Think and act for entrepreneurship in Africa

SMEs

Acceleration programs: a miracle solution for early-stage companies? (2/2)

In recent years, “acceleration” programs have proliferated on the African continent. What lies behind this trendy concept? What does an acceleration program bring to a company? After having explored the…

In recent years, “acceleration” programs have proliferated on the African continent. What lies behind this trendy concept? What does an acceleration program bring to a company?

After having explored the different facets of acceleration programs currently deployed on the African continent in a first article (available here), we will focus here with a practical case study of a company benefiting from an acceleration program, with a joint-interview of Mohamed Diaby and Ybrahim Traoré, CEO and co-director, respectively, of Citrine.

Founded in 2014, Citrine Corporation is a company based in Grand-Bassam, southern Côte d’Ivoire, specializing in the production and marketing of Zatwa brand agricultural products in the sub-region, Europe and the United States.

Like many young African companies, Citrine has had great difficulty accessing “traditional” financing (bank loans, equity investments, etc.). However, since 2020, the company has benefited from the I&P Acceleration program in the Sahel (IPAS), which has provided financial resources (seed funding in the form of a repayable advance to meet operating expenses, pilot phases, market testing, research & development, equipment purchases), as well as technical support to strengthen the team’s skills in various areas.

 

What is your business plan ?

Mohamed Diaby : From the very beginning, our intention was to promote the local dishes and cultures from the southern region of Côte d’Ivoire, where we both come from.

Ybrahim Traoré : Our ambition was also to show young Africans that you don’t need to leave the country to succeed. Starting a business and creating jobs is a way to deal with the problem of clandestine migration, which is occurring in several African countries. This is why our business is not limited to import-export: we ensure not only the marketing phase but also the production phase of cereals, fruits and vegetables, such as placali and attiéké, which are produced in the Grand-Bassam region and widely consumed by Ivorians in Côte d’Ivoire and abroad. We have also created our own brand, Zatwa Impex.

 

How did you come up with this idea?

M. D. : We met at the university during our graduation cycle. To complete our degree, we needed to find a work-study program, but we chose to go directly into entrepreneurship.

We thus started this project based on the following observation: the entire distribution circuit of African products and foodstuffs (attiéké, smoked fish, etc.) was run by non-African communities. In France, for example, these grocery stores are owned by the Asian community. We thought this was a shame… and that’s how the journey started.

Y. T. : We didn’t intend to only produce and sell attiéké but also to guarantee the quality of the products put on the market. The company is doing well. When we started, we had about ten employees, 90% of whom were women. Today, we have about 60 permanent jobs and we employ up to 100 people during the production period.

 

Your company has been supported since 2020 by the I&P Acceleration in the Sahel program. What does this partnership bring you ?

M. D. : I would say many things! We had approached the Ivorian fund Comoé Capital a few years ago, but we were not quite ready yet. The opportunity for partnership arose thanks to the launch of the I&P Acceleration in the Sahel program, led by Investisseurs & Partenaires and financed by the European Union.

Today we owe a lot to the team that follows up and gives us very useful advice. I&P and Comoé Capital helped us to carry out our market study on cassava products (such as attiéké and placali mentioned previously) which allowed us to confirm their sales potential, in Côte d’Ivoire and with the African diaspora (from Congo, Niger, Ghana, Benin…), who also consume a lot of cassava. Then, the program allowed us to increase our production capacity with the help of production equipment (ovens, machines, packaging, a crusher, raw materials).

Y. T. : The program’s support also allows us to lighten the workload of our staff. Our employees work full time but produce much more. They can now produce two containers in a month, instead of one. The workload is less tiring but they earn a lot more because it gives us the opportunity to increase their wages. They rely heavily on us and on their job because it helps them support their family needs.

Thanks to the I&P Acceleration program, we have been able to expand our production capacity with a lighter, less tiring workload for our employees and a higher salary to boot.

 

What’s next ?

Y. T. : The program’s support will help us tackle environmental issues. For example, we are going to benefit from a technical assistance mission* for the recycling of waste. We will be able to recover and transform cassava skins and starch into bio-gas.

M. D. : In the medium term, we’d like to consolidate Citrine’s position on the local market. It is important for us to strengthen the sale of our products in markets and supermarkets and contribute to food security in Côte d’Ivoire.

L’appui du programme nous permet de nous attaquer aux questions environnementales. Nous bénéficions d’une mission d’assistance technique pour mesurer l’efficacité de toute notre chaîne de production.The program’s support allows us to address environmental issues. We have a technical assistance mission to measure the efficiency of our entire production chain.

