Providing Pre-Seed and Seed Capital is an Essential Step to Bringing West Africa and Sahel’s Entrepreneurs to the Next Level
More than 40 percent of African entrepreneurs cite access to finance as the major factor limiting their growth, according to World Bank Enterprise Surveys. In this article, the author says that West African start-ups and innovative young SMEs are indeed facing the classic ‘valley of death’ — the space between where the entrepreneur’s own resources from family and friends (“love money”) gets depleted and when the company is financially viable enough to attract later-stage investment and financing available on the market. The shortage of financing in the market starts from the pre-seed stage (US$20,000) to early-venture capital stage (US$1 million).
In short, Alexandre Laure says a “new” class of financial instruments must emerge to provide the pre-seed and seed capital these early-stage businesses need. Initiative France, for example, serves as a good case study for pre-seed capital, not only providing interest-free loans on a large scale from US$20,000 to $150,000 to entrepreneurs at the idea stage, but also supporting them technically and connecting them with potential seed investors. Their model, which facilitated the financing of 16,000 businesses and the creation of more than 44,000 jobs in France in 2016 alone, is now being replicated in Tunisia, Burkina Faso, Chad, and Mali, with repayment rates constantly above 90%. Afric’Innov, discussed in a recent blog post, also plans to deploy the instrument through its incubators network, after testing it in Benin (Etrilabs), Burkina Faso (La Fabrique), Niger (CIPMEN), and Senegal (CTIC Dakar).