93043 Enhancing Access to Finance for Technology Entrepreneurs in Southern Africa Copyright © 2014 International Bank for Reconstruction and Development / The World Bank Mailing Address: MSN I9-900 1818 H St. NW, Washington D.C., 20433 USA Telephone: (+1) 202- 458-4070 Website: www.infoDev.org Email: info@infodev.org Twitter: @infoDev Facebook: /infoDevWBG Some rights reserved. This work is a product of the staff of infoDev / World Bank. Note that the World Bank does not necessarily own each component of the content included in the work. The World Bank therefore does not warrant that the use of the content contained in the work will not infringe on the rights of third parties. The risk of claims resulting from such infringement rests solely with you. The findings, interpretations, and conclusions expressed in this work do not necessarily reflect the views of the donors of infoDev, The World Bank, its Board of Executive Directors, or the governments they represent. 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License: Creative Commons Attribution CC BY 3.0 Translations – If you create a translation of this work, please add the following disclaimer along with the attribution: This translation was not created by The World Bank and should not be considered an official World Bank translation. The World Bank shall not be liable for any content or error in this translation. All queries on rights and licenses should be addressed to infoDev, The World Bank, MSN: I9-900, 1818 H Street NW, Washington, DC 20433, USA ; email: info@infodev.org april 2 0 1 4 Enhancing Access to Finance for Technology Entrepreneurs in Southern Africa About infoDev infoDev, a global trust fund program in the World Bank Group, supports growth-oriented entrepreneurs through creative and path-breaking venture enablers. It assists entrepreneurs to secure appropriate early-stage financing; convening entrepreneurs, investors, policymakers, mentors and other stakeholders for dialogue and action. We also produce cutting-edge knowledge products, closely linked to our work on the ground. This study was made possible thanks to the Government of Finland. This study was commissioned by infoDev/World Bank and produced by International Financial Consulting Ltd. For more information visit www.infodev.org or send an email to infodev@worldbank.org. iv Table of Contents 1. Introduction and Context . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 2. Entrepreneurship Landscape Analysis Framework . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3. Mozambique Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 4. Zambia Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 16 5. Option Appraisal Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 6. Options and Recommendations . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 7. Next Steps . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Appendix A: Interviewees Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 38 Appendix B: Mozambique Support Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 40 Appendix C: Zambia Support Landscape . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Appendix D: Key Definitions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Bibliography . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46 1 List of Acronyms BDS business development services CA comparative advantage(s) CEEC Citizen’s Economic Empowerment Commission CPI Investment Promotion Centre CT climate technology EDP entrepreneurship development path FNI National Innovation Fund (Mozambique) GAPI Mozambique National Development Bank GP guiding principle(s) IA innovative agribusiness ICT information and communication technology IPEME Institute to Promote SMEs MDB Multilateral Development Bank MSMEs micro, small and medium enterprises NTBC National Technology Business Centre (Zambia) PACME-SEME GAPI Grant Program SAIS Southern Africa Innovation Support Programme SNV Netherlands Development Organization STIFIMO Science, Technology and Innovation between Finland and Mozambique Program TA technical assistance TBDF Technology Business Development Fund TE technology entrepreneur VC/PE venture capital/private equity YDF Youth Development Fund ZDA Zambia Development Agency ZICTA Zambia ICT Authority 2 List of Figures and Tables Figure 1: Geographic Scope of Study . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 4 Figure 2: Stakeholder Groups in the Entrepreneurship Ecosystem . . . . . . . . . . . . . . . . . . . . . 5 Figure 3: Entrepreneurial Development Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 7 Figure 4: Finance Supply Landscape in Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Figure 5: Unmet Needs and Support Gaps in Mozambique . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Figure 6: Finance Supply Landscape in Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 18 Figure 7: Unmet Needs and Support Gaps in Zambia . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Figure 8: Option Appraisal Process . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 22 Figure 9: Options Matrix . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 Table 1: Stages of the Entrepreneurial Development Path . . . . . . . . . . . . . . . . . . . . . . . . . . . . 