 

 

Keywords

Acceleration: Mentoring, financing or networking services provided by private actors (investment funds, incubators, etc.) and financial backers to small businesses to support them in their start-up phase.

Seed: All the resources granted to a company to meet the expenses related to its start-up (working capital, operating expenses, research and development, purchase of equipment and technologies) and to prepare it for fund-raising.

Technical assistance: All non-financial resources granted to the managerial and/or operational teams of a company to strengthen their skills in several areas (strategy, financial and/or fiscal management, marketing, production, etc.). Generally, technical assistance takes the form of training (individual or collective) or support missions carried out by an expert

 


[1] I&P Acceleration in the Sahel, launched in 2020, is a program deployed by the Investisseurs & Partenaires group and funded by the European Union. The program targets 13 countries in the Sahel sub-region and provides start-ups with access to the financing and skills necessary to enable their development and thus promote the creation of decent jobs.

[2] HACCP (Hazard analysis Critical Control Point) is the main platform of international legislation concerning manufacturing for all actors of the food industry. The HACCP aims to validate the implementation of the food safety system.

No Comments on Acceleration programs: a miracle solution for early-stage companies? (2/2)

Acceleration programs: a miracle solution for early-stage companies? (1/2)

Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job…

Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job creation and the emergence of more inclusive growth on the African continent. It is in this context that programs, initiatives and structures claiming to “accelerate” businesses have emerged in recent years. 

Note: Part 2 of this article, spotlighting an Ivorian company supported by an acceleration program, will be published next week.

Acceleration: A promising concept for African startups

When it comes to entrepreneurship, acceleration is defined as a service that provides mentoring, networking, and sometimes funding, to growing companies. However, the term is used to refer to a wide variety of very different programs. These include “accelerators” and start-up studios (such as GSMA Kenya and Flat6Labs Egypt), which are often physical or virtual structures that focus on digital economy (1) start-ups and are typically located in English-speaking countries, as well as investment funds that define themselves as booster programs (such as Catalyst Fund and Janngo) and/or that develop a range of acceleration program services to diversify their portfolios.

These programs are mainly funded by international organizations and private donors (e.g., West African Trade Investment, funded by USAID; Orange Corners, funded by the Netherlands Enterprise Agency).

In a globalized context where virtual support is widely available, international accelerators, in the US, Latin America, and Europe, are assisting more and more African startups. Before 2020, the renowned North American Y Combinator had only provided on-site support to 12 African startups—a figure that has tripled in the last two years.

An insufficient offering given the needs of entrepreneurs

This apparent plethora of acceleration programs gives the impression that the needs of African early-stage companies have now been met. This misleading impression is strengthened by the growing numbers of venture capital fundraising exclusively targeting IT startups in a limited number of African countries (Kenya, Nigeria, South Africa, Egypt.

The number of start-ups across the continent that need assistance in the acceleration phase or upstream during the incubation phase is significant; whereas the range of seed financing (pre-seed/seed) is almost nonexistent if we look at the ratio of funds to the number of entrepreneurs. The financial and non-financial support granted must cover both general and specific needs, and therefore requires time, locally rooted expertise and a personalized calibration/analysis of a business’s needs. Accelerating a company’s growth does not mean accelerating the time required for its development.

Unfortunately, most programs funded by ODAs are not properly structured to overcome the gap between the time/support required for each entrepreneur and the number of targeted beneficiaries. Often these programs are unwilling or unable to assume the real cost of coaching each company and therefore take the risk of acting only superficially/provide only superficial assistance. Implementation resources are limited since there are inexhaustible reserves of new entrepreneurs to support whose scaling up problems  cannot be solved exclusively by a generalist approach.

The apparent profusion of acceleration programs is misleading: the number of startups that need support across the continent is considerable and the supply of seed funding is still largely insufficient.

Draw inspiration and deploy good practices

Since there is still a lot to do to guarantee the development of African entrepreneurship, the experience accumulated in recent years by acceleration program actors make it possible to identify a few “good practices” that could be deployed on a larger scale:

(1) The segmentation of programs is an added value

Every acceleration program must consider the fact that the term “start-up” includes companies that have nothing in common, either in terms of their business or location, and as such, require differentiated support. Segmentation adds significant value as it allows acceleration/support programs to more quickly identify issues and address challenges common to a particular business/company; a Sahelian SME in the agribusiness sector, for example, will have different support needs than a Nigerian e-commerce startup. Segmentation benefits also to programs that favor a virtual and grouped approach but which have difficulty obtaining the expected results with audiences that are too diverse.

