Access to seed or early stage funding for African startups remains a challenge. With little track record, lack of collateral and questionable exit opportunities, investors and financial institutions have difficulty reaching this segment successfully. But the opportunities are undeniable. Most recently, Accion has launched a $10 million seed fund that will potentially see a number of East African based startups get support.
Accion will focus on companies that have completed the research and development phase and are well into their pilot and/or first-revenue stage. Investments will range between $100,000 to $300,000, most likely structured as convertible debt or equity, and hits a much needed funding gap.
With a background in microfinance, this is an early example of organizations starting to move up the curve and to look more seriously at startups, small SME business. Michael Schlein, Accion president and CEO explains, ‘There is tremendous ferment and promise across the globe in efforts to deliver vital financial services to those who have traditionally lacked access.’ He expanded, ‘Venture Lab will seek out companies developing game-changing technologies and disruptive business models with the potential to transform the quality and scale of financial services available to the world’s un-and under-banked.’ The new fund will seek approximately 20 investments over the next three years and focus on the following areas:
– Mobile financial services: Mobile phone-based financial services or business models built on branchless banking platforms, delivering services that include savings accounts, remittances, credit, and micro-insurance.
– Credit underwriting/delivery: Specialized credit assessment or delivery models to finance not only microenterprises, but also housing, education, SME, and energy initiatives.
– Internet and social media: Online or social media platforms for enabling financial access (e.g., peer-to-peer lending and social media-based financial services).
– Embedded financial services: Pay-as-you-go or lease-to-own energy products, modular housing and other ‘embedded’ financial-service models.
– New technology for BOP finance: Taking advantage of new technology innovations (cloud computing, SaaS, Internet access, handhelds/tablets) to improve the reach, cost, or quality of financial services to underserved customers, including customer relationship management, field force management, marketing/customer education, and analytics.
Venture Lab will seek to support start-ups at a vital stage when they are normally considered ‘pre-investable’ – that is, when a product or service is ready to test the market but has not yet proved its ability to generate revenue. The Lab will provide not only patient capital, but also a dedicated team ready to assist with early-stage tasks such as path-to-scale strategy, analytics, financial modeling, and business development. The Lab’s technical assistance will leverage Accion’s technical capacity, its global network of microfinance institutions, and relationships in the global microfinance and mainstream financial industries, to help build an entrepreneurial ecosystem in which portfolio companies can thrive. The Lab will be directed by Paul Breloff out of Accion’s Washington, D.C. offices, with staff to be based in East Africa and India.
At VC4Africa we are pleased to see these developments as a number of our ventures could qualify. We hope new funds like this also strive to reach beyond East Africa and recognize the startups coming online from all corners of the continent.