By Thabiso Foto
A NASCENT yet novel way to assist corporates to maximise the potential of environmental, social and corporate governance (ESG) goals and efforts toward achieving the United Nations (UN) Sustainable Development Goals (SDG) is emerging across Africa.
Information technology start-ups are on the rise and offer innovative solutions larger companies need. They also offer investment opportunities.
ESG and SDGs are inextricably linked with the way we do business. Corporates, retirement funds, and other institutional investors are increasingly putting pressure on fund managers to demonstrate how they are incorporating these principles in how they allocate capital. Sometimes this can be seen as a cost burden, but if done well, this can achieve significant returns for investors and advance inclusive economic growth. Start-ups on the other hand, benefit from this investment.
Supporting entrepreneurs in tech
Entrepreneurs, particularly those behind tech start-ups, are mission-driven, agile and care deeply about the work they do. They often build their businesses around a core product or service that aligns with the values of the communities they serve.
This type of alignment creates positive outcomes for investors, corporates and local communities alike. Investors get exposure to a highly rewarding asset class, while corporates get innovative partners to help them along their digital journeys, and local communities gain access to employment opportunities as well as better and affordable products and services.
According to a 2019 report by McKinsey, research conducted on roughly less than 2 000 studies on the impact of a strong ESG proposition on equity returns, found that 63 percent reported positive findings and this demonstrates that companies that pay attention to ESG and SDG concerns enhance their value and are more sustainable in the long term.
Collaborating for innovation
Large corporates are also seeing the potential of partnering with start-ups, not only for ESG and SDG purposes but also to collaborate and solve innovation and technology challenges.
In 2018, we partnered with Standard Bank to invest in tech start-ups in the financial services sector (fintech). In 2019, together with Netcare we started investing in tech start-ups in the healthcare sector. Fintech and healthtech start-ups provide innovative solutions such as improving access to financial services and to digital, affordable healthcare across Africa. With the support of these investment partners, we have, so far, invested in 22 fintech and 18 healthtech start-ups in South Africa, Kenya, Nigeria, Uganda and Ghana. Over the next three years, we have committed to making 30 additional investments in these sectors, solving similar challenges across Africa.
Our newest and third corporate partner, Small Foundation, a Dublin-based philanthropic organisation focusing on rural and agriculture sectors in Africa, joined us in 2021 to invest in 18 agritech ventures over three years. To date, we have already made three investments in this sector.
With this partnership, we are committed to making a significant impact across the continent by supporting agritech start-ups that can innovate and improve the delivery of a range of services to smallholder farmers and micro, small and medium-sized enterprises in the agricultural sector.
How we invest
In addition to Founders Factory Africa deploying cash investments to start-ups, we are also building tech-enabled solutions from concept/idea-stage to fully-fledged businesses through our Venture Build Programme. Our experience of the African market and entrepreneurship dynamics have informed our model, which seeks to fuel African founders to go further faster by delivering on these three key things:
- Cash/capital to validate their ideas and fund initial operations,
– Tailored, hands-on business support to supplement their lean teams, particularly at the early stages of the company and
– Corporate partners to help get their products to market quicker and/or accelerate their growth trajectories.
We have validated our model in the market, as we have seen our ventures completing successful fund-raising rounds over the last six months.
After our programme, six of our relatively mature ventures have raised nearly $60 million (R946m). These funds will be invested across operations, further product development, and help start-ups to bolster their teams as they prepare for their next growth phase. With every fund-raising phase, we have seen teams grow. This demonstrates the enormous opportunity to create jobs through these collaborations.
The jobs created are amplified even more with business-to-business (B2B) start-ups. Every investment into a B2B start-up has a positive ripple effect on job creation.
Looking to corporates
We are headquartered in Africa because of the continent’s incredible entrepreneurial potential. Our model is geared toward changing the entrepreneurship landscape, venture development and corporate partnerships across Africa and positioning it alongside global markets.
At the launch of the partnership with the Small Foundation, our CEO, Roo Rogers, emphasised why these partnerships matter for us and the continent.
“In our model, investors are true partners and catalysts that enable us to increase our capacity to respond to the needs of millions of African citizens,” he said.
Our model aims to make it as easy as possible for African founders to launch their ventures while reducing risk, increasing speed to market, and ultimately increasing their chances of success. These de-risked ventures make exceptional investable opportunities for other venture capital funds, private equity funds, development funds and for institutional investors.
In a continent with exceptionally high unemployment and inequality, we see this as an opportunity for all players in the markets to come together and unlock opportunities for not only impact, but also inclusive growth and economic development. It’s a win-win solution.
Thabiso Foto is the chief financial officer of Founders Factory Africa
BUSINESS REPORT