6 3 Introduction and Context The fieldwork for this assignment was undertaken in Mozambique and Zambia. At the outset of the assignment, it was agreed that regional stakeholders interviewed during field missions to Mozambique and Zambia would be queried on infoDev has a vision and mandate to address the status and quality of early-stage financing for obstacles to entrepreneurship globally, including technology entrepreneurs in Namibia and access to finance. It has undertaken some pilot Botswana as well. and more advanced work attempting to match Figure 1 presents the geographic scope of this angel investors with entrepreneurs, but it seeks to study (dark blue) as well as countries of interest understand specifically the financing gaps that exist for infoDev (light blue). in Southern Africa. Along with ongoing desk review of relevant This report examines the financing gaps for early literature, the consultant’s team undertook stage and growth that high-growth technology direct interviews with stakeholders active in entrepreneurs are facing in the information the so-called “ecosystem” of technology and communication technology (ICT), climate entrepreneurship in Mozambique and Zambia. technology, and innovative agribusiness sectors During field consultations in Mozambique and in Zambia and Mozambique, with a more regional Zambia, insights were sought from regional review of Namibia and Botswana as possible. It will stakeholders.However, insights were limited, as analyze the unmet needs of these entrepreneurs— national representatives do not have a detailed perceived demand and latent demand—as well as understanding of the early-stage access to capital the existing sources of supply of private capital for beyond the country in which they work. Thus, seed and early-stage investment, and define the inferences beyond macroeconomic analysis were adequacy to meet these needs. The report also not possible in Namibia or Botswana. explores the challenges that angel investors have experienced in the past when attempting to finance early- and growth-stage start-ups in the region and, if and where appropriate, make recommend- Geographic Scope of Study Figure 1:  ations relating to infoDev’s possible interventions. This report 1. Explores the most pressing unmet needs of Mozambique entrepreneurs, including capital requirements; Zambia 2. Analyzes sufficiency of current sources of [early-stage] capital; 3. Presents challenges potential angel investors Namibia Botswana would experience in the countries of study; and 4. Presents options for infoDev to intervene. Such interventions should foster a higher access to Countries of Study early-stage capital for technology entrepreneurs in Countries of Interest target countries; specifically, interventions should foster more angel investment in technology start- ups and new companies operating in ICTs, innovative agribusiness or climate technology. 4 In addition to consultations with the entrepreneurs and early-stage capital providers, interviews were In addition to consultations with the also undertaken with those institutions that play a entrepreneurs and early-stage capital catalytic role between these groups. Such catalysts providers, interviews were also include business service providers, private mentors, incubators, and other such stakeholders. undertaken with those institutions In addition, interviews were undertaken with policy that play a catalytic role between makers and regulatory authorities relevant to the technology subsectors of focus. Figure 2 depicts these groups this system in more detail. More than 25 stakeholders were interviewed in Mozambique and 31 in Zambia, encompassing underlying root causes inhibiting entrepreneurship all stakeholder groups. Interviews were limited to in both countries. Translating these root causes the capital cities, Maputo and Lusaka, respectively. into guiding principles makes up the foundation Appendix A provides a list of interviewers. of the process to appraise and select best options Appendix E presents a bibliography of sources for intervention, which is presented in chapter 5. consulted. Options that adhere to these guiding principles and leverage infoDev’s comparative advantages By framing the findings from fieldwork within the are then presented in chapter 6, followed by a brief analytical framework outlined in chapter 2, the discussion of next steps to finalize this report in consultant’s team was able to identify gaps in the chapter 7. entrepreneurial ecosystems in Mozambique and Zambia, which are presented in detail in The consultant’s team would like to acknowledge chapters 3 and 4. Using the proprietary Root the support of infoDev and, especially, the Causes© process, the team was able to identify the invaluable contribution made by the many interviewees that gave their time and insight during the fieldwork. In particular, the team would like to thank those interviewees that Stakeholder Groups in the Figure 2:  actively sought to put our team in contact with Entrepreneurship Ecosystem other stakeholders. Without the effort of these individuals and organizations, the team would not have benefited from the great depth of information gleaned through the fieldwork. Policy & Regulatory Environment Financing Financing Demand Catalytic Supply Agents 5 Entrepreneurship Landscape Analysis Framework a fully operational business. Table 1 summarizes these milestones across the various stages of the EDP. This chapter presents the analytical Moving through each stage in the development path framework derived from desk research on requires dedication, effort, and a combination of entrepreneurship systems and adapted to the technical and business savvy of the entrepreneur. national contexts of Mozambique and Zambia. The Each stage features key obstacles that must be entrepreneurship ecosystems in each country of overcome by the entrepreneur. An entrepreneur study were examined through this framework. must rely on his or her own capacity or engage Entrepreneurship is a dynamic process, so the support to address these key obstacles. Figure 3 analytical framework seeks to track progress captures the most impeding obstacles at each through the entrepreneurship development path stage in the EDP while also defining the nature of (EDP) by