Alliance54.com » Entrepreneurship

More funding for education alone will not solve unemployment

Tue, 27 Mar 2018 05:45:09 +0000

There is a renewed focus on the importance of allocating funds into Africa’s education systems to suit the changing job market in Africa, and while this is welcome, experts argue that an overhaul of the education system is crucial.

The Global Partnership for Education (GPE) Financing Conference that took place in Dakar, Senegal in February 2, 2018 sought US$3.1 billion from world leaders to improve and modernise education on the African continent. Donors pledged a total of US$2.3 billion for the next years.

Funding, however, is only the first step. A consensus is growing around the idea that to equip the next generation with adequate and relevant skills, we must also reform our education systems.

To compliment this, a proliferation of government and donor-funded projects on entrepreneurship have been set up to teach young people to be job creators instead of job seekers.

One cannot really argue with the current approach, but it falls woefully short of truly addressing the structural aspects of youth unemployment on the continent and disregards the economic structures that exist in most African countries.

In the Gambia, my home country, the ILO estimates that over 75 per cent of total non-agricultural employment is informal. The World Bank estimates youth unemployment at 43.9 per cent and overall unemployment at almost 30 per cent.

These statistics are due to the formal sector’s inability to absorb enough working age Gambians – a problem that cannot be solved with entrepreneurship and education reform alone.

What The Gambia needs is investment in and promotion of labour-intensive manufacturing. According to the McKinsey Global Institute, sectors such as manufacturing and agriculture could “…speed up job creation [in Africa, and]…boost the number of new wage-paying jobs from 54 million on current trends to 72 million by 2020.” The IMF also noted that efforts to spur industrialisation through labour-intensive light manufacturing is showing positive results in Ethiopia. Despite Ethiopia’s success, the share of manufacturing as a percentage of GDP across the continent has stagnated at around 10 per cent.

For almost two decades, sub-Saharan Africa has seen unprecedented economic growth, but as AfDB President Adesina tweeted, “GDP growth is not enough. Growth must be felt in the lives of people!”

His tweet essentially summarises the need for a different approach, one that is more socially inclusive and improves the livelihoods of the masses. As UNIDO consistently argues, there is a “positive correlation between manufacturing and indicators of social inclusiveness.” As a result, industrial policies that centralise mass job creation, through manufacturing and industrialised agriculture must be pursued in order to avoid the “the real Malthusian crisis”.

Aubrey Hubry postulates that “…the need to generate employment for growing numbers of young people [in Africa] is unprecedented in human history.” Donor organisations, especially the European Union and UNFPA, have identified a link between the crisis Hubry describes in his Financial Times piece and the migration crisis. Both organisations have committed themselves to tackling what they call the economic roots of irregular migration across the Mediterranean.

However, their projects – for instance, the Youth Empowerment Project in The Gambia funded by the EU – do not provide enough capital, technical support or expertise, to address the root causes of poverty and youth unemployment in The Gambia and other African countries.

To conclude, we need to shift the paradigm away from the current status quo, to a tailor-made approach. As eluded to above, efforts to encourage entrepreneurship in The Gambia have had some success and they are essential, but as the founder of Taf Africa Global argues, “entrepreneurship cannot exactly be taught.”

Therefore, efforts to include it in curricula in The Gambia and across the continent are misguided – a move towards re-introducing vocational training in schools would be more suitable.

Funding schemes should be developed for large, scalable business ideas that have tangible potential for mass job creation. Realistically, manufacturing requires certain factors of production that are only available through foreign investment. Consequently, African governments should aim to shrewdly attract investment that secures knowledge and technology transfer, stable and decent employment, and stimulates structural transformation.

A holistic approach is needed though – succeeding with industrial policy requires the prioritisation of STEM (science, technology, engineering and mathematics) subjects in secondary and tertiary educational institutions. It also requires strategic investments in infrastructure, healthcare and as previous highlighted, vocational skills training.

This article is part of the #AfricaAtWork series, looking ahead to the 2018 LSE Africa Summit 20 and 21 April. Follow this link to secure your ticket.

Maudo Jallow (@maudojallow) is the founder of New Nation and former Co-Director of the LSE Africa Summit. He holds an MSc in African Development from the London School of Economics and Political Science.

Opportunities for Impact Investment in Education

Thu, 08 Jun 2017 23:19:55 +0000

Impact investors are in prime position to put capital behind solutions to the global education crisis. But where are the opportunities for impact in a changing global sector?

Scaling successful models

Impact’s involvement with education has so far been limited, but some success stories have emerged and these can be scaled using further injections of impact finance. One outstanding example is Bridge International Academies, a for-profit whose standardized “academy-in-a-box” model has been highly successful in delivering quality education to poor communities in Kenya.

To date, Bridge has enrolled 95,216 pupils, and counting, with high rates of attainment when compared to traditional forms of schooling. With continued growth in Kenya and plans to extend its reach to other African countries, Bridge shows that it’s possible to come up with scalable models for education delivery.

Bridge represents a new breed of company taking a new approach to education. Cross-sector collaboration has been part of its fabric from the beginning and continues to be central to its development. The company was founded on the partnership between Jay Kimmelman, the entrepreneur behind successful software company Edusoft, and Shannon May, a development specialist. It was established using capital from a wide range of investors including aid agencies like OPIC and DFID, venture capital investors like LearnCapital and Rethink Education and impact investors like Omidyar Network and CDC.

This co-investment approach shows the range of players in the arena and the potential for fruitful collaboration, a theme evident across the whole education investment sector. By using such techniques, it will be possible to generate the capital necessary to bring other promising models to scale, rolling them out across more regions and adapting them to answer local needs.

Exploring the potential of edtech

Impact investors already love cleantech and greentech, but edtech, the new buzzword for education technology, is still largely unexplored ground for the impact sector.

But what is edtech? Edtech involves using information technology—including tablets, smartphones and computers—and working through various media, including social media, to deliver instruction. Its practice involves enhanced learning through computers as well as remote learning and massive online courses, or MOOCs. “Edtechers” in schools, universities and businesses design and produce online classes, tutorials, training programs and exams and then deliver them to students using technology.

Edtech is widely considered to be the new frontier in global education and the momentum behind it is growing. The UK government, long a leader in the development of socially beneficial areas of enterprise, has established an edtech incubator. Meanwhile, mainstream markets and venture capitalists are beginning to get excited about the potential of edtech, with some pundits making bullish predictions about its future The edtech market is projected to grow to $220 billion by 2017, with the US market growing by 47 percent and the EMEA countries (Europe, Middle East and Africa) projected growth standing at around 25 percent.

For impact investors, the rise of edtech, with its potential for delivering returns at both market and below-market rates as well as non-financial benefits, represents another possible entry point into the education marketplace. Education, like clean water, is popularly considered to be a good thing per se and this makes edtech an uncontroversial investment, which in turn should make it attractive to a number of different kinds of socially motivated investors. It’s no coincidence that Bridge founder Jay Kimmelmann was an edtech entrepreneur before he became CEO of Bridge International Academies, a mission-driven education delivery business.

