My job is to invest in companies like this, so I can offer some insight into the process. I manage a seed fund for digital media startups in frontier markets and spend a lot of time in countries like Zimbabwe, Jordan, and Indonesia--and work closely with local subject matter experts. The one thing to be aware of when looking at potential investments in frontier markets is that many of the companies that are getting international press coverage are spending more time on marketing themselves to foreign correspondents than on building a scalable business; often times the technology doesn't really work or traction really isn't there. There is a lot of smoke and mirrors to cut through because there is so much grant money/NGO activity out there; the access to free, dumb money distorts the funding process for legitimate, high-growth startups. Investing in these markets is very different from the types of deals you read about on TechCrunch.
I'm still wondering how someone like ph0rque or myself could invest in some of these companies. Deciding which one to invest in is part of the process, but what next?
This is my suggestion:
1. Find many people who want to invest in these markets. You don't really need many people, but you do need a good bit of cash. The only way to make this work is by having a portfolio approach; it's extraordinarily difficult to pick individual winners. Let's say you (the investor collective) are investing $50,000 per company. My advice is to invest in at least 10 companies.
2. Find a local subject matter expert; someone who is plugged into the startup community and understands what the context is like. This person may need to get paid, but not much (it's a limited amount of work). You really should have a contact in each local market (not that hard to find).
3. Set up weekly calls with your collective and assign individuals specific verticals to monitor/research. For example, you take e-commerce, your friend takes UGC, and a third person takes marketplaces; similar to the way that conventional fund operates.
4. Find local counsel--even if you insist that the companies be re-incorporated in Delaware.
5. Schedule monthly calls to go over deal flow. Spend more time (virtually is fine) with those companies that receive approval from the collective. Make sure you have had enough time to verify that the founders do what they say they do. Look at traction and budget.
6. Review the docs and disburse funds. Monitor the investment.
As you can see, it's not a complicated process, but it does take time and energy. Do you have that (as well as sufficient capital to put at risk)?
You don't need to go to Africa to get involved. You would be surprised how many people in this community are African or women - or even both! It's just a case of not engaging in too many discussions where gender and/or ethnicity come up.....
It was a little easier as the founder was from the US and I met him here, and then he returned to Africa to continue running the operation. Wish more African founders had the opportunity to raise money here.
Hi, I was too at the unreasonable institute with Michael and had the same opportunity. Great exposure and we are closing our second round with investors we met through the same channel in March.
If your sentiment is common, then there is an opportunity for someone to arrange introductions and bring African entrepreneurs to the United States for fundraising.
I believe that instead, the opportunity is to guide US investors to invest in African companies. An organization to vouch for the reputability and asses the risks of these companies to allow for greater, less risky foreign investment.
I personally would love to start such an organization.
I understand the difference. Either way, though, personal connections and legwork would have to be done both in the US and in Africa.
It's been on my mind since I made the comment; if you've interest I wouldn't mind discussing it with you if you'd like to e-mail me at the address in my profile.
I don't recommend investing in tiny enterprises in developing countries, because you're heading for shakedown street at that point. But if you think it's a growth sector, go for it.