tracking certain milestones a technology external support that can be engaged to assist an entrepreneur will have to reach prior to launching entrepreneur in overcoming these obstacles. Table 1: Stages of the Entrepreneurship Development Path Stage Description Idea A technically feasible idea for a product or service that has the potential to address a need or solve a problem has been established. No statement of value, monetization, or formal product/ service design has been undertaken. Concept The idea is verified as technically feasible by undertaking necessary development of the product or service in order to precisely define its ability to address a need or solve a problem. A basic value-added pitch has been developed, but no deeper monetization approach has been undertaken. Monetizable Some market testing has been undertaken, and potential clients have indicated their potential Concept interest in the product or service, though no price modeling has been undertaken. The basic structure and operations of the business concept have been developed, but no formal business planning has been undertaken. Formal Busines Market testing has advanced, and a business has been formally established compliant with Concept minimum registration standards. In addition, a formal business plan or business canvas is in place. Client contracts are being negotiated and revenue can be more precisely forecasted. Little or no formal corporate governance is in place and the capital base remains low to nonexistent. Fundable Business A formally established business with properly recorded sales record is operating with clear corporate governance, accounting, and other formal business practices in place. Early-stage capital is actively being sought to grow sales and/or expand core business prospects. 6 Photo: Geekulcha, a startup in South Africa where the young and talented IT minds meet to learn and share knowledge Figure 3: Entrepreneurship Development Path Idea Insuficient Lacking Undefined Misguided Technical Basic Value Entry Expectations Skills Resources Statement Networking & Collab. Commercial Technical Mentorship Space Mentorship Pre-Incubation Concept Incoherent Lacking Lacking Insufficient Business Technology Team & Motivation Planning Access Support Management Mentorship & Co-working Space Training Success Stories Monetizable Incubation Insufficient Informal Unverified Unregistered No IP No Proof of Concept Financial Resources Market Business Protection Mgmt. Structure Revenue Adv. Mgmt. Sales Initial Capital Legal Support Training Contracts Formal Busines Insufficient Insufficient Concept No Capital No Corp. Launch Human Financial Base Governance Resources Reports Follow-on Corporate HR Support Accounting Investment Structuring Fundable Business Note: Hexagons indicate barriers, while rectangles indicate corresponding support required. 7 Catalytic agents focus on support activities to that is undemonstrated. Similarly, the depictions facilitate the growth of entrepreneurs. Financing only summarize finance supply for technology sources also play a key role in accelerating the companies, and therefore do not include provision progression of an entrepreneur in the EDP. Similar of financial instruments exclusively for traditional to catalytic agents, financing sources tend to focus sectors that predominate the wider landscape. support at certain stages and with varying terms, The landscape for debt is particularly bleak, as depending on the stage wherein they provide most commercial banks in both Mozambique capital. Mentors, both in the form of individuals, and Zambia issue financial products that are and in the form of diaspora networks, can play a impossible to access at an early stage. This is dual role as catalytic agents and financing sources. primarily due to untailored due diligence, 100+ Advice and support through ongoing mentorship percent collateral requirements and astronomical can catalyze development of an entrepreneur, and interest rates. Along with the presentation of in many cases this relationship culminates in an findings covering the stakeholders in each group, investment made by a mentor or diaspora network. this country-specific map will serve to better When certain catalysts or financiers are absent, depict the ecosystem itself, and will clearly denote entrepreneurs face a higher degree of difficulty both strengths in the current structure and gaps exiting a given stage in the EDP. in early-stage financing, and support that may be hindering the growth of high-growth technology For the purposes of this report, it is necessary entrepreneurs. to map the current landscape in terms of the finance suppliers present in each of the countries of study, which will be presented graphically in the following country chapters. It should be noted that this is based on findings of actual access to finance, and does not include access to finance 8 9 Mozambique Landscape indicated that there is a considerable challenge to source domestic inputs, as small local producers do not have sufficient negotiating power nor quality control standards to sell to Entrepreneurship oriented toward high growth large extraction companies. in the formal economy is a nascent phenomenon 3. The more “socialist” political and colonial in Mozambique, particularly in the technology subsectors targeted in this assignment. Only a history has resulted in state dependency. handful of entrepreneurs were identified, and History has left Mozambicans with an attitude nearly all of them were in the very early stages of of depending on the state, which inhibits development. Furthermore, other stakeholders entrepreneurial attitudes except in basic interviewed identified many factors that contribute survival terms. Entrepreneurs highlighted to the