Bridging the finance gap for innovators in Africa


Bridging the financing gap in the innovation space: notes from my panel discussion at the #AfricanInnovationSummit2018 (#AIS2018)

Innovators are essentially fucked (a technical term that entrepreneurs use when stuck between the oven and the frying pan). Almost everyone wants to support them, yet very few are prepared to fund them. The investments required are often highly risky capital allocations that would make even experienced angel investors shrivel up.

So let me speak frankly.

In my view as an investor (both private and public funds) and an entrepreneur (with way too many failures under my LinkedIn belt) as well as one of the people behind of the world’s biggest B2B portals for SMEs, my view is that innovators don’t – with a few exceptions – deserve the capital that they need. Before you fire off a hate mail, allow me to clarify by inviting you to join me on a flight over Africa. You are sitting in a (hopefully) beautifully engineered and tested airplane with well trained staff that knows exactly what to do and have been trained for many eventualities including emergencies (such as running out of Coffee and having the Chief Coffee Drinker on board). Look around you. Everything is well researched and fine-tuned. Materials are stress tested. The seats are the product of years of engineering and passenger feedback.

The airplane is the product of a powerful choreographed team of engineers and support staff on the ground. It is truly a well run and usually big business.

Now please look through the little window at the innovator on the ground. Sitting there with often with inadequate tools but a great invention.

She/he is trying to hammer a small plane together with substandard materials to help his innovation take off (in this analogy the plane is the business in case my sub-standard writing skills are not getting the message across correctly). If the innovator by some miracle and lots of mentoring assistance does manage to put together something that could fly, most innovators are hopelessly under qualified to actually staff the aircraft, both from a pilot’s skillsets as well as from a engineering perspective (e.g. engines, electrical, etc). Some do, most crash, many run out of fuel (cash).

So how do we fix it practically?

More money? Maybe, but money is a finite resource.

Better more focused incubators? Also an idea, but expensive to setup and run.

My suggestion?

  1. Place the innovator inside a mid to large corporate where their innovation has a practical application and can be supported on the back of organisational infrastructure, access to finance/markets and staff expertise.
  2. Give some of the funding to the innovator, but the bulk to the corporate to manage on behalf on the innovator (and ring fenced so it is accordingly focused)
  3. Give tax or co-funding incentives to the corporate (e.g. for every USD 100 the corporate puts in, they get USD 500 in co-investments or tax incentives.
  4. Have a clear and direct feedback mechanism (think uber or AirB&B ratings) to track both the progress of the innovation in the commercialisation journey as well as the behavior of both the innovator and the corporate.
  5. Give the innovator a shareholding structure that is fair and incentivised to align to commercialisation or impact targets.

In other words, invite the innovator to board the big airplane and be part of the airline so they can reduce the risk that innovators inevitably face in their journey to market.

Am sure the more experienced amongst you will find holes in this. Please send me your feedback.

But the truth is that the innovation and SME Support ecosystem is broken. I invite you to join us in fixing it at http://www.SMEmovement.org – a global practical initiative for everyone to make an impact.

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