This crossover is important when it comes to financial arrangements, too. Two of Bridge Academies’ major investors, LearnCapital and Rethink Education are venture capital funds that focus on edtech investing. In another example of collaborative investing, last year they joined forces with the NewSchools Venture Fund, a venture philanthropy organization, to capitalize Britebytes, a platform that helps educators manage their learning technology.
While none of the three organizations in this deal call themselves impact investors, all are pursuing investment strategies that blend business and social benefit through investing in education.

This deal gives us a glimpse of the investing landscape that surrounds edtech. It’s one that draws investors equally from mainstream finance, philanthropy and government, creating a potentially dynamic market for developing education solutions. Impact investors should take note, since the chances are good that more of these collaborative deals will be coming their way in the near future. By being prepared to work with a range of different co-investors with a range of motives and a variety of appetites for both reward and risk, impact investors can play their part in a growing marketplace.

Getting deeper into student finance

Demand for student finance is exploding in developing countries with growing middle classes and increased demand for higher education, such as Vietnam, South Africa, Brazil, Morocco, and India.

At the same time, in the developed world costs for higher education continue to rise uncontrollably in the face of government cutbacks, leading some students to take on unsustainable levels of debt while others have been priced out of the education market altogether. Default rates for student loans, already high, are rising and despite a growth in student numbers the gap between educational attainment rates for rich versus poor students is widening, notably in the US. At the same time, the value of a degree in real terms has never been higher and the demand for highly skilled workers, driven by the growth in technology businesses, is rising, a trend described in a recent book by Harvard economists Claudia Goldin and Lawrence Katz: “The Race Between Education and Technology”.

For all these reasons, student finance is now being hailed as the “new frontier in impact investing.” It makes sense: impact investing has a track record of success both in providing finance directly and backing institutions who do. Recent studies show there are already some workable models being used by non-banking financial institutions (NBFIs) in the developing world some of which are backed by impact investors: South Africa’s Eduloan and Trustco Finance in Namibia, for instance are using methods including social bonds to raise money to loan to students. Other groups are collaborating with universities or governments, negotiating terms, such as discounts and subsidies, that make the programs more sustainable and secure profits for investors. Still others provide finance directly to educational institutions. There is scope for expanding some of the more successful models globally.

In the developed world, there’s also room for growth. Despite the presence of mainstream lenders, solutions are needed in higher education finance, especially for poorer students. As the cost of higher education continues to rise above the rate of inflation, there are calls for new approaches including using privately-financed Social Impact Bonds, which would raise capital for student loans with repayment tied to performance, and Income Share Agreements (ISAs). In an ISA scheme investors pay the cost of college attendance in return for a percentage of the student’s income after graduation. Higher-earning students pay more, but those who earn less pay less to investors.

These are just some ideas for how impact capital could support access to education for all students. With luck there should be many more such innovative approaches mooted in the years to come—and many opportunities for impact investors to get behind the wave of change. As the demand for global education continues to increase and the urgency of the funding crisis becomes more acute, governments, philanthropies, international aid agencies and the public will ramp up the search for solutions. And, in a new era of openness to market-based approaches, impact investors should be ready to do their part.

By establishing a focus on education as an investable sector—and learning how to work collaboratively with a range of other investors—impact investors can help turn the tide in the global education crisis through supporting sustainable, business-based solutions.

Marta Maretich, Chief Editor, MaxImpact

Why the Education Sector urgently needs Impact Capital

Tue, 30 May 2017 23:11:17 +0000

The world is crying out for education. For 4,738,116 respondents to the My World digital survey (and counting) “a good education” is, is the overwhelming choice for every age group and every sector for the change that “would make the most difference” to their lives.

The role of education in improving the people’s lives and encouraging economic development is widely recognized, making it a focus for national governments, philanthropic bodies and international development agencies. Increasingly, it’s viewed as an indispensible tool for easing poverty, reducing inequality and boosting economic sustainability. Research has shown that one year of education can increase wages by five to 15 percent, while each year of secondary school raises them by up to 25 percent.

What’s more, quality education for all—including marginalized groups, women and adult learners—can generate huge economic rewards for a country, increasing its gross domestic product per capita by 23 per cent over 40 years.

More investment is needed—right now

There’s little doubt about the value of education. Yet, despite making commitments to Millennium Development Goals in education, the global community has so far failed to come up with the investment needed to hit education targets. While spending on education by low-income countries has increased by an average of 2.9 percent to 3.8 percent of GDP over the last decade rich countries have not stepped up to the same degree.

In 2010 estimates showed that an additional $16 billion per year would be needed just to provide basic education for children, youths and adults by 2015. However, actual spending has hovered around the $3 billion mark annually. The result is a funding gap that has almost doubled in the intervening years. Today, estimates place the annual financing shortfall at a staggering $26 billion.

It now seems likely that the Millennium Development Goal for education will not be reached by the 2015 deadline and there are concerns on the part organizations like Education for All about what will happen to education development post-2015 and in years to come.

In a further development, low-income countries and poor populations aren’t the only ones facing an education crisis. The education systems in rich countries like the US, the UK and Australia, for instance, are also suffering from the effects of squeezed public budgets and skyrocketing costs, especially in the higher education sector. This has left educational attainment rates dropping, especially among poor people and minority groups, over a number of years. Many would-be students are priced out of access to higher education just when the need for an educated workforce is on the rise.

Innovative finance solutions

So what can be done to help the poorest attain access to quality education and the better-off optimize their access to higher forms of learning? The key, recent research suggests, is to bring more private capital into the sector and to experiment with new kinds of investments that target specific educational problems and meet the needs of specific groups.

In many parts of the world, education has until now been the sole preserve of governments and development aid agencies, but there is evidence that this is beginning to change as new funding approaches — like impact investing— gain popularity and prove their viability. Though governments and development aid agencies will continue to play a central funding role, the education sector is now actively looking for ways to attract private capital, often in the form of impact investment, as a means to fill that yawning $26 billion funding chasm.

Though it’s early days, there’s already evidence that impact finance can be effective in education. George Soros’ Open Society Foundations have produced some first findings on impact investing in developing countries’ education systems. The results suggest that workable models are evolving on a small scale, often in collaboration with governments, and some are already showing respectable track records of financial return and demonstrable benefit.

These indications are hopeful, yet impact investing in education is still in its infancy. Education accounted for only 3% of the investments of participants in the GIIN’s recent sector survey, a figure that suggests that impact investors have been hesitant to engage in this sector.

The OSF report confirms this image of tentative, early-stage activity in education by impact investors: “Most deals remain small, and investments in schools currently dominate deal-making, with more innovative technology and management models just beginning to emerge. As yet, few business models deliver strong immediate financial return while reaching the most vulnerable beneficiaries.”

