Press Release

Africa’s startup ecosystem on the brink of massive growth

The growing number of startups securing major financial commitments, sets the stage for an entirely new era of growth in the African venture capital industry. This was the most discussed topic during the sixth edition of the Africa Early Stage Investor Summit #AESIS2019 held between 13-15 November in Cape Town, South Africa.

Growing interest from foreign investors – including an increasing number of Chinese investors – , startup valuations becoming too high, entrepreneurs increasingly looking to international markets and the question if local entrepreneurs are really benefiting from the influx of funding, were highlighted across a rapid series of panels, keynotes, fireside chats and roundtables across the three day event, that marks the 6th year VC4A and ABAN organize the Africa Early Stage Investor Summit.

Lessons learned from investing in the continent’s top businesses

Industry leaders challenged these topics while sharing insights and lessons learned from investing in the continent’s top businesses. At #AESIS2019, participants dove head-first into these and many more startup ecosystem topics with African powerhouses like Pieter de Villiers, Eghosa Omoigui, Keet van Zyl, Rebecca Enonchong, Ido Sum, Lauren Cochran, Tomi Davies, Marième Diop, Johann Choux, Paul Cook, Yassine Oussaifi,  Llew Claasen, Abu Bakr Cassim, Olivier Furdelle, Khaled Ismail, Ben White, David van Dijk and many others, leading the conversations.

The 2019 event comprised 3 days of rich content and networking activities including new components this year such as a full-day Fund Manager Training and curated speed-dating sessions between Limited Partners and General Partners. Both of which were oversubscribed. The first day of the Summit also included the first Annual General Meeting for the African Business Angels Network (ABAN) as efforts continue to spur angel investing across the continent and to unlock resources for starting companies at their earliest stages of development.

Co-organizers, ABAN and VC4A, welcomed 330 investors representing Africa’s early stage investing ecosystem. The Summit attracted the highest ever number of early stage African investors from 35 different countries representing 110+ investor organizations, funds, family foundations and business angel networks. The motivation? To bring together leading investors from Africa and beyond to network, exchange insights, create partnerships and make deals.

Key takeaways from the Summit include:

• The number of women (co-)founders are on the rise at 18% in 2019
• Africa’s startup ecosystem, as of 2018, is on par with Southeast Asia’s of 2014, with major increase in early-stage investing expected
• Ecosystem actors need to stop looking to Silicon Valley and create own ecosystem model and path for growthAfrican startups create social impact but investing for profit remains leading driver for investor participation
• Fund managers and investors need to play the long game to reap any returns while there is a need for more fund managers to enter the industry

Creating pipeline through VC4A’s Venture Showcase – Series A

#AESIS2019 wouldn’t be complete without co-organizer’s VC4A Venture Showcase that featured 12 vetted Series A-ready companies (https://bit.ly/2D4nfTB) from Egypt and Algeria to Nigeria and South Africa. Their solutions range from VR therapy to more efficient transport to an easy cashback app, and more. The Showcase simultaneously helps build pipeline for some investors and create exists for others, propelling the African startup ecosystem forward. Several past Showcase ventures currently appear on the list of companies that raised more than USD 1 million in 2019, with FlexClub from the 2019 Showcase making an appearance as well. In addition, the 2018 alumni Nawah Scientific and the 2019 participant LifeBank, have just been announced the winners of the Jack Ma Netpreneur Prize. Altogether, VC4A’s Venture Showcase companies have raised more than USD 36 million to date.

Announcing launch of Catalyst, a fund-matching mechanism for angels

Rebecca Enonchong, female founder and treasurer of the African Business Angels Network (ABAN) announced the Catalyst initiative to summit attendees. The initiative, in partnership with Afrilabs and funded by the AFD will stimulate angel investing across the continent by matching investments up to EUR 60K. She adds: “This mechanism helps build layers in the ecosystem and creates more pipeline for investors since angels will be able to invest in more businesses.”

Everyone at the Summit agreed that Africa’s startup ecosystem is maturing. To-date in 2019, over USD 1 billion has been raised with 83 deals alone exceeding USD1M and with 18% of those companies co-founded by women. “More women than in Silicon Valley,” as VC4A’s Ben White pointed out in his opening keynote. However, as anyone present at #AESIS2019 could sense, the hunger and energy to do better and to do more is mighty. With the quick adoption of Netflix across the continent, as Rebecca Enonchong highlighted to the amusement of all in the audience, the potential is endless. The key to ecosystem growth and success? Treat Africans as consumers, like anyone else.