Sectoral programs, such as those dedicated to agribusinesses (e.g., the PCESA financed by Danish cooperation in Burkina Faso) or initiatives focused on gender (Access Bank Nigeria’s W Initiative…) are more likely to identify the particular challenges of businesses and better understand regional equity issues (urban, rural, etc.). In the same way, results are achieved when the support continuum has been well thought out. Incubation in particular is not interchangeable with acceleration, as the needs of companies may differ from one phase to another (2).

(2) Greater impact is achieved by training local intermediary actors essential to the development of entrepreneurs

Entrepreneurship support structures (SAE) in particular, independent experts and consultants be able to find their market beyond punctual aid from donors (3) . It is by contributing to the local skills development of African professionals that a greater number of companies will be able to scale up. In addition to Afric’innov, whose primary mission is in French-speaking African countries, a few financial players have recently attempted to fill this blind spot in their program offerings. Examples include the collaboration between Argidius and Village Capital, who have been working since 2020 to help structure SAEs in Uganda (Uganda Ecosystem Builders), and the work of mentoring and then financing SAEs carried out by Triple Jump and its experts in Sub-Saharan Africa.

(3) Acceleration programs that provide a complementary set of tools are more effective

First, appropriate seed funding tools, which specifically take into account a company’s lack of financial management skills and habits, can take the form of a repayable advance, as currently practiced by I&P Acceleration in the Sahel (IPAS). An advance lays the groundwork for a relationship with a financier and will probably make it possible to financially support more SMEs through the effect of recycling money (4).

Secondly, we can use skill-building tools that alternate between generalist support (to aim at disseminating entrepreneurial skills as widely as possible) and targeted support (venture building, technical assistance). The technical support provided to a company is just as determinant as the financial support. Y Combinator’s alumni agree that their growth is more due to technical support than to the initial financing, even if the financing gives more weight to the advice given.

Although the scarcity of seed funding is a significant obstacle, support, through skills building and technical assistance, is just as crucial as seed funding.

General skill building (group trainings, bootcamps and workshops, webinars, etc.) is often valued by funders, but technical assistance is largely absent from many acceleration programs. Technical assistance, i.e., contracting with local sector experts (legal, commercial, technological, managerial, etc.), is critical to improving the performance of companies during the absorption of seed financing and the development of traction. Technical assistance is an eminently relevant tool when it is implemented by an investor who wishes to strengthen the enterprise where he perceives risks that would not be detected by other types of actors. Most acceleration programs that include the deployment of technical assistance produce net results: this is the case, for example, with GreenTec Capital’s Boost Digital, which offers technical assistance in business and digital strategy and significantly increases the revenues of its beneficiary startups.

Some traps to avoid

Program funders still face many challenges to increasing the impact of their programs. It will inevitably be necessary to move away from the “all-startup” scheme to support “brick and mortar” SMEs as well and to rethink the establishment of support over time, taking into account that the phases of increasing skills are costly but necessary in order to meet demanding results indicators. It is also important to recognize that high failure rates at the outset are normal given the high initial risks involved, during the time when a company must deploy its offerings, prove itself and find its market. If the company survives, thanks in part to acceleration, then the risks, the need for liquidity and the need for competence (…) all decrease simultaneously.

We must also avoid the model of ephemeral competition and challenges, unless we are clear about their purpose (brand testing, visibility, etc.) and encourage a little more in-depth research work for “nuggets” and summoning patience and local relays in the process of selecting companies outside the circuits known to “serial pitchers”. The implementation of programs designed in Africa, involving African public and private stakeholders, favoring local financial risk-taking (e.g., business angels, African entrepreneurs, especially alumni of acceleration programs wishing to invest) is becoming essential.

In conclusion, we can hope that the enthusiasm of DFIs, international donors and African private actors for acceleration programs will continue and lead to the realization of ambitious aspirations: to strengthen young companies and create intermediary bridges/pathways to capital investment for those with clear development projects. Such a dynamic is inseparable from a broader reflection on the programs that exist further upstream from acceleration (ideation or incubation programs). The quality of our tools must be continually questioned in order to adapt them as closely as possible to the changing issues that growing African companies face.


