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.

Crowdinvesting gets France’s “salut“

The past two months here at LelapaFund have flown by, and it’s great to blog from Nairobi again with the team in one place. We hope you enjoyed our first LelapaLetter. The next one will focus on an important part of our mission: bringing crowdinvesting legislation to Africa.

In the meantime, here’s a 2 minute recap on the new regulatory framework under which we’ll be kicking off.

France’s financial markets regulators, the AMF and ACPR, unveiled their official position on crowdinvesting at CrowdTuesday last month in Paris and rules came into force on 1 October. As a French-African platform, we’ve been studying the new framework and working out how it balances shareholder protection with easier access to finance for startups and small businesses. Overall, we think France has done a great job. Bravo!

In contrast with the current U.S. regulations, France does not distinguish between accredited and unaccredited investors. This means anyone can invest on a French platform, regardless of their wealth or experience. The onus of investor protection is thus shifted to the platform, which has to comply with a host of strict transparency rules covering risks, due diligence, investment offering material, and fee structure, as well as ensure that an investor’s profile corresponds to the proposed investment.

Getting the regulator’s approval is a hefty procedure for platforms which now have the choice of two new accreditations, the CIP (participative investments advisor) or PSI (investment services provider). The latter allows for more complex deal structures and requires regulatory minimum capital. Both require significant management experience in finance.

The message is clear: anyone can invest, but only on the very best platforms. Oh là là!

We couldn’t agree more.

Getting our Hustle on!

Feels good to be back in our “Bright Continent“! I’m now sitting in snowy rainy Addis Ababa in Ethiopia.

I was out of the country for one and a half month, so since my return, good friends here are like – where have you been dude? Got similar remarks from LinkedIn and Facebook contacts, as I didn’t share much on my profiles lately…

Those of you who are following this blog may be wondering the exact same thing – where the hell have they been? Answer is: we are busy building a company, folks!

Our hectic journey to crowdinvest Africa is extremely enriching, off course. As co-founders, we’re happy that the team could accomplish so much over the past few months. This wouldn’t have been possible without our dedicated group of advisors, supporters, friends, family, developers, partners and all the people involved in a way or another –brief Oscar acceptance moment

Some examples: the platform is currently under development (stick around for updates!); we have officially incorporated our venture under French corporate law –we’ll tell you more about the comparative CF regulations in an upcoming post; we’ve protected our trademark and we’ve also engaged on very promising collaborations.

Speaking of collaboration, great news: we got our official logoCheck this out:

image

What do you thinkWe have the very talented Paris-based agency Chercheurs d’Or to thank for this brilliant work. “Mister T.“ and “Daddy J.“ totally got our requirements and they’re so easy to work with! We’re extremely satisfied with the result which is strongly influenced by origami, traditional masks and fractals. Got it?

What do we want to convey through our visual identity, exactly? Well, pretty much everything LelapaFund stands for: a modern, accessible and inviting new venture, instilling confidence and trust in Africa’s promising small-medium businesses!

As you know by now, leveraging equity crowdfunding, LelapaFund envisions to showcase the next generation of our Continent’s most exciting entrepreneurs. How? Through an enriched investment experience coupled with a sense of common purpose and a global vision.

This “global vision“ is exemplified by our current setup, with Libby –self-proclaimed Chief of the LelapaTribe– busy in Paris while I –Disruptor in Residence– scout around Africa with out-of-the building opportunities (well said, Eric Ries)… Division of labor, indeed.

Addis Ababa is definitely an exciting place to work from right now. Kudos to my friend Teddy and the folks at xHub: while I was away, they finalized the paint in their building. Lookout for future entrepreneurs coming out of this Addis-based ambitious business incubator!

image Teddy & Bobok, @ xHub – June 2014

Peace out, folks…

Safari Njema LelapaFund

As Libby‘s journey in Nairobi is coming to an end (I’m still around and will keep running on the roads of Kilimani for 2 days – lucky guy), we start looking back at our achievements over the past couple of days.

This trip to NBO has been a giant step for the LelapaFund team. We successfully held our first meetings as a team, which involved raising awareness on our endeavor to bring access to capital to African small businesses through cross-border crowd-investing.

Not only did the various engagements go very well, but we also managed not to kill each other (…). A South African and a Cameroonian couldn’t get along better. The LelapaTeam has a strong focus on collaboration and we always keep an open spirit.

For us, these two values (collaboration and openness) are also the core forces underlying the crowd-investing movement that we hope will emerge in Africa.

Stay tuned.

image

Libby & Bobok – LelapaTeam

Welcome to Silicon Savannah

LelapaFund team is in Nairobi! As we embark on our journey to crowd-invest Africa, it felt natural for us to make a first stop at the African Mecca of technology and innovation, Nairobi’s iHub. As we’re stepping into the building we bump into Erik Hersman, co-founder of mobile app Ushahidi, founder of BRCK – a backup generator for the internet, and co-founder of Savannah Fund. A very nice chat with him revealed some of BRCK’s recent production delays (we’re looking forward to receiving ours!). Now we’re heading to the 3rd floor for our meeting with Mr Mbwana Alliy, Savannah Fund‘s Managing Partner and fountain of wisdom for all things tech in Africa.

image