LelapaFund African Small Business Report – 2017 Edition

Written by LelapaFund Co-Founder Jerry Crossan

Two and a half years into LelapaFund we have now analyzed 700+ businesses from 30+ African countries who have submitted a combined €133mn in funding proposals. From Kenyan Luxury Handbags to Cameroonian Video Games to Tunisian Electric Cars to a Ghanaian Livestock Health Tracking App, we can now safely say we have seen it all. We once again thank our networks in the pan-African entrepreneurial ecosystem that bring us our vast pipeline.

In this year’s report we will revisit the metrics we tracked in our 2015 Report  as well as introducing some new metrics we’ve been following. In which regions are the biggest deals hiding? What do East African entrepreneurs consider their secret sauce? Read on to find out!

We have now added an additional dimension to our annual report – geographic regions:

EAC: East African Community

NGA: Nigeria

ZAF: South Africa

ANG: Anglophone West Africa ex- Nigeria

FRC: Francophone Africa

SOU: Southern Africa ex- South Africa

EUR: Europe

Today’s LelapaFund pipeline is dominated by Consumer Goods, followed by ICT and Consumer Services. In the last few years we have seen a surge of homegrown FMCG products ranging from Organic Hair Care products to Gourmet Deli products to Yoga Wear enter the African market, giving multinational brands a run for their money. From the ICT world we have seen a spike in Agri-Tech and Fin-Tech pipeline, with Entrepreneurs solving problems related to soil health, animal husbandry, remittances, insurance and more. Finally, in the Consumer Services space we have seen increased interest from the pan-African Film, Education and Logistics industries.

Is there a trend or sector that we are missing out on? Please let us know in the comments below and we will add it to our sourcing strategy.

Just under half of the entrepreneurs signing up on our platform are raising under €100,000, staying consistent with what we have seen over the last two and a half years. In most entrepreneurial ecosystems, €50,000 can provide enough runway for a tech-startup to cover their tech stack, co-working space and basic expenses while they develop their MVP. Not surprisingly, South Africa and Nigeria led the pack with an above-average percentage of deals over €1mn. Notable big-ticket raises coming out of South Africa and Nigeria include Flying Ambulance Services, Mobile Insurance Platforms, and Healthy Beverage Bottlers.

Launching a new brand of drinkable yoghurt for kids, switching to a revolutionary biodegradable packaging material or buying a juice pasteuriser that rapidly decreases manufacturing time are all examples of product development-related funding asks that come through our platform. Entrepreneurs addressing their marketing needs might need funding to launch a series of radio and door-to-door ads to target their off-grid demographics. Funding asks from an expansion/export perspective include modernising an existing production facility to meet international certification standards, or building out an organic farmer supply chain to meet the rising demand for organic produce.

Regardless of what an entrepreneur is asking for, LelapaFund taps its broad network to see how it can get them technical assistance to help them effectively utilise capital catalysing their growth.

A full 83% of companies that submit a proposal to LelapaFund for more than €500,000 have launched at least one product on the market. LelapaFund includes company stage & traction as one of the pillars of its screening process. While LelapaFund rarely considers idea-stage or prototype-stage companies for follow-up due diligence, management teams with an extensive entrepreneurial track record are encouraged to apply.

Entrepreneurs across Africa are successfully taking their products to markets across the globe. Notable examples include Ongair which started in Kenya and now has a Hong Kong office and boasts 800 clients all over the world. Marini Naturals, a Kenyan based haircare company now sells their products on three continents.

For the following charts, we define SMEs as companies older than 3 years with at least one sales cycle under their belts, and startups as companies younger than 3 years.

Startups across Africa continue to take on very little debt and favour raising money from angel investors and donations from the ever-faithful Friends, Family & Fans (FFFs) in their networks. The limited debt we have seen startups take on is primarily through informal Savings and Credit Cooperatives. While LelapaFund initially started as a startup-centric funding platform, in the short-medium term we are focusing on getting SMEs funded while we develop startup-appropriate investment instruments.