SOURCE – Venture Capital for Africa (VC4A)

Financial Inclusion can be defined as any initiative by the public and private sector to deepen access to financial services for individuals and businesses of all sizes. It is aimed at fixing frictions which prevent people from consumption of financial services.

According to the Global Findex Database 2017, only 40 percent of Nigerians of adult age have an account with a financial institution or a mobile money service provider.

Lack of accessibility to formal banking services, illiteracy on the benefits of financial services, cultural and religious factors such as Islam which forbid non-interest banking are some of the reasons for the high financial exclusion rate  in Nigeria, leaving many to adopt traditional methods of savings such as Esusu in the management of their day to day expenditure.

The following are benefits of formal financial services:

Savings of capital for future purposes: Financial institutions help small and large businesses save their capital. Savings also allows them to enjoy interest on their money in the case of fixed deposit which could be useful in cases of emergency such as during a recession. This opens the door for them to enjoy credit facilities for the banks to boost their businesses.

Access to Credit Facilities: As account owners in banks, the deposit money banks and microfinance banks monitor the financial health of the micro small business owners in order to determine eligibility for loans, and based on this offer finance to expand their business.

Insurance: Microfinance institutions offer micro insurance which helps micro and small businesses mitigate risks inherent in their businesses.

Convenience: With the advent of digital technology, commercial and microfinance institutions offer a convenient and traceable means of conducting financial transactions which the informal finance system lacks.

Helps in Economic Policy Planning: The formal financial system is structured and with the introduction of identity and security management initiatives like the Know Your Customer and Bank Verification Number, it helps the government with data on those financially excluded and poverty rate which can help in developing policies to deepen access to financial services, and lifting millions out of the poor pool.

The Government Enterprise and Empowerment Program (GEEP) is a micro credit initiative of the Federal Government of Nigeria,  and powered by the Bank of Industry, to empower millions of micro enterprises with collateral free and interest free loans, to grow their businesses as they comprise the MSME sector which employs over 60 percent of the nation’s labour force and contributes 76 percent of Nigeria’s GDP, but lack access to finance. Of all bank loans in 2017, only about 0.4 percent was lent to micro enterprises.

On the mode of pay back, the GEEP officer said two options were given to the beneficiaries to make daily payment of N85.00 or N430.00 weekly to the tradermoni account of the federal government in any bank of their choice after two weeks of grace.

“Those who finish the repayment of their first loan on time stand the opportunity to receive higher amount of N15,000 and so on. The federal government has a very big plan for the empowerment of small scale enterprises.

“The programme is for the federal government to empower traders, artisans and it makes it easier for young entrepreneurs to grow their businesses.

“Of course, our targets are micro business SMEs; these are people who typically have zero access to credit. As the government helps them to grow their businesses, their families will benefit and the economy will also benefit”, he added.

Most micro entrepreneurs are non-consumers of financial services  which makes visiting deposit money banks unnecessary since they cannot afford collaterals nor interest rates for their loans and are averse to technology.

The GEEP was designed to fix this friction by delivering last mile microcredit through aggregation construct, leveraging technology and market cooperatives, as the pillars, leading it to a high scalable advantage as over seven million MSMEs in 1,600 markets across the 36states have been enumerated.

Each day over 4,000 GEP agents visit various markets to onboard beneficiaries equipped with proprietary technology that enables full registration and capture of beneficiary data such as biodata, market information, nature of trade, GPS coordinates of trade pint, association membership and other necessary data to determine eligibility for credit. The platform utilizes geo-fencing and mapping to ensure that target beneficiaries at the bottom of the pyramid and most rural parts of the country are reached. Every captured beneficiary is sent to the Bank of Industry in real time for verification, appraisal and credit assessment through over 120 agents and officials operating from a call centre.

Qualified applicants receive money in their bank accounts or mobile wallets which was opened for them during the onboarding process and those of them who are non-consumers of mobile phones are given free phones. Each loan disbursed is booked autonomously on a core banking system which is connected to all commercial banks in the country for beneficiaries to easily enter any bank and make repayments periodically. It has also created a repayment scratch card for recharge targeted at beneficiaries who don’t like patronage of the banking hall which can be purchased in local markets. Upon recharge, it automatically credits their loan account, and upon completion of loan repayments, a subsequent loan offer is made by phone to the beneficiaries.

