RENEW has invested in several companies in Ethiopia, including METAD, a coffee grower, and Mama Fresh, a producer of Ethiopian food, including the staple injera.

Davis says, “There is both a development challenge and a market challenge in Africa that we are addressing.”

“The development challenge is that the financial systems in many countries in Africa are fragmented, and little to no capital is available to finance the growth of small and mid-size businesses (SMEs),” he explains. “At the top of the economic pyramid, bank and institutional financiers tend to back large multinationals. At the bottom, microfinance institutions lend only small amounts at high rates to micro-enterprises. But there is nothing to finance small and growing businesses. Thus, we have what is called the ‘missing middle’ in these economies, and SMEs are inhibited from growing into large companies, creating jobs, generating tax revenue, and stabilizing the economy along the way.”

Moving to the second challenge, Davis says, “The market challenge is related to supply and demand. The supply of private equity is growing across Africa, as international investors move in seeking higher risk adjusted returns. Yet these investors are not able to find enough companies able absorb the minimum investments they are willing or able to make. Addressing both challenges requires a new financial actor and intermediary to stimulate financing and growth for SMEs.”

Davis led the creation of the Impact Angel Network (IAN) to invest in Africa, with an initial focus on Ethiopia. “The IAN addresses the problem of the ‘missing middle’ by being a source of financing for SMEs. The IAN invests in professionally vetted and managed companies in Africa that are led by strong management teams looking to scale. RENEW manages the IAN’s portfolio in-country and addresses a trust and skill gap that has kept many U.S. investors from being active on the continent of Africa.”

RENEW is operating at a relatively small scale, filling the gap in the missing middle. This space is thinly populated in part because the administrative and logistical costs of running a small fund making six-figure investments overwhelms returns. Grants from development agencies make the economics work for RENEW.

Davis says, “And the development community (organizations like USAID), makes these investments economically feasible by lowering the transaction and management costs that would normally be borne by the investors. This model, or public private partnership between the IAN, RENEW, and the development community, is working, and the IAN is now one of the most active and largest investors in Ethiopia on a transaction basis.”

Davis sees their role in Africa as a catalyst to help struggling countries there gain greater independence from multi-lateral and other aid organizations. “RENEW intends to scale our model and implement it in other countries across the continent. Over time we would like to see offices in 20 countries, and professional teams in each country managing hundreds of companies that are creating thousands of jobs. As the companies that the IAN invests in grow, they will provide jobs and taxable revenue to the government, which can then finance the programs that are currently being covered by international aid organizations,” Davis concludes.

……………………………………………………………………………………………………………………………….

RENEW LLC founded and manages the Impact Angel Network (IAN); the largest U.S. angel network for Africa. The IAN’s mission is to invest in high quality, high potential companies in Africa, support their growth, and achieve attractive financial returns and sustainable social impact from their investments. RENEW is a U.S. investment adviser that manages the IAN’s portfolio from its office in Africa. RENEW’s team of lawyers, financial analysts, and business consultants find and vet promising businesses in Africa, present them to the IAN, and grow them into world-class companies. The IAN and RENEW believe that many growing businesses, together, can create the engine that lifts entire nations out of poverty.

Matthew Davis is founder and partner at RENEW LLC. Mr. Davis has extensive experience working with U.S. and African government leaders, and structuring and facilitating international private equity investments.

By Devin Thorpe

Alot has changed from an ecosystem point of view but there is still alot that need to change .

Our year in review :

At the beginning of 2015 I shared our plans with DisruptAfrica and subsequently kicked off the “MeetInvestor series” for the publication and I am very happy to see the wonderful job that Tom and Gabriel have done with that platform .

We started a series of investment dinners called #FrontierInvestorsDinner in London and it was an excellent opportunity to curate great conversations and meet some people that are shaping our world today . Please see some of the photos from the July’s dinner with the Rwanda High Commissioner to the UKhere and we are looking forward to expanding this series to 5 cities around the world in 2016 .

AngelfairAfrica that took place in Accra, Ghana was the highlight of our events calendar because we were able to directly participate as investment partners and add value . Please find the full report and pictures here

NewGenFund was also established with the aim of investing in up to 10 over the next 18 months . The objective here is to give retail investors an opportunity to witness professional angel investing in practice. Our goal is to activate 1000 angels by 2020 .

In other news :

Africa Business Angel Network came alive in 2015 and run a number of workshops across the continent ,find out more about them here

Crowdfunding adoption is still low .

Infodev reports on lessons learned through East African startups, and it makes a very interesting reading , find the full report here

Predictions for state of Angel investing in 2016.

This is a long term play so hold tight because we are just getting started as an ecosystem so this is not the time for us to start cracking champagne .Having said that we expect the following things to happen :

• More deals will be done and they will be unprecedented in size. There are a few seed funds and micro funds have been raised capital in 2015 that will need to be deployed.
• More local investors will start doing some interesting deals , as more stories emerge.
• More corporate venture capital will be made available to more startups ,Safaricom and Interswitch have led the way but more corporates will be getting involved in 2016. You can read more about Safaricom’s CVC fund known as Spark here
• More impact investors will come out and stand up to be counted , our colleagues at RenewLLC have had a fantastic year and recently announced their 7th investment in Ethiopia .
• More small size acquisitions will be done in 2016 , looking at these top 5 acquisitions done in 2015 ( mind you that there were others that were completed but not publicly announced) . I can predict that more sub $20M deals will be done throughout the year across sub-Saharan Africa and North Africa .
• The three funds that I am really excited about are:
• 1)VentureGardenGroup -Nigeria
• 2)CRE Venture Capital -Pan-African
• 3)Chanzo_Capital -Ghana
• Last but not the least ,more governments will need to take a leaf out of Rwanda’s book and put together policies that are friendly to startups and investors .

