I like people who dream or talk to themselves interminably; I like them, for they are double. They are here and elsewhere.
— Albert Camus, The Fall (via horowitch)
Africa has been described as having an entrepreneurial spirit. However, many of these entrepreneurs have difficulty accessing investors willing to or capable of funding their ventures.
According to John Causey, an Africa investment and business specialist, a lack of local investors means many startups are turning to the international investment scene for funding.
Causey, who was previously an associate at Morgan Stanley in the US before taking up a position at African-focused investment advisory firm Clifftop Colony Capital Partners, said investing in African startups is not always attractive to international investors.
He explained that it is important to understand the deterrents through the eyes of international investors who are looking for a high return on investment, not just a social impact.
“You are not going to be able to solve the problem until you see what the problems actually are,” he told an audience at AfricaCom in Cape Town, South Africa last month.
1. Exchange controls
Capital controls are enforced to keep money in a country and in South Africa, for example, strong exchange controls make it difficult and expensive for investors to move money out of the country.
2. Understanding requires time and resources
Adequate understanding and investment in an African company requires on-the-ground assistance and time, and Causey said this can be expensive to achieve.
3. Small markets
South Africa’s GDP is roughly the same size as the US state of North Carolina’s GDP, according to Causey. “Even if they say your idea is going to dominate the South African market share, [and] even if you do, you are dominating a relatively small market on the international stage.”
4. Proven track record and few assets
Another problem, he added, is that there have not been many examples of large exits in Africa.
“People treat the Fundamo exit as if it’s a big deal but internationally it’s not a huge transaction. I think it was a $110m exit, which is nice, but you need to have a lot more of those to really attract investors.”