lack of robust entrepreneurs, but they that it is not in their culture to communicate nearly all confirmed that such high-growth entrepreneurial success stories for various entrepreneurs in the tech sectors were few and far reasons. Most prevalently, they reported between. The key points listed below summarize that there is a disincentive toward display of the observations gained on the biggest barriers financial success as there is strong cultural to angel investment in high-growth technology and historical pressure to distribute this entrepreneurs in Mozambique: wealth among one’s extended family. Thus, 1. There are few business mentors and no active enthusiasm is not built around success or angel investors. There are few successful potential success. entrepreneurs to guide and inspire new 4. A critical mass of medium-size businesses entrepreneurs. Stakeholders identified the does not exist. Mozambique has megaprojects lack of success stories of entrepreneurship in and large companies, very few medium traditional sectors, much less in technology, companies, and a large amount of small as a primary inhibitor to interest from potential informal businesses (nearly 90 percent of entrepreneurs. High net worth individuals and the private sector). This results in small wealthy families also prefer to invest outside businesses being unable to join the value chain Mozambique due to perceptions of risk and to eventually sell products and services to lower return on local investments. large companies, who largely rely on foreign 2. The natural resources “curse” is inhibiting suppliers. Stakeholders confirmed that part of technology sector growth. With the discovery the reason for this is that most entrepreneurs of abundant natural resources, the focus of prefer staying small and informal to stay investment and the majority of economic unnoticeable and not show public success activity have been oriented toward developing so they don’t have to become the provider companies to supply the value chain of large for family and friends. They would rather enterprises to displace import substitutes. launch other small informal businesses than Stakeholders indicate that while there has been grow the initial one. The absence of medium some success, these companies are generally companies to play a convening and distributing not innovative. Furthermore, stakeholders role exacerbates broken value chains between small producers and large client companies. 10 5. The risks associated with entrepreneurship Entrepreneurship oriented and, to a lesser extent, angel investment are not assuaged by strong trust in counterpart toward high growth in the formal stakeholders. Aversion to risk was reported economy is a nascent phenomenon at every level of the Mozambican ecosystem. Entrepreneurs do not trust wealthy individuals inMozambique, particulary in or catalytic agents and fear having their idea the technology subsections. or business stolen. Wealthy individuals do not trust local entrepreneurs and domestic 8. There is a general lack of financial and economic growth to provide returns. managerial skills. From the available 6. There is a very limited pool of educated statistics and the interviews conducted, most and skilled labor. Mozambique has one of entrepreneurs that do access initial capital the lowest education levels in Africa. Thus, mismanage it due to a lack of financial literacy the skills pool does not meet the needs of and management skills. Personal pressing companies, as stakeholders reported that financial problems were also indicated as a the government or work abroad attracts the cause of low financial discipline in management most capable graduates. It was reported that terms. Due to this, examples of seed funding this is exacerbated by employment for donor usually did not translate into business results. organizations, which further absorbs domestic There are Business Development Services talent away from the private sector. Educated (BDS) solutions available, but these are either Mozambicans seem to prefer job security in too expensive for entrepreneurs to afford, led government or donor employment so they can by a nonexpert in a governmental agency, or become a provider for the extended families are a short-term generic training insufficient that are still important in size and needs. This to improve managerial skills. Stakeholders also inhibits markets for most technology- indicate that technical skills are sufficient. oriented businesses, except those that target 9. Financial instruments tailored for early-stage base of the pyramid markets. financing for technology are not available. 7. The government lacks a united vision and The allocation process of available early-stage clear strategy for the development of the financing for start-ups through grants and key high-growth sectors. The government loans is insufficient. However, stakeholders is struggling to create and follow a clear indicate that the technology sector is perceived national strategy on the development of the as particularly high risk and low return, technology sector and innovation. This is due hence few options are available to potential to a prioritization of basic poverty alleviation entrepreneurs for early-stage initial capital through sectors such as agriculture, education, beyond grant programs. Microfinance is quickly health, and infrastructure. There is a clear accessible. However, stakeholders indicate that lack of operational coordination between all rates are unaffordable for a start-up. Grant actors in supporting early-stage technology programs exist, but they have had very limited companies, leaving entrepreneurs hanging success in providing resources to start-ups. along the development path. 11 Finance Supply Landscape of Commerce