More worrying perhaps is the fact that impact’s involvement in education investing remains split into two camps, according to the report. On the one hand there are impact investors focused on “reaching the lowest income populations without expectation of any financial return”; on the other are investors who expect market rate returns and place capital into deals that “target middle and upper class populations.”

By now, this is a familiar situation for impact, with well-meaning investors in many sectors still struggling to find ways to engage with the middle ground and find models that meet needs while maintaining profitability. Yet, given the pressing global demand for education, there is enormous potential for innovation, both in terms of finance models and in terms of education delivery methods. With more impact engagement—and a renewed commitment by the education sector to finding new ways to finance and deliver good quality education on all levels—there is scope for significant positive change in which impact investing can play a significant role.

By deepening its commitment to investing in education, the impact community has the opportunity to help solve one of the world’s greatest challenges.In the next blog in this series, we’ll be looking at the places where impact capital has the potential to be most effective in the education sector. As the need for education continues to grow, so will the range of methods and approaches for private capital, including public-private collaborations, an expanded role for impact intermediaries, and new technologies with the potential to deliver education to underserved communities as never before.

By Marta Maretich

Social Entrepreneurs – Characteristics and Objectives

Mon, 26 Sep 2016 08:10:13 +0000

While a business entrepreneur might create entirely new industries, a social entrepreneur comes up with new solutions to social problems and then implements them on a large scale. Social entrepreneurs act as the change agents for society, seizing opportunities others miss and improving systems, inventing new approaches, and creating solutions to change society for the better.

Social Entrepreneurship
The essence of entrepreneurship is the burning desire to create an organization that focuses in helping humanity by solving societal problems, providing needs, and in the process, the entrepreneur can make money. Social entrepreneurship is about applying practical, innovative and sustainable approaches to benefit society in general, with an emphasis on those who are marginalized and poor.

Characteristics of Social Entrepreneurs
1.Social entrepreneurs don’t do well in bureaucracies. They cannot sit back and wait for change to happen – they are the drivers of change.

2.A social entrepreneur is a pragmatic visionary who achieves large scale, systemic and sustainable social change through a new invention, a different approach, a more rigorous application of known technologies or strategies, or a combination of these.

3.A social entrepreneur has a practical but innovative stance to a social problem, often using market principles and forces, coupled with dogged determination, that allows them to break away from constraints imposed by ideology or field of discipline, and pushes them to take risks that others wouldn’t dare.

4.Social entrepreneurs are innovative, resourceful, and results oriented. They draw upon the best thinking in both the business and nonprofit worlds to develop strategies that maximize their social impact. These entrepreneurial leaders operate in all kinds of organizations: large and small; new and old; religious and secular; nonprofit, for-profit, and hybrid.

5.What business entrepreneurs are to the economy, social entrepreneurs are to social change. They are the driven, creative individuals who question the status quo, exploit new opportunities, refuse to give up, and remake the world for the better.

Key To Success
For every entrepreneur or hopefuls, the key to success is to first think of the social benefits of your venture, even if yours in for profit, then go ahead to satisfy those needs, and the money will sure come. If the goal is money, one may sure make the money, but may lack in fulfillment. Entrepreneurs must have eyes that are more than profits to be fulfilled and retire happily.

Social Objective
Earned income ventures are socially entrepreneurial only when they have a social purpose beyond simply making money. If social entrepreneurship is to be distinctive in any way, it must be because social objectives matter in how the venture is organized and managed. If the only way a venture serves your mission is by generating funds, it may be business entrepreneurship, but it is not social entrepreneurship.

Benefits
Running a socially responsible business can be good for the bottom line.Businesses cannot exist in isolation with the community, hence every business, whether non-profits or for profits must be socially conscious of its environment.

In the developed worlds, citizens start or increase their business with a company that is dedicated to the social good. According to a survey by Golin/Harris International, researchers found that about 70% of Americans would start or increase their business with a company that is dedicated to the social good. There’s some value one can place on good will and the relationship with the community.

Improving Society
Any form of social entrepreneurship that is worth promoting broadly must be about establishing new and better ways to improve a society. Social entrepreneurs implement innovative programs, organizational structures, or resource strategies that increase their chances of achieving deep, broad, lasting, and cost-effective social impact.

New Social Enterprises
A new breed of social enterprises which crosses all boundaries and cultural divide has now emerged. Young and innovative Internet companies such as Early Planet, Trade Planets, Paul Hata and World Christian Pages which has banded together to provide online jobs for anyone on the planet with a broadband access.Job opportunities available includes affiliate marketers,article writers,editors, designers and programmers.

By Paul Hata

How Can Crowdfunding Scale In Sub-Saharan Africa?

Tue, 05 Jul 2016 00:03:48 +0000

It will have been difficult to ignore the exponential growth in crowdfunding over the past five years. In a relatively short period of time the industry has become an established and credible source of funding for small businesses and start-ups globally explains Will Tindall, Co-Founder of Emerging Crowd. In 2013, more than $6 billion was raised through crowdfunding platforms, and in 2014 an impressive $16.2 billion. When the results for 2015 are released, volumes are expected to more than double again, to reach $34.4 billion and by 2025 it could be as much as $96 billion . The industry has now surpassed venture capital and angel investing in total volumes raised; this is quite a feat considering it was a relatively unheard of concept not so long ago! Despite this phenomenal international growth, crowdfunding’s potential in sub-Saharan Africa (Africa) has yet to be unlocked. Small and medium-sized enterprises (SMEs) and startups, which account for the vast majority of growth and jobs on the continent, suffer acutely from a lack of access to capital. Meanwhile, China and India are gradually becoming middle class nations?—?thanks in part to entrepreneurial value creation. Business growth stages and capital needs The lack of an angel investing culture or any scaled venture capital offering means the “funding gap” is even more barren across Africa. This is widened further by the lack of entrepreneurial and support networks that exist in the likes of the US and Europe. An adapted crowdfunding model has the potential to address this head-on, but before the panacea can be reached, some sizeable hurdles and misconceptions need to be addressed: Regulations All investment-based crowdfunding must to be strictly regulated and platforms should be required to follow guidelines to ensure that investors are protected and the sector is able to grow. Often the guiding principles are around the implementation of robust anti-bribery and corruption, anti-money laundering and financial sanctions procedures. This is paramount to prevent an early upset. To address the increased risks associated with investing in Africa, platforms need to be properly regulated by international regulators who have built specific frameworks for crowdfunding. This also enables platforms to demonstrate that their issuers have adhered to the highest international standards before being marketed to investors. Overcoming Asymmetric Investor Information Frontier market investors often assume, sometimes rightly so, that they aren’t always privy to the full set of company facts. It is vital that platforms undertake deep-dive financial, commercial and legal due diligence on all prospective issuers and that this information is fully disclosed to investors. The “wisdom of the crowd” is often relied upon in developed markets, but with fewer participants and a less efficient exchange of information, platforms need to do the heavy lifting and be able to display high-quality enhanced diligence. Experienced analysts should be able to perform comprehensive company analysis as expected of companies in developed markets. For crowdfunding to reach a meaningful size, opportunities must to be seen as investments as opposed to punts! Investor Protection Simple minority investor protections such as pre-emption rights and tag-along rights should be provided as standard across all platforms – without this, investors may miss out on their fair share at an exit and this could lead to a PR disaster. We all know that start-ups and SMEs are likely to fail more frequently than established companies. There can be many commercial causes for this and savvy investors should be able to consider the risk-return trade-off before committing. What isn’t considered a fair risk by investors is if a company fails as a result of malfeasance. A platform that wishes to win the trust of its clients and deter fraudulent activity, must be able to demonstrate that it can pursue appropriate and enforceable legal action on behalf of its investors. A recent USAID study showed that over 24 million Africans abroad use the web to search for investment opportunities in their home country. Crowdfunding has the potential to become a conduit for this and to become truly transformational. To enable this, African platforms need to foster a culture of trust and transparency within their online communities. If this can be achieved, crowdfunding could bridge a significant part of the existing funding gap and African entrepreneurs will be able to build local economic ecosystems and drive prosperity. By appsafrica