Notes :

(1) An overview of the so-called gas pedal structures is available on the Afrikan Heroes and CrunchBase websites https://afrikanheroes.com/2021/05/29/a-list-of-startup-accelerators-in-africa/ https://www.crunchbase.com/hub/africa-accelerators and in the Briter Bridges 2020 & 2021 reports

(2) Cf étude AFD-Roland Berger « Innovation en Afrique et dans les pays émergents » https://www.afd.fr/sites/afd/files/2018-05-05-57-55/etude-innovation-numerique-afrique-pays-emergents.pdf

(3) On this subject, see the studies and experiments currently being conducted in Cameroon, Congo-Brazzaville and Chad by actors such as R.M.D.A or the Agro-PME Foundation to implement the use of service vouchers, a useful tool for training and accreditation of consultants, etc. https://www.rmda-group.com/project/tchad-appui-a-la-maitrise-douvrage-du-projet-dappui-a-la-petite-entreprise-phase-2 https://www.adiac-congo.com/content/pme-le-guichet-cheque-services-bientot-operationnel-32125

(4) The repayable advance and its effects will be the subject of an article in this Acceleration file.

No Comments on Acceleration programs: a miracle solution for early-stage companies? (1/2)

The case for informal bonds

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing…

This article argues for the implementation of an alternative financing mechanism for informal small and very small businesses in Africa that would allow them to benefit from other formal financing opportunities under better conditions than those offered to them today.

 

A review of current funding mechanisms

African economies today are still predominantly financed by the banking sector, which carries the disadvantage of elevating the banker to the status of a sort of multi-sector specialist who groups entrepreneurs in various sectors such as the agri-food, energy, consulting, and even new technology sectors, into the same single portfolio.

Private equity investors focus almost exclusively on large deals in order to ensure the monitoring of their investments (although fortunately some of them have oriented their investment strategies towards small and medium-sized businesses).

Microfinance institutions, whose success is due to a financing model adapted to small-size loans and small companies, but unfortunately carries some significant drawbacks, including the application of high interest rates.

We could also mention meso-finance, which is quite new and essentially functions as an intermediary between traditional banking and micro-bank financing. Nano-credits, which are generally below 100,000 FCFA, are offered by some Fintechs but are still quite rare.

Finally, an informal and parallel financing system has been created which is a sort of “street financing”
system that applies predatory interest rates and abusive loan terms and requires, among other things, the borrower’s debit card as a guarantee.

This overview of existing financing mechanisms makes one thing clear: the informal sector, which according to the International Labor Organization represents more than 85% of jobs on the African continent, has been completely left behind. It is therefore necessary to develop an alternative financing mechanism to cater to this vital segment of our economy.

The overview of existing financing mechanisms makes one thing clear: the informal sector, which represents more than 85% of jobs on the African continent, has been completely left behind.

 

The informal sector as a life raft

The informal economy constitutes a veritable life raft for the vast majority of Africans. In the case of Europe, this life raft is characterized by each state’s social welfare model, and each country has defined a minimum wage that allows every worker to provide for the basic needs of his or her family.

In Africa, this life raft is characterized by one’s informal activities. The public administration employee who earns 65,000 CFA francs per month (100 €) and who has 6 children to support, will need to develop an additional activity in the informal sector in order to make ends meet and feed his or her family.

Financing our informal sector, therefore, amounts to financing our social welfare network. The informal sector simply cannot remain the forgotten or poorly equipped part of our economy that it is today.

Today, the African financial market should represent hope, an option, through the inclusion of informal entrepreneurship. Each player in our economic network should be able to access an opportunity through this financial market.

This is why we are calling for the implementation of a new product, which we could refer to as “informal bonds”.

Each player in our economic network should be able to access an opportunity through this financial market.

 

What are informal bonds?

According to the International Monetary Fund (2017), the informal sector represents between 20% (South Africa) and 65% (Benin, Nigeria) of the GDP of African countries. Contrary to popular belief, informal does not necessarily mean poorly organized.  In fact, some informal businesses such as planting or motorbike taxi driving, for example, organize as Cooperatives or Groups.

The idea of the informal bond is simply to allow business groups that have historically demonstrated good organization and governance to seek financing for their members through the financial market by issuing what would be called an “informal bond”, a bond dedicated to financing informal business activities.

A group’s leadership would select, thanks to their knowledge of the sector and of their members, the beneficiaries as well as the loan amounts granted to them.

Assuming that the group has previously demonstrated moral probity, it would be possible for all or part of the bond to be guaranteed by a bank or a state guarantee fund.

For security and transparency reasons, loans and repayments would be made directly via “mobile money” transfer between the custodian bank of the operation and the informal entrepreneurs.

 

This concept could encourage the progressive structuring and formalization of informal actors, who would have specific guidelines to follow in order to qualify for this financing mechanism (group membership, record keeping, opening of a mobile money account, etc.) For their part, the States would benefit from an increase in tax revenues.

No Comments on The case for informal bonds

Type on the field below and hit Enter/Return to search