perform a scenario-based model on these businesses before investing? How do I check financial ratios that will enable me to make an objective decision?
Let’s step back for a moment and examine the type of business we are talking about now.
A midscale manufacturer of peanut crackers, employing 20 workers and generating about $10,000 per month in revenue. We can see a similitude of this business in many SMEs around us. The bakeries and schools, manufacturers and distributors are providing employment and essential services around us.
The case for investing in them is almost unrefutable. A $50,000 investment would make a positive social and economic return, except I don’t know because I cannot dig into the company’s financial details to determine what to expect for my investment or even plan out a restructuring for the business to help make their investment investible.
Now, back to our very first question. “When you think of investing in Africa, what do you think of first?”
For us, we are thinking of making SMEs investible. We are thinking of how we can make the African SME investment-ready. And while the problems we face with investment in Africa includes access to finance and visibility of African Businesses, we believe it starts with preparing the SMEs.
Finally, what next? We have identified the problem, but what next for us?
My team decided to create a solution to this problem with a finance management tool called Finance 360.
This tool does two things: Digitalise collecting financial data and performing analysis and insights from the data. With this analysis, Investors will have all the information they need from the businesses and the entrepreneurs will have the insight they need to improve their businesses.
This tool is one of the 360 toolkits we have designed to improve African businesses’ investment; kindly stick around for the articles on Community 360 and Fund 360 for more details on the other tools in the kit.
Now, what can you, our reader, do?
1. If you are an SME, signups for our private beta, or share the link to SMEs to sign up. We are on track to release it beta by June. Signup for three-month free access to the product.
2. Reach out to us with your thoughts, questions and comments. We are eagerly looking for feedback on this problem we have identified. Have we spent too much time indoors, or is this a problem you can relate to?
3. We are also looking to start a research project to reach out to more stakeholders across the continent to find out more. Reach out to us if you’ll love to be a part of that.
4. Work with the team. The Startup Builder 360 team is currently a small team of 2 non-techies. While we have taught ourselves how to build a couple of mobile applications (using no-code tools), we are very aware that we need more hands-on-deck, and we are inviting everyone interested in working on this mission to have reached out to us. If you are in Kigali, Rwanda, let’s grab a cup of tea and discuss. If you’re outside Kigali, let’s zoom.
5. Share this article.
Thank you for your attention so far, and I hope you enjoyed reading this as much as we enjoyed writing it.
Till next time.