‘Investing for Good’ Gains Appeal Amid Rocky Tech Startup Market

Mon, 04 Jul 2016 05:50:45 +0000

VCs see risk in emerging markets, but they should also be seeing huge potential profits.

As valuations flounder for Silicon Valley startups once worth billions of dollars, investor interest is on the rise in startups with both financial and social benefits, such as healthcare software for poor communities or low cost solar panels for homes.

So-called “impact investing” rose to $15.2 billion globally last year from $10.6 billion in 2014, according to a recent report by the Global Impact Investing Network. The figure includes several types of investment, from funds to foundations, which intend to generate social and financial returns.

The group expects a 16% rise in 2016. The change reflects investor concern with current valuations of more mainstream technology startups, a desire to help by some investors and a broadening definition of social-good startups. There is also growing sentiment that the rise of mobile technology will allow for profitable upstarts in parts of the world relatively untouched by Silicon Valley.

Earlier this year Union Square Ventures Partner Fred Wilson called the developing world “the next whitespace” for venture capital, pointing to 2.5 billion people poised to adopt smartphones.

Altruism and Profits for Kickstarter the Public Benefit Corporation

Big financial institutions such as Bank of America BAC -7.34% and JPMorgan Chase JPM -6.95% are investing, seeing rural communities and emerging markets as potential customers for financial services.

The drop in valuations for tech industry darlings that do “things my mom used to do for me” was a “pivotal wake up” for investors, said Doug Galen, chief executive of RippleWorks, which provides advisers for entrepreneurs in the developing world.

Speaking on the sidelines of the Global Entrepreneurship Summit, put on by the U.S. State Department this week at Stanford University for entrepreneurs from around the world, he and others poked fun at businesses made by and for well-off Americans.

“Uber for pets or overnight underwear delivery—those things definitely aren’t getting the same traction they were six months ago,” Andrew Beebe, managing director at Obvious Ventures, a venture firm for ‘world-positive’ investing, said in an interview with Reuters. “But take water (shortages) —on the other side of that solution is a massive pot of gold,” he said.

How Companies Can Enrich Shareholders—and the Planet

The case for investing in social impact startups is the sheer size of the market; millions of people lack access to clean water, for instance. But, with companies serving customers living on $2 a day, profits can at times be slim.

“Maybe 2% is a fabulous return in some cases,” said Matthew Bannick, managing partner at Omidyar Network.

By comparison, traditional venture capitalists might seek a return 10 times their investment.

Some impact investors such as DBL Partners have had strong returns by using a broader definition of ‘social impact.’ DBL considers its investments in electric car company Tesla Motors and Juicero, a juice company that raised $70 million in March, as having both financial gain and social impact.

“You can walk and chew gum at the same time,” said Nancy Pfund, founder of DBL, which raised a $400 million fund last year.

Still, many of the high-profile Silicon Valley venture firms have steered clear of investing outside their comfort zone.

“Your impact could be bigger. Stop looking at the 60 mile (area)” of Silicon Valley, Youssef Chaqor, founder and general manager of Kilimanjaro Environment, which recycles used cooking oil into biodiesel, told an audience of investors and entrepreneurs.

Some venture capitalists are worried about emerging market risks, such as fluctuating currencies, military coups, disease and corruption. Others don’t see enough profit.

Andrea Carafa, founder and CEO of art and music event coordinator ArtsUp, says he does not bother to tell Silicon Valley venture capitalists about the societal benefits of his startup.

“They don’t care if you’re a social impact company,” he said. “They care about your profitability.”

DISCOVER MORE ABOUT NEW PROJECTS AND INVESTMENT OPPORTUNITIES. Click Image below.

Five Lessons From Some Of Today’s Hottest, Billion-Dollar Startups.

Thu, 30 Jun 2016 00:02:28 +0000

What makes the billion dollar startups so unique? The answer is distribution. They either create a whole new market, like Uber and Airbnb did with the sharing economy, or they massively disrupt existing markets, such as healthcare and finance. Here are five companies that made it into the “billion dollar club” and my analysis of what set them apart.

SoFi

The financial market has been going though many changes thanks to the growth of the digital economy and availability of app-based mobile devices. Mobile payments are one obvious area in which the financial industry is evolving. Square is a clear leader in the U.S., Canada, Japan and Australia, while companies, such as Ezetap in India, are cornering the market in developing nations.

Another emerging sector turning traditional banking on its head is online financing. San Francisco-based SoFi (which stands for Social Finance) is set to disrupt the banking sector through its unique approach to lending and wealth management. What launched in 2011 as a financial services company to refinance student loans has expanded to mortgages, mortgage refinancing, personal loans and wealth management. The company touts its proprietary technology, customer service and products, while marketing itself as a “non-bank.” Instead of going to a local bank branch to obtain a loan, SoFi allows members to apply online or over a mobile device—making it particularly appealing to Millennials.

What Sets SoFi Apart? There are other companies that offer online financing and wealth management, but SoFi’s management team and their ability to partner with major financial institutions give them strength and credibility. Japan-based SoftBank Group was so impressed with SoFi that they provided $1 billion in funding to help the company charge lower rates on student, personal and home loans, as well as help fund plans to expand into wealth management and deposits.

23andMe

I recently went to my doctor for a yearly physical. As part of the process, I underwent several blood tests and had a heart stress test. What if, in addition to these tests, my doctor could also analyze my DNA to better understand my genetic mix and its relationship with my health? He might be able to predict and help prevent certain hereditary diseases. That is the potential behind 23andMe.

