The main challenges in reaching African early-stage businesses

The report identifies challenges faced by stakeholders when seeking to invest in African early-stage businesses and devises solutions that help financial stakeholders and development agencies to address these challenges.  

Why fund early-stage businesses so critical?  

Micro Small and Medium Enterprises (MSME) and start-ups’ ability to innovate and address many of the challenges of sustainable development are increasingly recognised, especially in the agribusiness, light manufacturing and financial and services sectors. But currently, early-stage businesses in Africa struggle to secure financing and development finance institutions find it hard to reach them.  
 

Early-stage businesses need funding at various stages of their development: 

• seeding their early-stage development  
• financing their entry into the market and growth
• expanding their existing operations
• funding their working capital  
• expanding and acquiring new assets or production capabilities. 

But currently entrepreneurs and businesses in Africa, which are at the early stages of their financing needs, are too often perceived to be riskier and harder to reach than later-stage businesses by local or international development banks, commercial banks, and other investors. 

This report provides the main findings of both the workshops and the online survey carried out by the Pipeline Development Working Group, as well as a review of recent literature on the topic.  

Leveraging on existing tools and experiences  

With this report, the TEI IYBA aims to feed the discussion within the Team Europe but also with intermediaries and investors on the ground, such as venture capital funds, early-stage venture capital funds, angel investors and incubators, and microfinance institutions, in order to reach out more effectively to the early-stage business, particularly the pre-seed and seed segment, with funding needs in the 25K to 250K brackets. It details how: 

• Greater quality portfolio of investment-ready businesses and actions can foster a quality pipeline, notably related to technical assistance and coaching.
• Financial instruments are required for each stage in the entrepreneur’s journey, from concessional finance and equity investments to debt instruments and guarantees.
• The improvement of African public policy, business climate and entrepreneurship ecosystem and actions can enhance support to young entrepreneurs and private sector initiatives.