If you Want a ticket to startup heavens, Here are 4+1 reasons to become an angel investor in Africa today .

How we made it in Africa also did a great feature on NewGenAngels and our progress so far ,please find it here

Wishing you a profitable #2016 !

By Sean Obedih, Founder, Diverse Code

This year marks the 20th year since Sub-Saharan Africa (SSA) embarked on a path of faster economic growth. Over this period, growth has averaged at 5,2% per annum, whereas the number of people on the continent reportedly living under US$1,25 a day has continued to creep up from 358 million in 1996 to 415 million in 2011; the year 2011 being the most recent year for which official estimates are available.

Can these divergent trends be explained?

The most obvious reason would be that all the benefits of growth were captured by the rich, resulting in ever-increasing inequality in each country — the rich are simply getting richer.

The data, however, doesn’t show much evidence of that. Distribution trends within African countries vary dramatically. The distribution is widening in as many countries as it is narrowing and in most countries it is not changing much at all.

It is possible that the very rich people, the top 1%, are benefiting from the share of the spoils of growth, by more than their fair share, but this is missing from the data as this rarified class tends not to participate in household surveys from which statistics and distributions are derived.

There are five other factors that can account for SSA’s alarming poverty numbers.

The first is the region’s rapid population growth of 2,6% a year. Incidentally, this correlates almost exactly to the average percentage increase of those living with less than US$1,25 per day from 1996 to 2011. While African economies are generating more income, that income has to be shared among an ever-increasing number of people.

Since the region’s income is growing faster than its population, average incomes are rising and the share of Africans living in extreme poverty is falling — from 60% in 1996 to 47% in 2011. But the rate at which poverty is falling is less than the rate at which the population is rising resulting in the number of people living in poverty continuing to grow.

In more general terms, SSA’s record of economic growth looks much less impressive in per capita terms. The World Bank has just released a revised growth forecast for the region in 2015 of 4%.

When you lop off 2,6% in population growth, you’re left with per capita income growth of only 1,4%, which in comparison to the world average where projected economic growth of 2,9% combined with population growth of 1,1% results in per capita income growth of 1,8% in 2015, is low. Africa’s growth this year, in per capita terms, is expected to be almost as much as 29% below the global average.

The second factor is the depth of Africa’s poverty compared to poverty elsewhere. In other words, poor people in Africa start further behind the poverty datum line than the rest of the world.

Therefore, even if their income is growing, it is rarely enough to push them over the US$1,25 threshold. In 2011, the average person living in extreme poverty in Africa lived on US$0,74 a day, whereas for the rest of the developing world it was 98 US cents.

The third factor is that even though inequality isn’t rising in most African countries, inequality is already at an unusually high level, making economic growth unable to deliver more poverty reduction, since the absolute increases in income associated with rising average incomes will be that much smaller for the have-nots versus the haves. Furthermore, the degree of inequality that exists on the continent is worse than it appears. The fact that Africa is divided into so many countries masks the big differences in incomes among them.

If Africa were a single country, its inequality would look much worse — worse even than Latin America. Since incomes across African people vary so widely, only a fraction of people are likely to cross the poverty line at any one time. That contrasts with India where a concentration of people immediately below the US$1,25 mark means that even a small increase in incomes can result in a sudden flood of people moving above the poverty line.

The above three factors explain why you would expect relatively little poverty reduction for a given amount of growth in Africa compared to elsewhere. These factors, nevertheless, cannot explain why the number of poor people in Africa has actually increased since the start of the century. For this, we consider the two final factors.

The fourth factor is that there is a degree of mismatch between where growth is occurring and where the poor are on the continent. Undoubtedly, the region’s growth acceleration has benefited some of its poorest countries, including Ethiopia, Mozambique and Rwanda, whereas, others such as the Democratic Republic of the Congo and Madagascar have recorded little or no growth over the past 20 years and the number of poor people in these countries has risen accordingly. As long as a handful of the region’s fragile states struggle to build and sustain economic momentum, the number of poor people in Africa will not decline.

The fifth and final factor concerns data quality. Poverty estimates are drawn from household surveys, which in most African countries are conducted infrequently. Those that do take place often suffer from operational glitches that affect the credibility of the results. In Nigeria, for example, which accounts for a quarter of the people on the continent living in poverty, there are some well-documented flaws within its most recent national survey of living standards (not to be confused with the issues concerning the country’s national accounts, which were recently rebased). When new data becomes available, one may discover that Nigeria’s poverty rate is considerably lower and has been falling at a faster pace than previously thought.

As a general rule, aggregate poverty numbers for Africa should be handled with care, and small increases or decreases should not be taken seriously.

The dissonance between Africa’s growth performance and its poverty numbers is a striking phenomenon that demands an explanation. While intuition may lead us to call into question the region’s growth — it only seems to benefit the rich, the quality of growth is deficient and growth numbers are exaggerated — the above five factors suggest that the answer can instead be found by analysing Africa’s poverty data more closely.

The same five factors can explain why this difference is unlikely to go away any time soon. The World Bank anticipates much of the same for the next few years: the number of poor people in Africa is expected to remain close to 400 million until 2020, despite a forecast of ongoing robust economic growth.

By Ritesh Anand