For the last ten years, the company has been developing a suite of genetics tests to provide customers information on health, ancestry and traits. The company claims more than 1 million customers and says it has built one of the world’s largest databases of individual genetic information. Though not currently cleared to use genetic information to predict the likelihood of a disease, the potential is there and investors have taken note. The potential revenue of an FDA-approved test for diseases is so significant, the company could be well on its way to an IPO.

What Sets 23andMe Apart? The company’s success is tied to the persistency of founder and CEO, Anne Wojcicki, who spent a decade in healthcare investing, primarily in biotechnology companies, before co-founding 23andMe. She understands the market and has been able to navigate some major hurdles, including gaining FDA approval for the company’s direct-to-consumer genetic testing business. Though the company had to regroup a bit, 23andMe relaunched in early 2015 with guns blazing—and hasn’t looked back since.

Udacity

Online education is making it easier for many people to learn new things or brush up on skills to help advance their careers. While many e-learning platforms, such as Courseraand Khan Academy, offer courses across a wide variety of topics, Udacity is focused on technology. Its mission is to “bring accessible, affordable, engaging and highly effective higher education to the world.”

Udacity was created almost by accident. Co-founder, Chairman and President, Sebastian Thrun, and Peter Norvig (currently the Director of Research at Google Inc.) offered an “Introduction to Artificial Intelligence” course online to anyone, for free. Some 160,000 students from more than 190 countries enrolled. Not long afterward Udacity was born.

Today the company focuses on teaching skills that industry employers need and delivering credentials endorsed by these employers—at a fraction of the cost of most traditional schools. One of those employers is Google. The company recently announced a partnership with Udacity to offer a Google Android Basics Nanodegree designed for people with no programming experience.

What Sets Udacity Apart? The Co-founder, Chairman and President, Sebastian Thrun, recognized the opportunity to monetize courses teaching the skills employers are looking for—and he seized it. He brought in the right team to make it work, including CEO Vish Makhijani who has years of executive leadership experience working with companies including Zynga and Yahoo. The market has taken notice. Udacity has received funding from major investors, including Bertelsmann, Charles River Venturesand Andreessen Horowitz. It is currently valued at $1.1 billion and is set to become a leading provider of educations services.

Oscar

If you are confused about your health insurance policy and bills, you aren’t alone. The insurance market in U.S. is not working well, especially when compared to most other developed nations. We pay huge premiums and still have expensive medical bills—and that’s just for the insured.

Enter Oscar Health Insurance. The company was created in 2012 partially because co-founder Josh Kushner was frustrated over trying to make sense of a health insurance bill. He and fellow co-founders, Mario Schosser and Kevin Nazemi, wanted to use technology to improve how customers find health care. According to its website, Oscar is “reinventing how to manage care, process medical claims, control healthcare costs and provide transparency. With all the complexity hidden behind an easy experience for our members.”

What Sets Oscar Apart? Oscar is changing a broken industry by offering a common sense solution to health insurance. It uses sophisticated technology to make it easy for customers to find information and be able to make decisions. Though currently only offering plans in parts of New York, New Jersey, California and Texas, the company is growing rapidly. It currently has more than 145,000 customers and is valued at $2.7 billion. Investors include Khosla Ventures, General Catalyst Partners and Goldman Sachs.

WeWork

Great ideas don’t have to be all about technology, but they should be about the market and customer needs. If you can identify and solve a market challenge, you can win.Adam Neumann and Miguel McKelvey did just that when they founded WeWork back in 2010. Both were independently employed and were working out of a partially vacant office building. They convinced the landlord to let them rent out the empty parts as shared workspace—and WeWork was born.

Today the New York City-based company fills the need among entrepreneurs for a work space that won’t cost an arm and a leg. It currently serves close to 50,000 people in cities across the U.S. and around the globe. Part of the appeal of WeWork is that it doesn’t just provide an empty desk. Membership includes access to a number of perks, from free coffee and craft beer on tap to Wi-Fi, printing and even meeting rooms with ping pong tables. Just the type of hip appeal that many of today’s entrepreneurs and independently employed persons are looking for.

What Sets WeWork Apart? The company recognized that technology is not always the path to success – marketing is. It’s not just enough to offer office space for rent—it has to appeal to the mindset of the self-employed generation. Though this startup is not tech-based and has a pure and simple business plan, it’s attracted the attention of Benchmark, Goldman Sachs, Fidelity and T. Rowe Price, who have funneled $1.4 billion into the company—putting it at a valuation of $10.2 billion.

These five companies have all approached business a little differently and, in so doing, have made their way into the “billion dollar club.” One size does not fit all when it comes to building a company, but studying the approach of these success cases is a good way to find inspiration for your own business plan. Strong partnerships, a good leadership team, persistency, common sense solutions and a solid marketing plan can make the difference between an average company and one that takes the market by storm.

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The quest for a Pan-African Investment Code to promote sustainable development

Thu, 23 Jun 2016 10:14:43 +0000

In late 2015, African countries finalised the drafting of the Pan-African Investment Code (PAIC). What is the added value of this continental instrument related to the regulation of foreign investment?

The year 2015 was a crucial one for Africa regarding the negotiation of the first continent-wide investment agreement: the Pan-African Investment Code (PAIC). Although this legal instrument – presented in the form of a treaty – is not yet officially adopted, it reflects an African consensus on the shaping of international investment law. It has been drafted from the perspective of African developing and least developed countries focusing on Sustainable Development Goals (SDGs). The PAIC contains a number of Africa-specific and innovative features, making it a truly unique legal instrument.

The main objective of the PAIC is to foster coherence and consistency with respect to the rules and principles that will govern investment protection, promotion and facilitation on the African continent. As such, it has the potential to become a sustainable solution to solve the puzzle of international investment agreements (IIAs) in Africa.

The puzzle of IIAs in Africa

African countries adopted the large bulk of their bilateral investment treaties (BITs) between the mid-90s and the early 2000s. Traditionally, BITs were concluded with capital exporting countries, mainly from Europe. African states hoped that the establishment of international rules to protect investment intended to ensure stability and predictability, would promote and attract foreign capital into their economies. Today, African countries have signed around 870 BITs or IIAs, which corresponds to about a third of all IIAs signed worldwide.[1] However, since 2002, there has been a marked decline in the number of BITs signed by African countries.

Aside from BITs, regional investment agreements have emerged in the African context due to the proliferation of regional economic communities (RECs). Within West Africa, there are three RECs: the West African Economic and Monetary Union (UEMOA), the Mano River Union (MRU), and the Economic Community of West African States (ECOWAS). Central Africa has two groupings: the Economic Community of Central African States (ECCAS), the Economic and Monetary Community of Central Africa (CEMAC), and the Economic Community of Great Lakes Countries (ECGLC). In the Eastern and Southern African sub-regions, six groupings coexist: the Common Market for Eastern and Southern Africa (COMESA), the East African Community (EAC), the Inter-Governmental Authority on Development (IGAD), the Indian Ocean Commission (IOC), the Southern Africa Development Community (SADC), and the Southern African Customs Union (SACU). North Africa shares two RECs, namely the Arab Maghreb Union (UMA) and the Community of Sahel-Saharan States (CEN-SAD). Today, in this complex mosaic, 28 countries retain dual membership, 20 are members of three RECs, the Democratic Republic of Congo belongs to four RECs, and six countries maintain single membership.