co-manage this program. It has been active for two years and no more than 20 The supply of early-stage capital for entrepreneurs were able to have access to the entrepreneurs, particularly in the technology grants. FNI is conceptually established, but subsectors, is highly constrained in Mozambique. stakeholders indicate that no transactions have Stakeholders indicate that the primary source of been undertaken yet. However, both programs are capital is the so-called “three Fs”—friends, family, generally well publicized. and fools. Debt instruments are prohibitively expensive, even for established companies. Formal Debt, aside from microcredit, is not accessible equity investment schemes are rare to nonexistent. by entrepreneurs. Donors have sought to build Other than friends and family, figure 4 depicts the mechanisms to encourage higher levels of active finance supply landscape in Mozambique. lending to small and medium enterprises (SMEs). However, even GAPI has faced serious difficulty Public sector grant programs drive finance providing debt instruments to SMEs and start-ups, supply for technology entrepreneurs. The two indicating that most of these potential clients are primary mechanisms for grant support are operating informally and are therefore almost PACME-SEME and the National Innovation Fund impossible to evaluate on risk terms. Microcredit is (FNI) overseen through STIFIMO, a joint Finnish- available, but interest rates are reported to start at Mozambican ministerial program. According to 4 percent per month. Through microcredit, credit stakeholders, the PACME-SEME program provides tenure beyond two months becomes untenable grants on average of USD 20,000 for innovative for entrepreneurs. Last year, IFC provided a USD ideas and initial capital. The Mozambique 30 million credit line to Banco Comercial e de National Development Bank (GAPI)—the national Investimentos (BCI Bank) for early-stage support development finance institution—and the Ministry to SMEs. Stakeholders report that the application Figure 4: Finance Supply Landscape in Mozambique Idea Monetizable Formal Business Fundable Concept Concept Business Concept Grants PACME-SEME Fund (via GAPI) DANIDA Fund (via GAPI) USD < 20,000 USD < 15,000, youth-oriented National Innovation Fund (FNI) Afrifuture Conceptually established-no transactions USD 5,000-75,000, agriculture focus Debt Procredito Micro USD < 20,000, IR > 4% monthly Procredito Micro USD < 20,000, IR > 4% monthly Equity Procredito Micro USD < 20,000, IR > 4% monthly GAPI USD < 100,000 Annona (Dutch Dev. Fund) USD 500,000, agriculture focus 12 process was too onerous for SMEs. Formal SMEs research and other business services are either that can demonstrate audited financial success of low quality or are prohibitively expensive. still face substantial obstacles accessing finance Finally, the market in Mozambique features from commercial banks, which require substantial tight consumer spending and competition led collateral to offset demonstrated wilfulness to by international corporations, particularly those default on outstanding loans within the business entering from Portugal and Brazil. Figure 5 culture of Mozambique. depicts, in blue, the key unmet needs and support gaps entrepreneurs face. Formalized equity investment is basically non- existent. Aside from GAPI, the only formal In terms of key catalytic agents, the primary investor is AgDevCo, a social impact investor and unmet need is that of sustained mentorship. agribusiness project developer established as a A handful of programs, the most prominent of not-for-profit distribution company in the United which is the Southern Africa Innovation Support Kingdom. AgDevCo has faced numerous obstacles (SAIS) Programme, provide some early-stage in facilitating growth in its investee companies, mentorship. However, the business mentorship whether it has provided true equity investments provided through this program seems limited to or blended debt and equity to its investees. the preparation of business plans for competitions. Stakeholders familiar with their investments This may have a deleterious effect, causing indicated the absence of coherent technical entrepreneurship to appear as a game rather than assistance and the subsequent requirement for a way to make a living. In addition, collaboration investors to play a day-to-day role within investee space for entrepreneurial activities, as well as company management as major obstacles to the more formal co-working space, is rudimentary. growth of equity investment in the country. Similarly, stakeholders indicate that diaspora networks are weak and disinterested in investing in Mozambique beyond tourism, extractive Unmet Needs and Support industries, and forestry. Gaps In the absence of strong mentors, entrepreneurs are left unsure of how to move through the process Entrepreneurs in Mozambique face particular of building a business around a solid business difficulty overcoming key challenges in their path concept. The absence of clear links between to establishing profitable businesses. In addition, business development programs, such as those the pool of growth-oriented entrepreneurs is quite provided by SAIS and follow-on support available small in Mozambique, and technical skills among through other donors, compound the lack of that pool are limited. Chief among the challenges direction of developing entrepreneurs. Government facing this small group of entrepreneurs is weak and donor-funded catalytic agents are the most mentorship, coupled with a lack of coordination diverse and numerous in the ecosystem. They are, between support programs. The absence of real however, fragmented and uncoordinated in their co-working space, and the focus on business approach to providing a