GES 2015 in Nairobi
Workshop 3: The Missing Middle
Saturday, July 25, 2015
Moderator: James Pickup, Middle East Initiative
1. Gachao Kiuna- Transcentury
2. Funke Opeke-Main One
3. Ben White-VC4Africa
No. of people in the room: Approximately 40
Key discussion points:
• The discussion started with trying to define what “missing middle” was referred as “the valley of death” in most businesses. This the moment when you want to grow the business but you have minimal cash flow.
• When you visit the banks for financial support, they dismiss you.
• This is a global problem but is more acute in developing countries.
• The banks are more conservative here in Africa compared to the US.
• There was discussion on what donors should do to support investment partners. Donors can and should support ventures with qualified and skilled human resource in addition to providing technical assistance
• The donors should consider to lengthen the period of support. It should be even beyond 36 months
• The donors should also be ready to provide “catastrophic money”; that is, they should be ready to allow the ventures to experience the first fail if need be.
• People should not wait for the governments to solve the “missing middle” but can look to angle investors who can inject some capital to help the small venture investments. The average has been seen to be $200,000
• Funke Oreke told of her incredible story where she built submarine cable for Nigeria to improve connectivity. It was very difficult to get financial support that she needed but AfDB stepped in. She emphasized the need to engage qualified professionals for feasibility and planning stages. She also had to ensure regulatory requirements were met. She emphasized the importance of professional networks. She ensured that she had professionals in her board that met once a week
• Gachao talked of how Transcentury started as an investment club with 29 members and starting capital of Ksh 240,000 ($ 2400) but now it has an equity of $200 billion. Their strength was identify an appropriate market with under penetration. Hence, there is need to study why the market has not been met and what you can do to supply that market. He said the “valley of death” can get deeper and deeper.
• He said that great entrepreneurs do a lot with little cash
• It is important to keep an eye on cash flow and ensure you collect your debts which can be a major problem
Questions and answers session:
Q; There was a question about sanctions imposed on Sudan. It is denying entrepreneurs opportunities for growth
• Funke and Ben White Need to look for angle networks and also think beyond the national boundaries and should move to any other market in Africa. This can be done by linking with others. Build strong network of organizations. There was a lot of talk about angle networks
• Getao: Talked of learning from other mentors and get inspiration from their successes
• One should also address the mindset to overcome challenges
Q: When do you sell a venture especially if it is struggling to stay afloat? There was concern about multinational cannibalizing and crippling indigenous investments
• Getao: It is difficult to say when the right time to sell a business. Time and opportunity are capital by themselves. Once a business reaches a certain level, the founder may not be the right person to take it to another level. 80% of the businesses are sold too late
• Carl said that when you lose your passion, that is the time to sell.
• James (Moderator) said that many people have attachment to businesses and don’t want to let go even to sell some equity. This is even worse in some cultures which are much closed e.g. In Middle East
• Ben White said that some businesses are being sold too early. You can let someone take up management and take further
• Ben White talked of cross-funding. He also said that many businesses need more than money. VCAfrica is a strong proponent of angle networks
Q: Definition of SMEs-It was said that multilateral banks discriminate against small businesses and hence need to define what SMEs are, especially women-owned. It is difficult for women to access loans?
• Getao: Successful businesses would increase GDP, create quality jobs and even export
• Carl: SMEs should instead be referred to as Small Growth and Businesses
Q: What can one do to make his/her business be attractive to the big investors?
• Getao: There is a need to look at the team; focus locally and built your team; how you present your idea-showing deep thinking, i.e does the person live and breathe the idea! It is good to look at the execution of the idea since at times good ideas are not executed successfully. One gets better and better with time
Q: When does culture becomes a risk? How do you manage risk in an African context?
• Funke: The largest procurers are government but there is a need for strong laws.
Q: Why are media houses not taking up local content (in Kenya)? This leads to low investment in the sector and banks are reluctant to provide loans?
• Funke: Emphasized the need to keep strong and not give up
• Getao: The media structure was difficult but since there have been were reforms in media
• Banker: Banking models have changed and can be able to assess risks. Once, you built credibility, you can get unsecured loans
Q: How did Transcentury grow from $2400 to $ 2 billion?
• Getao: Their initial idea of investing in South African Breweries did not successes but the next investments were well targeted. It now employs 3500 people. They later focused mainly on retail businesses. His parting shot was, “Entrepreneurship is not about winning big tenders.”