Three Steps To Unleashing Africa's Genius

Imagine what happens when the intelligence of 900 million people is unlocked, and the untapped reserves of a continent's innovation flow freely. Building the developed world as we know it required linking speculative capital to people with brilliant, unproven ideas. Africa is home to untold numbers of people harboring spectacular ideas, yet the continent and indeed, the world, reap far too little of what African innovation could produce due to a lack of investment in its entrepreneurs.

While Africa has an active microfinance space and emerging mid-size private equity sector, there is a gaping "missing middle" in Africa's capital markets that includes seed stage angel investment and early stage venture capital. The existence of a major gap in the financial markets of the world's second most populous continent is a serious problem: seed and early stage investment are major drivers of any robust entrepreneurial economy, and entrepreneurship is the most important force for sustainable job creation in the world.

This financing vacuum deprives Africans of good jobs, of services with blended-value baked into the model, and of the benefits of living in countries with a robust middle class that include greater political accountability and social safety nets funded by tax revenues. Ultimately, it also deprives the world of access to the myriad of Africa's great undelivered ideas. African Googles stay grounded without early stage risk capital giving its innovation wings.

Early stage investment catalyzes mass job creation, and creates the foundation for a growing middle class. So what will it take to drive investment? What are the key components of scaling an entrepreneurial ecosystem?

Depending on who you ask, sound legal and political institutions, strong universities, government incentives, cluster development, a skilled labor force, and robust intermediaries/service providers range from desirable to necessary for early stage investment to scale in a given territory. Certainly the more of these a country has the better.

But barring a perfect storm of macro factors waiting to create an "off-the-shelf" Silicon Valley, what are the key areas that can drive the development of African early stage investment today with a lead time of years not decades?

1. Transforming risk-return profiles on early stage African deals through government incentive: Government incentive programs, whether based around capital matching programs, tax write-offs on angel investment losses, or other mechanisms, drive investment. Institutional risks have lead some investors to categorically avoid early stage African deals. Government incentive programs can drive angels, fund managers, and institutions to take a second serious look. Smartly tailored government incentive programs helped shape Silicon Valley and the Israeli venture capital space, and would attract the attention of leaders in the hubs of global capital.
2. Transforming risk-return profiles through impact investors entering the space at scale: Successful early stage African deals are loaded with potential social return on investment. Baking social value into the return model will have a huge positive effect on risk-return profiles.
3. Well-targeted intermediaries specializing in driving investment into the continent. As the co-founder of Zenzele Circle, a company driving early stage investment into sub-Saharan Africa, I'm a major believer in the role of intermediaries in mitigating the inefficiencies in underdeveloped early stage capital markets. Network inefficiencies and information asymmetry are rampant, and result in strong deals getting lost in the fog of country risk. Such inefficiencies/asymmetries are best addressed by dedicated specialists.

It is not only Africans that can't afford an Africa of stifled innovation. It will take the movement of early stage capital into the continent for its ingenuity to flourish, and for the world to recognize it needs African genius unleashed.

Photo credit: Blyzz