Most of these RECs adopted legal instruments concerning the regulation of foreign investment.[2] From the 1970s to the 1990s, various treaties were concluded to enhance cooperation and harmonisation in the area of investment, such as the 1965 CEMAC Investment Agreement, the 1982 ECGLC Investment Code, and the 1990 Arab Maghreb Union Investment Agreement. ECOWAS adopted two protocols that relate indirectly to foreign investment: the 1984 ECOWAS Protocol on Community Enterprises and the 1979 ECOWAS Protocol on Movement of Persons and Establishment. More recently, in 2007, COMESA developed a modern investment agreement, which was intended to establish the COMESA Common Investment Area. However, the agreement has not yet entered into force and the economic community is currently renegotiating its content. The 2006 SADC Protocol on Finance and Investment is another recent text which has been adopted in the region. The EAC has also launched various investment initiatives, notably adopting a model investment agreement in 2006 (which was revised in late 2015).

Consequently, each African REC has at least one instrument relating directly or indirectly to investment. However, the picture becomes more intricate when one considers that many African states are simultaneously member to two or more RECs. While regional economic integration is generally perceived as benefitting the economy and fostering foreign and domestic investment, the multiple and overlapping commitments in various RECs make Africa’s integration efforts in relation to investment harmonisation inefficient. Nonetheless, recent developments give hope for more harmonised economic integration. In the summer of 2015, the SADC, COMESA, and EAC launched the Tripartite Free Trade Area (TFTA), which seeks to promote the harmonisation of trade and investment arrangements amongst the three RECs as a step towards the wider goal of African continental integration.

By formulating their own investment rules, African RECs play a prominent role in the development of international investment law. They have adopted investment instruments which they consider to be more adequate in light of the specific needs of African countries, the most recent of which seek to combine attracting foreign investment with achieving sustainable development objectives.

The aforementioned COMESA Investment Agreement is an innovative text. It contains significant reform approaches aimed at achieving more balanced investment protection and ensuring that investment benefits flow back to local communities. It also constitutes an attempt to render investment provisions clearer and more predictable. The 2006 SADC Investment Protocol, for its part, states the need to integrate foreign investment into the larger framework of sustainable development. In addition to this protocol, SADC also adopted a Model BIT, which has at its heart the sustainable development concerns of developing countries.[3] Today, it is considered as one of the leading models as regards treaties that not only focus on the protection of foreign investors, but also on sustainable development considerations. The SADC Model and the COMESA Investment Agreement have received tremendous attention in the current discussion on reform of the international investment regime.
The PAIC and the challenge of investment facilitation in Africa

At the continental level, the African Union (AU) has been mandated by its member states to enhance the political and socio-economic integration of the continent and promote sustainable development. Currently, the most important integration endeavours undertaken by the AU are the establishment of the African Economic Community by 2034, and the creation of the Continental Free Trade Area (CFTA) to be finalised by 2017.[4] In regard to the harmonisation of the African investment regime, the AU also appears to be the most appropriate organisation to initiate measures intent on disentangling the complex web of intra-African BITs and investment instruments adopted by African RECs.

In the spirit of enhanced economic integration, African ministers responsible for continental integration decided in 2008 to start working on a comprehensive investment code for Africa: the Pan-African Investment Code (PAIC). The declared aim of the initiative was to attract greater investment flows to the continent and to facilitate intra-African cross-border investment. A group of independent African experts – composed of representatives from various African RECs, academia, and the private sector – has drafted the text over several years, proceeding in two phases. In the first phase, the group compiled African best practices in the field and elaborated a first draft. The second and decisive phase, which took place throughout 2015, consisted in finalising the PAIC text at the expert level. Two meetings of African independent experts were held for this purpose in May 2015 in Tunisia and in September in Mauritius. Experts from AU member states then reviewed the work of the independent experts during a continent-wide meeting in Uganda that took place in December 2015.

What is the potential added value of a continental instrument related to the regulation of foreign investment? As shown above, African regional integration is based on a complex web of legal instruments. As such, the overall landscape of investment law in Africa is very fragmented, which is counter-productive for African integration and for investment facilitation. When foreign investors, from Africa or elsewhere, invest in an African country, they currently have to comply not only with national laws and the investment contracts concluded with the host state, but also with the two or more regional instruments applicable in a given state, as well as with any potential BIT between their home state and the host state. The different levels of legal commitments raise many issues, in particular concerning their interrelationship, and this uncertainty regarding applicable or prevailing rules constitutes a serious challenge for investors in Africa.

The PAIC, which would be applicable to any investment made in AU member states, has the potential to solve the problems of legal uncertainty and fragmentation. The issue of the relationship between the PAIC and other investment agreements is addressed in the draft text of the PAIC, which clarifies that: “Member States may agree that in the case of a conflict between this Code and any intra-African BIT, investment chapter in any intra-African trade agreement, or regional investment arrangements, this Code shall take precedence.” This crucial provision on the relationship between the PAIC and other investment agreements in Africa, despite its soft language, highlights the significance of the PAIC, which would thus seek to ensure continent-wide coherence and legal certainty for the purpose of investment facilitation.
The PAIC and the “Africanisation” of international investment law

With a continent-wide instrument such as the PAIC, Africa provides its own investment rules. Over the last sixty years of international investment law practice, African countries have been perceived as investment rule consumers. African economies did and still do rely heavily on international private capital commitment. In the hope of attracting more foreign investment, various African countries thus concluded numerous BITs with capital-exporting countries, accepting the pre-drafted BIT models of these countries. Today, however, African states have initiated a shift and are increasingly becoming investment rule providers. The PAIC reflects this trend towards the “Africanisation” of international investment law in the current context of reform of the international investment regime.

The PAIC contains several innovative features. It reformulates traditional investment treaty language, introduces new provisions (such as unprecedented provisions on due diligence and obligations for investors in relation to human rights, corporate social responsibility, use of natural resources, and land-grabbing) and omits certain investment standards completely (for instance, there is no mention of the controversial fair and equitable treatment standard).

The PAIC is intended to be a balanced instrument,meaning that it seeks to balance between investment protection and non-investment related public interests, as suggested by the innovative UNCTAD Investment Policy Framework on Sustainable Development.The PAIC does not depreciate the need to attract and facilitate foreign capital into Africa, yet this objective should not overshadow the long-term goal of sustainable development. Consequently, sustainable development plays a prominent role throughout the draft text of the PAIC. The very objective of the PAIC is “to promote, facilitate and protect investments that foster the sustainable development of each Member State.”

