VC4Africa has a growing network of accredited investors that have premium access to VC4Africa listed ventures. We like to profile them from time to time, find out what they are up to, and get their take on the changing African investment space. Today, we had a chance to connect with Sean Smith of US based Invested Development. They have recently opened a branch office in Nairobi and Sean gives us an update on their expanding African activities.
Can you tell us about ID?
‘Invested Development is an early stage, impact investment fund manager that specializes in the overlap between technology and social enterprise. Specifically, we invest in for-profit social enterprises with solutions in mobile phone technology and alternative energy. Our investment thesis is that technology in these two sectors offers the most promising solutions for the world’s underserved populations in emerging markets. As a company, we place a heavy emphasis on developing insightful research that tests our investment thesis and informs our consulting arm. Through our research, our investments, and our consulting activities we aim to support, develop, and promote innovative solutions to global poverty.’
Why was the organization started/ how is it differentiated in focus?
‘Invested Development was founded in 2009 with the goal of increasing the amount of risk capital available for innovative technologies that solve some of the world’s most pressing problems. In this pursuit, we raised our first fund, the BSP Fund, which focuses exclusively on early stage mobile phone and alternative energy technologies. Invested Development is unique in the impact investing community because of our focus on early-stage, scalable technologies that can drive both financial returns and social impact in each sector.’
Your head office is in Boston, and now a new office in Nairobi. Why this move?
‘Our original office is located in Boston, which is home to some of the world’s finest universities and brightest young minds. This provides us with direct access to university researchers and students that are at the cutting edge of both technology and social enterprise. Opening a second office in Nairobi provides us with the opportunity to interact with and learn about our target market on a daily basis. We chose Nairobi because the technology scene in both energy and mobile has tremendous momentum and is rapidly emerging as sub-Saharan Africa’s innovation hub. Having offices in both cities allows Invested Development to help bridge the knowledge gap between innovative technologies in the United States and the realities of building a high-growth business in Africa. For further insights on why we moved to Nairobi, read Sean Smith’s series on “Rich People, Nerds, and the Kenyan Context: Thoughts from the Nairobi Office” on our blog.’
How is your BETA program different from other technology accelerators?
‘Our technology accelerator BETA is unique in that we focus on identifying technology innovators at the idea stage. This means we are looking for technically gifted people that may or may not have the ability to launch a high-growth/high-impact business, but have unique ideas around how technology can be used to solve a problem. Rather than incorporate them into a program alongside a cohort of incubatees (like most accelerators) we look to co-found a company with them. This means that alongside some funding, we take an active role in the day-to-day management of the resulting company. We are also able to plug in valuable legal, accounting and (most importantly) technical support to see them through the development and pilot of a beta product.’
Where do you see the most potential / type of venture you are looking for?
‘On the energy side, we see tremendous potential in all aspects of distributed energy: storage, management, and harvesting solutions that are a safe and sustainable alternative to the grid or kerosene. We are actively looking for micro energy systems that provide energy solutions at the human, household, and small village scale. To date we have made investments in each of these verticals and will spend the upcoming year looking for technologies that can create overlaps between each group.
In the mobile technology sector, we are excited by opportunities created by the increasing prevalence of mobile money, a standard set by the ubiquity of M-PESA in Kenya. We continue to look at how mobile money can be integrated with e-commerce, enterprise solutions for SMEs, and increasing access to finance. We are also interested in technologies that can increase access to information either through extending the network, lowering the costs of voice and data, or leveraging social networks to provide market-specific information and services.’
How do you look at the East Africa region and the rest of Africa?
‘Although our investments are not geographically exclusive, we are particularly excited about the potential of both East Africa and Africa as a whole, which is why we chose to have our first international office there. With our technology focus, we are currently spending much of our time looking at Kenya, Ghana, and South Africa. For the future, we have an eye on emerging tech hubs in Senegal, Cameroon, Nigeria, Uganda, Tanzania, and Rwanda. The dynamics among African economies will be changing over the next few years, and we are keeping a close eye on macroeconomic trends such as the mobile phone’s impact on economic growth in African countries.’
