For Global Entrepreneurs Seeking Venture Funds, Networks Are Key

One of Bill Clinton's favorite mantras is that talent and intelligence are distributed equally around the world, but opportunity is not. Replace "opportunity" with "venture capital," and the statement accurately describes one of the major bottlenecks to bottom-up business innovation around the developing world. Excitingly, however, a new set of actors are working to build the social glue connecting investors and entrepreneurs -- and, in the process, open new opportunities for global venture funding.

The heart of the venture capital equation includes three types of people: entrepreneurs, investors and intermediaries -- or a word I like better, routers. Entrepreneurs are the people who make stuff. Investors are the people who fund making that stuff in hopes of a financial (or more recently, social or environmental) return. Routers are the intermediary agents who make the system move more efficiently by knowing everyone and playing the role of both vetter and connector.

In the developing world, the growth of venture capital investing has often been hampered by a bottleneck in one of these areas. From the investor's side of the equation, problems can include a lack of local money (i.e. not enough investors who understand the constraints and opportunities on the ground), a lack of ability to assess risk or misaligned goals. (For example, venture investors who want to invest an amount of capital that's too great for "bottom-up" businesses, but not enough for infrastructure-heavy projects like cell towers in remote villages.) And then, of course, there's a simple lack of knowledge about where to find great entrepreneurs.

The problems for entrepreneurs mirror those of investors. Their projects don't align perfectly with investors' goals, and the "pipeline" of funding moving from seed to growth to expansion capital doesn't seem realistic. Most of all, it's really hard for developing-world entrepreneurs to find people to invest in them, both as experienced mentors and financial supporters.

In mature venture communities, these problems still exist, but their impact is often reduced through networks of intermediaries who know everyone, and can connect entrepreneurs and investors who similarly align on financial expectations and excitement about similar products. Even more important, human routers (a term I first heard from one of the ultimate human routers, Jerry Michalski) create social cohesion by adding a layer of credibility to those they introduce.

A great example of this is the VentureHack's AngelList, a list where well-known technology angel investors let entrepreneurs know what type of projects they are interested in, and how to contact them. The "how to contact me" almost always includes a line about "get an intro from a mutual acquaintence."

One of the most exciting things I'm seeing in developing world startup communities -- particularly in East Africa -- is the growth in appreciation for the need for these human routers. Appfrica Labs, for example, is a Uganda-based technology incubator that brings in contract work to help build skills and create sustainable financial support among young Ugandan software developers, who are in turn encouraged to build their own web applications and startups. Meanwhile, the new Kenyan iHub is trying to create a world-class space for software developers and entrepreneurs in Kenya, and its leaders are already wondering about how it could open new access to capital to fund these businesses.

My instinct is that we're going to see tremendous growth in these sorts of routing institutions in the next few years. My hope, too, is that as new seed capital comes online, more entrepreneurs decide to take the plunge, more of the investors bring in friends and the whole system grows.

To read more on the subject, definitely check out these posts by the iHub's Erik Hersman:

• There's a Problem With Seed Capital In Africa
• Crowdfunding and Seed Funding in African Tech

Photo Credit: Whiteafrican