Africa will certainly continue to attract foreign investment in the upcoming decades, notably because of its natural resources, but not only. What is at stake now is determining how to regulate these investment flows, and which type of investment and investor operating in Africa should be protected under international law. The answer given by the PAIC is that it has to be investments that foster the larger interests and needs of African societies and economies, while preserving the environment. Thus, future foreign investment in Africa needs to be responsible and based on corporate sustainability.

As the international investment law regime is going through a period of review and revision, countries, regions, as well as international governmental and non-governmental organisations are discussing various reform approaches. The drafters of the PAIC were inspired by the current international reform discussion. Several of the ideas found in the PAIC text are what can be called “common approaches” in the international discussion on reform of the investment law regime as a whole. Such ideas mainly concern the reformulation of certain treaty standards, the inclusion of societal concerns, as well as the rethinking of investor-state dispute settlement. Africa, unlike Brazil for example, is not fundamentally contesting the system of IIAs. The PAIC is rather an attempt by African countries to shape an international investment treaty according to their own priorities. It shows that new IIAs are no longer based on either the North American or European models, and that other regions can meaningfully engage in shaping IIAs according to their level of economic development and social needs.

The legal nature of the PAIC is still uncertain. It might end up as a binding instrument applicable in all AU member states, as it might be adopted as a model treaty serving as a guide for individual member states’ IIA negotiations. The pros and cons of these two options constitute a political question and AU member states need to decide upon the issue with their relevant stakeholders. Whatever the outcome, the elaboration of the PAIC has allowed African countries to deliberate on their vision of IIAs and to build awareness amongst themselves regarding the broader implications of foreign investment as a tool for sustainable development. The PAIC thus endows Africa with a voice in the international debate on the future and reform of the investment regime. Further, its strong emphasis on SDGs bears the potential for the PAIC to become a model for innovation outside of Africa.

By Makane Mbengue, Associate Professor of International Law, University of Geneva.

ICT Driving Africa’s Innovation, Entrepreneurship & Economic Growth

Wed, 08 Jun 2016 21:21:46 +0000

Africa’s Information and Communications Technology (ICT) sector has seen unprecedented growth in recent years. The private sector has invested close to $50 billion in the last decade, with a focus on mobile and related applications, and more recently in international submarine cables. Mobile density in the continent jumped from 20% (in terms of the number of SIM cards sold per 100 inhabitants) in 2005 to around 65% in 2011. Recent completion of undersea cables has tripled available bandwidth. However, the rollout of ICT infrastructure, in particular access to the Internet is uneven (Internet penetration is about 11.5% in 2011) and many underserved countries and areas remain. In addition the lack of regional and national backbone infrastructure is a stumbling block towards the development of broadband Internet. The promotion of ICT in Africa still requires investing billions of dollars.

The ICT sector has proven to be a strong driver of Gross Domestic Product (GDP) growth in nations across the world. From developing countries to developed nations – the ICT sector has played a part in the success of each of these nation’s economies, the advancement of its people’s skill-sets, capabilities and positioning the nations as a place for global firms to move efficiently conduct business.

Over the past decade – ICT has been a major economic driver to boost the social and economic landscape of the African continent. The ICT sector is better positioned to leverage businesses and the continent to some impressive growth of economies. The ICT sector witnessed double digit growth and if this trend continues upwardly – ICT expenditure in Africa could exceed $150 billion by 2016. The ICT expenditure would continue to include computer hardware and software, computer services (computer and network systems integration, data processing services) and communications services (voice and data communications services) and wired and wireless communication equipment. African countries have made positive progress on access to ICT services – however there is still work to be done in terms of ICT readiness. According to the International Telecommunications Union (ITU) Development Index – it indicated that the African region has made slower progress when compared to other regions in the past two years – with roughly half the improvement on an aggregate basis. Access to ICT still remains a huge challenge for most African countries.

ICT have become ubiquitous – as it now plays an important role in transforming people’s lives globally. In Africa – ICT is set to transform many lives on the social and economic level. Africa has witnessed success of ICT initiatives from mobile banking in East Africa to smart apps that are now being used across the entire continent – apps designed to fulfill different purposes and solving diverse issues. Africa has seen tremendous growth in the last decade and a half – ICT growth has been primarily fueled by mobile cellular communications; mobile penetration; affordability and access to mobile telephony; internet access uptake (one in six people are online in Africa); submarine cable have enhanced international connectivity – the continent now has more than 10 terabytes of submarine connectivity around Northern Africa since 2014; 7 terabytes around Eastern Africa and 4 terabytes around Western Africa. These developments in infrastructure and solutions in Africa – signify and represent a renewed confidence and optimism in Africa’s digital future.

A great amount of work still needs to be done though – as of 2014/2015 more than 80% people in Sub-Saharan Africa (SSA) were still offline – deprived access to the incredible knowledge wealth and riches that the internet can bring into their lives and also the ones who have access – it is still vastly expensive with mobile broadband costing 40-60% of average income in SSA.

The digital revolution has brought many private benefits and a look at a day in the life of the internet reveals some interests trends:

7 billion Emails sent
8 billion YouTube videos watched
2 billion Google searches conducted
3 billion Gigabyte (GB) of web traffic
803 million Tweets
186 million Instagram photos
152 million Skype calls
36 million Amazon purchases

This digital revolutions also has some benefits that economies can reap from these trends – digital technologies are transforming more businesses (advent of e-commerce); digital technologies are transforming people’s lives – through digital payments/mobile money accounts/mobile remittances (number of mobile accounts worldwide stood at 300 million as of 2014/2015); digital technologies are transforming governments – with the implementation of digital identities in some parts of the world and also digital technologies promoting development on various scales – expanding the information base, lowering information costs and creating information goods.

We might be privy to these trends; however, a significant digital divide still remains as:

6 billion people still without Broadband
4 billion people still without Internet
2 billion people still without Mobile Phones
4 billion people still without A Digital Signal

The ICT sector is among the most profitable and successful – has revolutionized the way the world communicates. Through a combination of forward looking government policies and regulatory reforms; international standards; industry innovation and investment in infrastructure and new services – billions of people have been brought in to the information society in a remarkably short period of time.

ICT entrepreneurs, small to medium enterprises (SMEs) and start-ups have a specific role in ensuring economic growth in a more sustainable and inclusive manner – as they continue to be involved in the development and innovative ICT – enabled solutions with a unique potential to make a long lasting impact in national, regional and global economies and also as an important source of new jobs. The fundamental role of ICT innovators and SMEs is also reflected in the outcomes of the World Summit in the Information Society (WSIS) which was supported by the World Telecommunications and Information Society Day (WTISD 2016) which was celebrated on the 17th May 2016 – with a theme aligned to ITU’s work in unlocking the potential of ICT’s for young innovators, entrepreneurs, innovative SMEs, start-ups and technology hubs as key drivers of innovative and practical solutions for catalyzing progress in achieving international development goals – with a focus on SMEs from developing countries.

