The African Angel Investor Summit offers an opportunity for entrepreneurs to connect with early-stage angel investors © Africa Business Angels Network
African farmers are generally poorly integrated into value chains, lack access to technical expertise and markets, and have little access to capital. Among these, are many would-be agripreneurs and micro-, small and medium enterprises (MSMEs) that fall into a grey area – they are too big to get micro-loans, yet too small to access credit or capital from financial institutions. According to the World Bank, 22 million of the 40 million MSMEs across all sectors in Africa are unserved or underserved. Thus, investing in MSMEs, including the ‘missing middle’, is crucial to boosting agricultural productivity and generating employment opportunities.
To fill the financing gap for early-stage enterprises that are getting off the ground, a range of newer, creative financing options are emerging in Africa. Among these are angel investors – affluent individuals who invest early in new enterprises in exchange for equity ownership once the business is more established. Because angels leverage their own financial resources, they typically provide more favourable and flexible financing than most banks and formal financial institutions.
Kigali Farms in Rwanda is a good example of a start-up agricultural enterprise that launched a mushroom industry in Rwanda, providing farming families with a highly nutritious food and a new source of income (the surplus is bought back from farmers and sold to urban consumers). Agriprenuer, Laurent Demuynck, who launched the farm in 2010, found that local banks were not keen to finance agricultural enterprises and that interest rates were upward of 16%. Eventually, Demuynck received a €200,000 grant from DEG, which finances and supports private sector enterprises in developing countries to promote sustainable economic growth and societal impact. This financing unlocked the door to several other grants and social/impact investments. “Without this seed money, I would not have been able to reach more than 1,700 small farmers, provide employment, or continue to grow the business,” emphasises Demuynck.
Profile of an angel investor
According to Sheena Raikundalia of IntelleCap, a company that builds and scales social enterprises to attract investors, “African angels tend to be successful business people who want to give back. They want to go on from ad hoc charitable giving to investing in enterprises that can scale and grow and have a beneficial impact on society.”
Idris Bello, a self-described ‘afropreneur’, is an angel investor, as well as co-founder of The Wennovation Hub (see Spore, Channeling Investments into Agribusiness). According to Bello, angels in Africa are nothing new, but they have generally invested in real estate, oil, mining and similar less risky enterprises. However, in the last couple of years, there has been more interest in ‘impact’ or ‘social’ investments in enterprises that include sustainable agriculture, clean energy and affordable basic services such as education and health.
Bello has made a few agricultural investments including one in Rashak, a Nigerian palm kernel oil processing enterprise, in 2016. “Besides investing capital for new equipment and generators, we infuse technology and provide management expertise to help the business scale,” he says. Rashak works with a cohort of 25 small farmers and buys products directly from them to cut out the middleman. The farmers are organised into a cooperative and given access to other benefits such as credit. This is a small to mid-scale business,” he notes. “We don't want to scale too fast.” The company not only provides employment but is helping farmers with post-harvest storage since oil palm is a seasonal crop and farmers, instead of being at the mercy of low prices at the end of the harvest season, can have an assured income year round. Rashak’s next step will be to provide other benefits for the farming families involved, such as education and farm extension.
Overcoming the visibility challenge
Bello states that, “There is a visibility challenge on several levels when it comes to investing for impact.” Through Rashak and other social investments he, and other angels, will need to demonstrate that a financial return, as well as social impact, is possible. “Potential angels need to be moved from an ‘either-or’ mindset before they will invest,” he says whilst adding that, “The best way to do this is to show them results – that you can invest for financial returns and also have social impact.”
Angel investors also need to know where to look for potential enterprises that they can invest in. Raikundalia, who is based in Eastern Africa, stresses that enterprises must first be ‘investment ready’ to be presented to possible investors. Her team works with selected enterprises and showcases eight to ten of them to their network of potential angel investors several times a year.
Similar financing forums and platforms are springing up throughout Africa, playing a crucial role in bringing angel investors together with entrepreneurs who need capital to build and scale their enterprises. In 2012, Bello got together with some partners, and with technical support from infoDev helped found the Lagos Angels Network (LAN). LAN has attracted a younger generation of Lagos residents willing to invest money in and mentor entepreneurs and their start-up enterprises. The network now has more than 40 members and has also led to the creation of the Africa Business Angels Network, which supports early stage investor networks and wants to get more investors “excited about the opportunities in Africa”.
Bello notes that another way to encourage African angels to invest for impact is to bring in experienced angel investors from more developed countries in order to get local investors interested. He noted that Mark Zuckerberg’s surprise visit to Lagos in 2016 and investment in Nigerian tech start-up Andela, through the Chan Zuckerberg Foundation created “a bit of a buzz” among Nigerian investors and brought credence to investing in start-ups. Raikundalia agrees, noting that in Eastern Africa, “Expat investors are a big part of angel investing.” The Somali AgriFood Fund, for example, has unlocked capital from the global Somali diaspora totalling over €800,000 (see Spore, Agriculture – a promising market for the diaspora). Local co-investors are also attractive to outside investors because they know the local customs and can open doors.
While new angel investor networks are cropping up throughout Africa, angel investing alone is not going to solve the capital and credit gap for MSMEs. However, angels are beginning to serve start-ups and the ‘missing middle’, by helping to get enterprises off the ground and, once established, to enable them to access finance from standard sources. By providing a new source of financing coupled with three crucial ingredients – mentoring, management, and a commitment to social impact – angel investors have an opportunity to make a significant difference to agriculture in Africa.