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

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.

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New Report: Independent Power Projects Essential to Electrify Sub-Saharan Africa.

A new World Bank report draws from experiences in five African countries to explain why independent power projects (IPPs) are crucial to help deliver electricity to the 600 million people without it in Sub-Saharan Africa. The report highlights the challenges policymakers face and factors that can lead to scaled-up and sustainable power sector investment.

Africa’s power sector needs far exceed most countries’ already stretched public finances, making it crucial for governments to attract greater levels of private investment to scale up generation capacity. To reach the scale required, governments must provide a sound investment climate and enabling environment, the report finds.

 “Independent Power Projects in Sub-Saharan Africa – Lessons from Five Key Countries” draws on case studies carried out in Kenya, Nigeria, South Africa, Tanzania and Uganda – countries that have the most experience with IPPs in the region.

“Independent power projects now constitute the primary vehicle for private investment in the African power sector,” said Makhtar Diop, the World Bank’s Vice President for Africa. “The objective of this report is to identify key lessons that can help African countries attract more and better private investment.”

Currently, there are 126 IPPs in 18 Sub-Saharan countries, accounting for an installed capacity of 11 GW and $25.6 billion in investments. But to benefit more countries the report recommends these IPPs should be much larger and spread across the region.

Enabling factors for attracting more and better IPPs include:

1. More competitive procurement efforts from countries in Sub-Saharan Africa, which includes encouraging long-term contracts through a competitive bidding process. This can help secure reduced prices and help avert other issues, such as the possibility of a problematic contract. If direct negotiations are conducted, they should be done transparently.
2. Clear and conducive energy sector policies, structures and regulatory environment.
3. Systematic and dynamic power sector planning, including the ability to accurately project future electricity demand, determine best supply or demand management options and anticipate how long it will take to procure, finance, and build the required electricity generation capacity.
4. Financial viability of the public utilities is vital as they remain the principal off-takers of power produced by IPPs. Given the high-risk environment of most countries in Sub-Saharan Africa, it will be important to provide proper mitigation through financial guarantees and security measures to attract new investors.

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ICT Driving Africa’s Innovation, Entrepreneurship & Economic Growth

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.

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Crowdfunding Industry Overtakes Venture Capital and Angel Investing

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.

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Four tips to improve impact investing in Southern Africa

It is clear that every country in Southern Africa has its own particular set of conditions that affect the ways in which impact investing is handled. Impact investors must therefore take their time to carefully learn about the conditions in each individual country. While a country-specific approach is obviously needed, GIIN researchers, in their report entitled Landscape for Impact Investing in Southern Africa, have compiled four key considerations that apply to Southern Africa, which are:

1) Leverage technical assistance (TA) facilities to build the pre-investment pipeline:

More pre-investment support is required in order to to develop a strong pipeline of investable opportunities for businesses; TA funders like USAID and DFID are recognising the importance of getting companies to the point where they can successfully raise capital.

The report says: “Targeted, tailored support requires an upfront commitment of resources but has proven effective in preparing potential targets for investment and in building high-quality deal flow. This process can also dramatically reduce diligence timelines if the investor is able, before investment, to increase familiarity with and visibility into a business.”

2) Develop sector specialisation:

Impact investors can also drive growth, impact and solid returns by narrowing down their focus on sector-specific portfolios. This has enabled some to use their existing knowledge to target some less well-known opportunities earlier and also to reduce diligence timelines.

The report expands: “Sectors such as agriculture, energy, and financial services present large opportunities where different companies often face similar challenges; learnings can be shared across portfolio companies.”

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