Using biometrics, Bank Verification Number as a digital collateral, mobile data capture, mobile wallets, over 4,000 agent network in all the 774 local government areas and its state of the art operations monitoring centre where its real time dashboards beam live details of active registrations, disbursement and beneficiary data across all the states and FCT, the GEEP has been able to give loans to 2.5 million Nigerians through its various products Trader Moni which disburses 10,000 naira to petty traders and artisans to boost their trade reaching 1.3 million, Market Moni which gives loans from 50,000 naira to market women across the country with over 350,000 beneficiaries and Farmer Moni which offers farmers in clusters loans from 300,000 naira and over 5,000 farmers have benefited from this scheme.

The Government Enterprise and Empowerment Program should include capacity development to help its beneficiaries in growing their businesses to boost Nigeria’s GDP. It plans to reach 20 million Nigerians through its various initiatives by 2023.

According to a 2019 report by Mc Kinsey, only 28 percent of Nigerians have identities with half of that number lacking digital identities and 70 percent of the citizenry lack any form of identification. By unlocking the potential in digital ID could grow Nigeria’s GDP by 7.1 percent in 2030.

To fix this friction, the National Identity Management Commission (NIMC) plans to deploy a digital identity system which will capture data of all Nigerian citizens. Considering the fact that Nigerians carry different means of identification, the system will integrate all the multiple identities issued by different public and private institutions.

Lack of unique identity has prevented millions of Nigerians from accessing credit facilities from financial institutions.  Cash is the most preferred means of payment due to lack of a centralized form of identity. Credit as a percentage of GDP is lower in Nigeria compared to its peers on the continent like South Africa, Egypt, Kenya, Ghana and Angola. In South Africa, credit cards are mostly used to transact for goods and services while in Kenya, Mpesa the e-payment platform is widely used by all, even alms collectors.

The absence of a credit system prevents Nigerians from accessing goods and services when they need them. Cash based transaction has its inherent risks which include huge processing fees, attacks from armed robbers, etc.

World Bank data reveals a negative credit decline in Nigeria from 22.3 percent in 2009 to 10.95 percent.

This explains the Central Bank of Nigeria’s directive to banks to deepen their loan books by 60 percent of consumer deposit. Lenders such as fintechs and deposit money banks are utilizing technology to unlock loans for their customers with credit scoring based on the available data on their financial habits.

 The NIMC should learn from India’s digital identification Aadhaar which enables biometric authentication has covered over 90 percent of its population creating access to finance for its SMEs and rising middle class.

Also a startup Verify Me, a leading database management solutions provider has unveiled a real time ID verification platform which integrates the National Identity Number, Driver’s License No and Bank Verification No. It has studied the industry and global market in line with anti-money laundering compliance for banks and other financial institutions which explains why the Know Your Customer is important and the British General Data Protection Regulation  directive for privacy guidelines and decided to build a system which provides the most convenient solution for Nigerians in adherence to strict compliance rules to promote a culture of data integrity and privacy.

With its platform BVN (bank verification number), NIN (national ID number) and Driver’s License numbers can be linked to harmonize digitized data which becomes available for organizations to meet their throughput demands. 

There are about 70 million Nigerians with various forms of identities ranging from the NIN, Driver’s License No and the BVN. Most of them cannot access financial services ranging from insurance, banking services because they are financial excluded due to lack of identity and Verify Me in collaboration with the National Identity Management Commission has unveiled an enrollment programme for people to pre-register on their platform which will also collect their biometrics so that all their data will be sent to the NIMC for faster processing and availability of their National Identity Numbers.

Verify Me’s decision to not work with the telecommunication operators who are the major repositories for digital data with over 160 million registered subscribers on their networks is because of tier level which is lower level KYC and lack of standards for facial recognition which is part of Verify Me’s capabilities.

It does a lot of Know Your Customer data verification services for Nigerian banks and operates across all the six geopolitical zones except conflict zones and helps in mapping addresses for security purposes.

Another friction which it is helping to fix which is common in Nigeria is people committing offences in a particular location and relocating to new neighborhoods without the residents being aware of their new neighbors. It fixes through creation of a national work history repository for anyone to plug into and access work history which somebody else has reported enabling corporate and domestic employers to access the work history of their employees to know those who have criminal records to avert potential losses.

Verify plans to roll out series of biometric type recognitions and a KYC Marketplace which will offer originators of addresses used for verification a percentage of revenues each time they are used for authentication. It should explore integration of blockchain into its identity management solutions platform for security, transparency and authenticity.