Venture Capital Investment for SMEs

Africa Report finds out what venture capitalists look for in a business.

Venture Capitalists are investors who scout for promising startups and small businesses with a potential to make lucrative profits. Venture Capital funds make money by owning equity in the company they invest in. Venture capital is usually provided to businesses that want to grow quickly or have a high potential of succeeding.

Africa Report spoke to representatives from two Venture Capital (VC) funds,  EVentures Africa Fund,  eVA Fund and Fanisi Capital Limited as well as an intermediary firm, Open Capital Limited , which links SMEs with fund managers. These organizations attended the business sessions held by Kenya ICT Board this month, scouting for tech entrepreneurs in Nairobi, Kenya .

Paul Ohaga of Fanisi Capital Limited says they look for business ideas that are sustainable in the long term.

We look for innovative ideas that seek to solve tomorrows challenges not today’s. We need to be assured that the business will still be relevant tomorrow,” he says.

Fanisi Capital Limited specifically looks for businesses that are already active, or have been tested in the market. Since startups tend to be risky investments, the fund prefers working with entrepreneurs who have the ability to execute their business plans and a clear strategy on how they will sustain the business and make profits. The academic qualification of the entrepreneur is not a pre-condition for funding.

Fanisi Capital Limited which is part of a 50 million USD fund, invests in business sectors that have extensive development impact such as agriculture, value added services and Information and Communication Technology (ICT). Their investments range from between 500,000 USD to 3 million USD.

Speaking to Dr. Vincent Kouwenhoven of EVentures Africa Fund (eVA ), he says their fund looks for entrepreneurs with an impressive track record who are ambitious ,driven and willing to commit to the project in spite of ups and downs.

eVA invest between 34, 931 USD and 346, 144 USD with a preference for businesses in Kenya and Ghana. Their particular area of interest for investment is businesses that are ICT driven, specifically, internet and mobile applications and e-commerce. Some of the firms they have funded include Pesapal, Verviant and Ratio Magazine.

To prepare SMEs for funding from VCs, Open Capital Limited offers mentorship to entrepreneurs then links them with VCs for potential funding. They help entrepreneurs draft a business plan, examine whether their business ideas are demand driven, and determine whether they will be attractive to a fund manager. Entrepreneurs are then expected to pay for Open Capital’s services after they have received financing from fund managers.