In just a few weeks, a network of families and wealthy individuals living around the United States – members of RENEW’s Impact Angel Network (IAN) – will achieve another milestone: They will be closing several more investments into local medium-size companies (SMEs) in Africa.
This is exciting news for a number of reasons. First, it means that impact investing is starting to take hold as a new alternative for doing well by doing good. Next, it means that many in the U.S. are beginning to see Africa as an investment destination. This is exactly what the President hoped to achieve following the recent U.S.- Africa Leaders’ Summit in Washington, D.C.. And finally, and maybe most importantly, it means that local, high-potential companies in Africa can finally begin to access growth capital to do what we all want; to grow and create jobs so these economies can stand on their own.
The latter point may be the best news of all, especially for entrepreneurs, who desperately want the West to see them as investment-worthy. It is well known that SMEs on the continent lack access to growth capital. The African Development Bank Group (AfDB) estimates that the financing gap for SMEs is $140B. China, India and many other countries know this, and are investing. But they are not necessarily investing in local companies to satisfy this gap. Most are setting up their own shops and factories, and sometimes driving local companies out of business. But now the U.S., which has largely been a charity-giving nation, is rising to the challenge and investing in Africa via networks like the IAN.
African business owners are excited about more than the financing that comes with Western investors. Many entrepreneurs tell RENEW that they are equally excited to have the U.S. brand associated with their company. They realize that their shareholders will require them to improve their quality, service and governance... and they are eager to deliver.
But be cautioned: it is not easy to invest on the continent. Investing in countries like Ethiopia can leave you with some bumps and bruises, and it requires a very hands-on approach.
“We don’t believe it’s possible to be a suitcase investor flying in and out, hoping all goes well. RENEW, with our office in Ethiopia, often has to rebuild the financial departments of our portfolio companies, train entrepreneurs about running board meetings, and design and help the companies execute new marketing and sales initiatives. Still, if you’re patient, the rewards will come”, says Matthew Davis, partner at RENEW.
Thankfully, organizations like the IAN are building new segments of the capital markets in countries like Ethiopia, where local companies can now access mid- to long-term investment capital in the range of $300K to $3M. The IAN has already closed three investments that have created jobs and increased exports. The next series of investments will help local firms buy new machines, launch new products, scale up production and expand into new markets.
As the largest U.S. network of accredited angel investors for Africa, the IAN continues to grow as more investors and philanthropists become aware of impact investing and the potential returns and impact that can come from investing in Africa’s young economies.
Renew Capital is an Africa-focused impact investment firm that backs innovative companies with high-growth potential. Renew Capital manages investments made on behalf of the Renew Capital Angels, a global network of angel investors, foundations and family offices who seek financial returns and sustainable social impact. For the latest on investing in Africa, subscribe and follow us at our social links below.