There is progress in Africa in the advancement of ICT in transforming the economy of the continent. Bringing Rwanda under the spotlight here – as the Global Information Technology Report (GITR) 2015 – ranked Rwanda first globally for government success in ICT promotion to drive social and economic transformation and according to the World Economic Forum (WEF) Report – Rwanda scored 6.2 points out of 7. Overall Rwanda was ranked No 83 out of 143 countries – positioning Rwanda as the first country in the region and the 5th in Africa. Upon the release of the GITR 2015 report – Rwanda’s Minister of Youth and ICT stated that “Rwanda continues to be one of the fastest growing African countries in ICT and there are several avenues for growth for the ICT sector – from e-commerce and e-services; mobile technologies; applications development and automation to becoming a regional centre for the training of top quality ICT professionals and research”. A robust ICT industry creates wealth, jobs and entrepreneurs.

New developments in Rwanda’s ICT scene include KLab, a youth innovation hub; Think, a technology hub in Kigali; Rwanda Media Hub; The Office and YouthConnekt. Also, the new Kigali Innovation City attracted the first Carnegie Mellon University campus in Africa.

Whereas South Africa is ranked No 5 in ICT infrastructure in Africa – after Seychelles, Libya, Mauritius and Algeria, Rwanda’s high performance was boosted by its One-Laptop-Per-Child policy which saw a distribution of more than 200,000 laptops to grade schoolers.

Various ICT initiatives have also leveraged the transformative opportunities presented by this sector in Africa. The initiatives borne by the ICT sector in developing Africa’s digital economy include:

Connect Africa Initiative: a global partnership mobilizing the human, financial and technical resource needed to bridge major gaps in ICT infrastructure across the continent which saw a pledge of more than $55 billion.
International Fibre Connectivity: a number of submarine cable backbone projects proposed in recent years with coverage of 70, 000 km coastal line and estimated cost of $6.4 billion (East African Submarine Cable System; SEACOM; The East Africa Marine System TEAMS)
East African Broadband Network (EABN): implementing an integrated East African Broadband ICT Infrastructure Network – providing cross border connectivity between 5 East Africa Community partner states (Burundi, Kenya, Rwanda, Tanzania, Uganda)
South Africa Region Backbone – SATA Backhaul: aimed at improving cross border links that would interconnect the SADC member states through optical fibre networks and link them to submarine cable system including the Eastern African Submarine cable System (EASSY).

In conclusion, ICT’s has the potential to transform businesses and governments in Africa – driving entrepreneurship, innovation and economic growth. ICT has and plays a pivotal role in enhancing African regional trade and integration as well as the need to build a competitive ICT industry to promote job creation, innovation and the export potential of Africa companies. The future looks certainly bright as Africa seizes the opportunities and employ the transformative power of ICT’s to accelerate its development. ICT driven Africa is a continent where its people prosper – where communities connect and flourish – where businesses thrive – where government enable strong and sustainable development. Africa’s ICT is certainly poised for stupendous growth.

By Dipolelo Moime, CEO, Legato Consultancy Ltd.

Follow him on twitter: @DipoleloMoime

Crowdfunding Industry Overtakes Venture Capital and Angel Investing

Wed, 01 Jun 2016 09:35:56 +0000

By 2016 the crowdfunding industry is on track to account for more funding than venture capital, according to research firm Massolution’s annual report. With an estimated market value of $34 billion in 2015, crowdfunding has come a long way since its valuation of $880 million in 2010.

In comparison, the VC industry invests an average of $30 billion each year. Meanwhile the crowdfunding industry is doubling or more, every year, and is spread across several types of funding models including rewards, donation, equity, and debt/lending. In particular, equity crowdfunding – now being legalised in the US – holds huge disruptive potential.

Crowdfunding industry growth figures, as reported by Massolution

The crowdfunding market grew by 167% in 2014, continuing the exponential growth of previous years. Two months ago the thriving British FinTech (financial technology) sector witnessed its first billion-dollar business. The company? Funding Circle, a five year-old crowdfunding platform. Their $150 million funding round was over-subscribed.

It should come as no surprise that a crowdfunder is the first business in the booming world of FinTech to break through the billion-dollar mark. Small businesses are finding it harder than ever to raise money from traditional sources. Quite simply, banks don’t seem up to the task. New bank loans to small businesses in Europe plummeted by 35% between 2008 and 2013. Meanwhile, crowdfunding platforms are enjoying huge support from policymakers in the form of tax breaks, and from institutional investors looking to diversify their portfolios.

Crowdfunding is moving mainstream. So, what does this mean for older, more established types of business financing?

Venture capital overtaken

The World Bank estimated that crowdfunding would reach $90 billion by 2020. If the current trend of doubling year over year continues, we’ll see $90 billion by 2017.

VC funding, a well-travelled avenue for small businesses trying to raise capital, accounts for roughly $30 billion a year. Angel investing, meanwhile, accounts for roughly $20 billion a year. In short, the crowdfunding industry is scaling up rapidly with VC and angel investing firmly in its crosshairs.

Note: growth figures of the entire crowdfunding industry

Interestingly, the crowdfunding sector with the most potential for disruption is yet to truly take off. If, as expected, equity crowdfunding doubles in size annually over the next few years, it will overtake venture capital as the largest source of startup funding by 2020 ($36 billion). Equity crowdfunding in Europe has been flourishing for several years, while the US – the birthplace of crowdfunding generally – has been slow in legislating for its introduction.

Currently the US equity crowdfunding market is limited to accredited (professional) investors only. But what happens when an entirely new class of investors – namely 250 million Americans – are empowered to participate and invest for the first time under new equity crowdfunding laws? In theory this would more than double the current European-dominated equity crowdfunding market.

The potential growth and impact is staggering.

How will angels & VCs respond to equity crowdfunding?

What will the market for startup investing and small business finance look like as equity crowdfunding continues to grow? And are VCs embracing the changes?

It’s fair to say that crowdfunding was originally looked down upon by professional investors. Some angels and VCs have begun integrating equity crowdfunding as a step in their investment strategy. Increasingly we’re seeing startups in talks with bigger investors after a successful crowdfunding campaign, as fund managers scout platforms for interesting ideas.

The lines are being blurred across the early stage investment ecosystem – some equity crowdfunding platforms are effectively becoming venture funds of their own. Meanwhile, VCs are integrating equity crowdfunding into their investment processes due to the marketing and strategic benefits it can bring.

What’s for sure is that the real winners are the high-growth entrepreneurs who have more sources and channels for finding capital than ever.

A giant new capital market is taking shape before our eyes.

By Louis Emmerson, Editor-in-Chief, Symbid