Now in Nairobi, how do you describe the investor network there?
‘The investor network in Nairobi is growing quickly, particularly at the early stage where it is needed most. Due to the initial leg work and community-building efforts of organizations like the iHub, NaiLab and m:Lab there is a growing mass of entrepreneurial activity that has attracted at least four funds that offer seed stage investments (US$50K or less) including us at Invested Development. Such small investments are particularly in demand in Nairobi, and we have molded our offerings to fit this need. We are excited to see growing numbers of entrepreneurs receiving funding, as it will only contribute to the critical mass in Nairobi’s tech scene.’
How do you see it changing moving forward?
‘Right now, most entrepreneurs need small amounts of capital to get started. The current focus in the market is on seed funding, incubation, and acceleration. Moving forward, we think there will be a need for investors at the US$100K-500K range. Through discussion with the other funds in Nairobi and the investment activity we’ve seen in the past few months we anticipate the Nairobi tech scene will see somewhere between 10-20 deals per year in the sub US$50K range. Funds like ours who have the capacity to provide growth capital and help entrepreneurs bridge the gap between US$50K-500K will be hugely in demand once the initial wave of accelerated companies begins to mature.’
What do you see as a major barrier to more investments being made?
‘In the past, the biggest hurdle was a lack of capital focused on the market. As mentioned, this has changed in the last six months and currently the biggest barrier seems to be a lack of entrepreneurs with the ability to put viable business models around their technologies. Currently much of Nairobi’s tech scene is comprised of “hackers” who are tech-savvy, bright, and inventive, but lack the business acumen needed to woo investors. This has led to the current surge in incubators and accelerators designed specifically to address this issue.’
How does ID approach investing in the space?
‘We approach investing in the space by catering our investment types to meet the needs of the local market. Through the development of both our BETA program and our Accelerator Investments of sub $50k we have shifted our strategy to meet the needs of the Nairobi tech community. We also understand that many of the entrepreneurs we invest in will need significant help early on to help fit an appropriate business model around their technology and to develop the types of partnerships that will allow them to scale. Our approach is to actively assist our portfolio in navigating those obstacles as they build a technology and business model that can reach scale.’
What do you still see as the major challenges to this type of business? What makes it so hard?
‘One of the greatest challenges for early stage impact investors is the lack of insight into the markets where entrepreneurs are operating. Many impact investors reside in the United States or Europe and are only able to make sporadic trips to the countries where they are seeking to invest. Not having first hand knowledge of local cultures and markets makes it just as difficult to invest money as it does to launch a business. One of our goals at Invested Development is to leverage our Nairobi office and our research arm to gain insight into consumer behavior in the markets. Through our consulting arm we hope to increase the flow of capital by helping other impact investors build on the knowledge we have accumulated.’
Looking at VC4Africa, what role do you think we can play?
‘As investors, VC4Africa provides tremendous value simply by aggregating and highlighting potential investments. This work as an intermediary makes it easier for us to find entrepreneurs that fit our investment criteria, leading to a stronger investment pipeline and greater likelihood of deals being done. By being part of the VC4Africa network, we are able to plug into the African entrepreneurial community across several countries, even though we don’t have an immediate physical presence in all of them.’
What is your message to the community and to all of the entrepreneurs out there?
‘At Invested Development, we invest in entrepreneurs with intimate knowledge of the problems they are hoping to solve and a deep passion to see their technology make a change. Our message is to work on a problem that you are personally passionate about and to do everything you can from day one to start moving forward. Do not wait for investment capital, grants, or partnerships to get going. Start now and all of those things will follow.’
What would you like to achieve in the next 12 months?
‘In the next 12 months, we hope to grow our portfolio, increase our presence on-the-ground in Africa, and expand our consulting services so we can attract more investors to the region.’