Africa: Financial boost for start-ups
Developed a great product, but don’t have the funds to bring it to market? In Germany or the United States, they are many opportunities to obtain grants, financing or funding, but in African countries, access is very limited. With the Innovative Capital Mobilisation in Africa (ICAMA) initiative, we aim to change this.
Through ICAMA, we are mobilising private capital for start-ups and small businesses on the continent, with a focus on innovation and job creation. In Ghana, USD 35 million has already been made available for investment.
Right now, only around one per cent of global venture capital goes into funding start-ups in Africa. The reasons for this often include lengthy, expensive and poorly standardised processes, fluctuating exchange rates, and a lack of opportunities for investors to resell the company shares they acquire. Innovative products, such as the use of artificial intelligence in agriculture and climate action, are being neglected, as are opportunities to promote local economic growth.
‘Africa does not have a start-up problem – it has a capital mobilisation problem. ICAMA can help to create a more sustainable venture ecosystem that drives innovation, job creation and economic growth across the continent. For investors like Launch Africa, that means moving from isolated success stories to a truly institutionalised and scalable asset class.
This is why ICAMA uses a fund of funds as an investment vehicle. It is not set up for individuals to invest their capital directly, but allows pension funds, for example, to invest and secure their clients’ pension provisions. The Ci-Gaba fund of funds is based in Ghana and invests its capital in a broadly diversified portfolio of venture capital and private equity funds in West Africa, which in turn invest the money in start-ups and small businesses. Losses from one investment – for example, due to a company’s insolvency – can thus be offset by gains from another. To further reduce investment risk in the Ci-Gaba fund, FSD Africa Investments, the UK Government’s financial sector development programme, and the Small Foundation are also investing USD 10 million as a first-loss tranche. If losses are incurred, it is their assets that are impacted first, and the pension funds’ investments remain untouched until the loss exceeds USD 10 million.
‘Ci-Gaba is a pioneering fund-of-funds operating across West Africa with a pan-African investment outlook. A defining feature of the fund is the technical assistance to build the capacity of emerging fund managers and portfolio companies and mitigate the systemic risks associated with SME financing in the region.’
The Ci-Gaba fund of funds has already mobilised USD 35 million in capital. Several pension funds in Ghana, such as Axis Pension Trust and Enterprise Trustees, have invested. In total, the fund of funds is estimated to have over USD 75 million at its disposal for investment. This is expected to create up to 1,200 jobs in start-ups, whose employees in turn contribute to pension funds, thus completing the cycle.
ICAMA aims to mobilise African and international capital for African start-ups and businesses with significant growth potential, allowing them to develop, grow and create jobs. Together with our partners, we are working to mobilise more than USD 250 million in capital to achieve these goals.
With the Innovative Capital Mobilisation in Africa (ICAMA) initiative and partners from the private sector, foundations and the public sector, we are developing a total of five investment models that can be replicated across Africa.
- The Ci-Gaba fund of funds and development of advisory and training services for start-ups, small businesses and funds in collaboration with the Dutch development bank FMO.
- Establishment of the first Pan-African secondary fund in collaboration with partners such as the Mastercard Foundation, MEDA, Cross Boundary and the Innovative Finance Initiative (IFI). This offers investors an early exit option with the purchase of their shares and, in turn, enables other investors to enter funds that are already operating.
- Development of blended finance models, that is, financing arrangements comprising public and private capital, which reduce risk and make investments commercially viable for private investors.