On behalf of VC4Africa I joined the Private Equity World congress in Johannesburg in September 2011. It was a good opportunity to connect with people who are investing in Africa. A diverse group of companies attended: Large equity funds, service companies (e.g. law, administration, tax) as well as corporations that were looking for investment and want to know more about private equity.
It once again became clear that our VC4Africa platform is focusing on the ‘missing middle’: SME’s in-between the small initiatives, which can be started with a micro-credit loan, and the large multi million dollar investments. This congress was aimed at those larger deals: Most funds represented at the congress invest between 10 and 50 million US dollar per project. Big themes were: How to get high returns on private equity, exit strategies, risk mitigation, (regional) opportunities, transaction structures, fund raising and due diligence.
Private equity plays an increasingly important role in the financing of a wide range of businesses. Over the past 20 years, private equity has been one of the fast growing markets for corporate finance. By nature, as private capital investments, there is generally limited information available to the public as the purpose of private equity is to invest in unlisted companies.
A total of 116 people attended the Private Equity conference in Johannesburg, including the speakers. The majority represented different private equity funds from various regions around Africa. Namely Nigeria, Ghana, Zimbabwe, Kenya, Mauritius, Uganda, Egypt and of course South Africa. The fund sizes differed from small/medium to Citadel Capital, which is the largest fund in Africa.
VC4Africa was invited to this congress to tell them about this innovative initiative, to use crowdsourcing for funding (see picture). Although attendees were impressed by our platform and the novelty of it, investors need to get used to this new way of finding smaller investment opportunities. Some of the reactions to our presentation included:
“SME’s show highest growth compared to large companies, and can be very attractive for investors.” – Hakim Khelifa, Tuninvest.
“Fabulous initiative, this is what SME’s in Africa need.” – Afsane Jetha, COO TLG Capital Limited.
“Your company is doing great things to support small businesses in Africa and I was quite impressed by the impact you’ve already made as reflected in your presentation.” – Enesi Makoju, FBN Capital Limited Nigeria.
“Very interesting.” – Gavin Chadwick, Capricorn Capital Partners South Africa.
I made a list of my key learnings from the Private Equity World event:
Network key for new investment opportunities
Most investment opportunities are introduced to an investor via his network: advisers, partners and other investors. The main advantage for the investor is that he can rely on the credibility of the entrepreneur he is introduced to. “Network is key for trustful investments”(Thierry Hughnin, Ciel Investments).
It is beneficial for the entrepreneur to display his network and references. It is a small world; you might be indirectly connected to someone who knows this investor. That helps. He can do a check via his contacts. Tip: create and complete your LinkedIn profile. Ask business relations with impact (eg. president of your former company, bank director, rector of university) to write a recommendation.
Good management increases the value of the company with 30%
“Get a good qualified team together, so the investor can see that beside specific market/technology, all disciplines are represented”. Most heard critique on the staff was that the HR and Finance functions are most often under qualified. So when creating your team, be sure you have the best-qualified people on board to run the business. See also the tips on how to raise staff without working capital in our peer-to-peer coaching section on the platform.
Fundraising is challenging
Also the large investment funds have difficulties to raise capital: According to Warren van der Merwe (CFO, Vantage Capital, South Africa) there is: “Very little VC on the continent” and “Raising capital in a dry season is challenging”. His advice for fundraising is based on a quote of Churchill: “Never give up, I repeat: never, never, never give up”.
Investors don’t like risks
Most investors are quite risk-averse. They prefer to invest in cash flow positive companies, rather than start-ups. In every business are risks involved, make sure you indicate all the risk (climate, political) and try to reduce the likelihood and impact of negative impact on your business. Be realistic, show that you are aware and have your risk mitigation plan ready.
Investors like to be up to date
Investor like to be kept up to date on what is happening. Take care of reporting structures and systems and report on time! According to Mr Chadwick of Capricorn Investments: “small caps often lack financial controls and systems: Monthly financial reporting is required. His advice: invest in systems and people to do reporting”. More advice to small/medium enterprises can be found in his presentation (PDF).
Show your strategy
“You need to show your strategy for growth. Really implement it. You need to be ready to work with investors. It is a very exciting game to play. If you take in, align your vision and agree on common objectives, work hard and be determined. You can make a lot of money and enjoy the ride.” Thierry Hughnin, Ciel Investments.
Are you interested to connect to Saskia Reus-Makkink? You can contact Saskia via her VC4Africa profile.