On the SME side, thanks to innovations in financial technology such as mobile invoice factoring & debt-crowdfunding platforms, we see a greater use of debt by the established SMEs in our pipeline. Other initiatives such as the Kiva Direct to Social Enterprise program allow for SMEs with a track record to raise up to $50,000 in zero-interest rate loans from backers around the world. Combined with positive shifts in banking laws facilitating SME lending, we believe there is a positive outlook for SME access to credit.

When most entrepreneurs approach LelapaFund, it is their first time considering an equity raise from a non-angel source. Previously, LelapaFund would hold free investment readiness workshops in Nairobi to prepare entrepreneurs for the long journey of fundraising. All of that information is now available free in our LelapaFund Entrepreneurs Guide. Email hello@lelapafund.com for your free copy today!

We’re curious about the way age correlates with funding ask and success. The graph above shows that entrepreneurs above age 35 tend to dominate larger ticket sizes (60%). Does a tech-startup made up of undergraduate students have a better chance of success than a team of experienced professionals? We would love to hear your thoughts on the topic!

On the whole, entrepreneurs solving Africa’s greatest problems believe that their idea is their greatest competitive advantage. This is a 6x increase from when we last did this report. The team at LelapaFund recognizes the importance of having a strong idea, but puts a greater weight on the company’s ability to capitalise on that idea through an amazing finished product, team, technology stack or distribution channel.

With the rise of alternative exchanges such as the Nairobi Growth Enterprise Market Segment, combined with listing support, floating an SME on a public exchange is becoming more accessible.

Every entrepreneur that goes through the LelapaFLOW due diligence process is taken through an exit strategy module. All equity investments eventually need to exit and LelapaFund works with entrepreneurs to chart that path.

We hope you enjoyed reading and look forward to hearing any comments and questions about this publication.

To learn more about using LelapaFund for your small business, please sign up on www.lelapafund.com – we’d love to hear from you! 

If you are an institutional investor looking to gain exposure to African Startups & SMEs, don’t hesitate to reach out to hello@lelapafund.com to see if our pipeline is right for you.

Not ready yet? Stay in the loop by visiting our Facebook and Twitter pages.

A love letter to the African Diaspora

At its first Speed Meet of 2015, Homecoming Revolution welcomes you once again in London on 20-21 March for the largest gathering of international African professionals, recruiters, speakers and media of its kind. It is the place to be if you’re an African seeking prestigious opportunities back home. Get your tickets.

Speed-dating is fun, but we at LelapaFund are already pretty serious about our relationship with the African diaspora.  Forget fancy invitations –

This is a love letter. 

Because, well, the African diaspora deserves a lot more love. Last year Kenyans sent home $1,4bn of their hard-earned cash, and Nigerians regularly send back over $20bn per year. As a group, Africans living abroad will inject over $40bn in 2016. We’re talking about regular people here – not investment banks.

With no incentive schemes, tax breaks or public recognition, sending cash home is pretty much a thankless task. (And that eye-popping cost of money transfer – in 2015, really?) The truth is that the African diaspora is quietly building Africa without anyone taking notice. Financial inclusion, economic development and upliftment are trophies that should be handed over to you – not Norwegian development funds or Bono.

It’s not just a story about money. Africans living in London,  Paris and New York are forging a unique identity (Afro-what?) blending their background, expertise, communities and creativity. While this might seem like a by-product of a relentless struggle of identity and integration, it is the two-way bridge across continents that will transport the global African businesses of tomorrow. With that in mind, let us use this nano-space on the Internet to appreciate the tremendous value of the diaspora.

At LelapaFund, we believe that the diaspora must, and will lead Africa’s growth. No one understands consumer trends and investment risks in Africa better than you. Non-diaspora investors must follow your lead in deciding how and where to build opportunities. Tony Elumelu agrees:

That’s why we’ve built a crowdinvestment platform for you and your friends to invest small amounts together in African companies and products that you want to see in malls and supermarkets back home.

If one in every 10 of you invested $1000 of your savings in local SMEs and start-ups, this most creative, modern layer of the home-grown economy would get a boost of over $3bn. Your potential is enormous.

We’ll be waxing lyrical about you at the Homecoming Revolution in London on 20-21 March and @LelapaFund. It’s a date – see you there!