coherent support chain plan competitions, can have the effect of making as entrepreneurs develop. A detailed summary entrepreneurship more of a game than a career, of catalytic agents in Mozambique is provided in particularly in the absence of a clear “next Appendix B. step.” Stakeholders indicate that most entrants into entrepreneurship are from wealthy, well- connected families and will most likely revert to government or international employment after tinkering for a while. Furthermore, market 13 Figure 5: Unmet Needs and Support Gaps in Mozambique Idea Insuficient Lacking Undefined Misguided Technical Basic Value Entry Expectations Skills Resources Statement Networking & Collab. Commercial Technical Mentorship Space Mentorship Pre-Incubation Concept Incoherent Lacking Lacking Insufficient Business Technology Team & Motivation Planning Access Support Management Mentorship & Co-working Space Training Success Stories Monetizable Incubation Insufficient Informal Unverified Unregistered No IP No Proof of Concept Financial Resources Market Business Protection Mgmt. Structure Revenue Adv. Mgmt. Sales Initial Capital Legal Support Training Contracts Formal Busines Insufficient Insufficient Concept No Capital No Corp. Launch Human Financial Base Governance Resources Reports Follow-on Corporate HR Support Accounting Investment Structuring Fundable Business 14 Key Opportunities A second opportunity would be creating strong links among catalysts supporting entrepreneurs Gaps in the provision of early-stage capital, across different stages. The disjointed support as well as in the provision of development, provided through separate donor activities present opportunities to grow the ecosystem currently does little to shepherd entrepreneurs supporting technology entrepreneurship in from one stage to another. Weak links also Mozambique. These key opportunities, confirmed diminish trust within the ecosystem, as by stakeholders during the fieldwork phase of information is asymmetric. While something is the assignment, provide insight into options for to be said for entrepreneurs finding “their own infoDev’s intervention in Mozambique. way,” incentives can be fine-tuned once a coherent pathway is established. Without coordinating The first and foremost opportunity is fostering existing initiatives and building up a road map mentorship, whether through professional for entrepreneurs, they will likely flounder in the arrangements like BDS or through volunteerism challenging domestic business environment. and business associations. Mentorship plays a fundamental role in promoting the spirit Other opportunities include subsidizing market and merits of entrepreneurship, and it serves research and investing physical incubation space. as a unique source of motivation for young Both of these are relatively expensive undertakings entrepreneurs. In the relationship of developing and would have to be carefully pursued to ensure entrepreneurs and business support providers, long-term sustainability. However, expanding aligning interests around commercial success market access to non-lusophone markets in could yield tangible improvement in the quality and neighboring countries would create vastly larger scope of mentorship provided. Existing screening potential markets for technology entrepreneurs. mechanisms, such as business plan competitions Similarly, providing a physical incubation space hosted by SAIS, should be built up as a stepping- would allow SAIS and partner programs to move stone into more serious mentorship. within physical proximity of one another, thereby collecting all available resources and motivation under a single roof. 15 Zambia Landscape “partners” and “investors” and a lack of understanding (and fear) of equity. 2. Perceptions of high risk and absence of quick financial returns in the technology sector persist. The technology sector is a Zambia demonstrates a more vibrant orientation nascent industry in Zambia and is eclipsed by toward high-growth entrepreneurship, particularly traditional sectors like mining and agriculture. in the technology subsectors prioritized in this These sectors have yielded positive returns assignment. Close “tech community” ties with and continue to attract foreign and local Kenya and South Africa appear to help influence investment. Although the technology sector is young entrepreneurs to pursue technology gaining traction, entrepreneurs in this sector through their own ventures. In general, the team will have to build a track record of success observed more “buzz” around technology as a to attract investors, moderate perceptions of business venture. The technology community high risk, and incentivize investors to consider is vibrant, and it is composed of business medium- to long-term financial returns. Here, associations, community organizations, tech the government will also have to play a role in hubs, and thematic networks that are all engaged inspiring confidence and in creating a business in promoting technology, creating awareness and regulatory environment conducive for on entrepreneurship, and networking activities investment in the tech sector. with successful entrepreneurs, businesses, and industry experts. These activities mark the 3. The absence of angel investors in the beginnings of community building. The entities financing market may be a temporary also facilitate technical and business capacity phenomenon. There are no domestic angel through trainings and “hackathons,” and they investors who are actively investing in have the potential to band together and lobby for Zambian technology. However high net worth policy changes. The following observations merit individuals, including bankers and returning notation: diaspora, are showing interest in tech start- ups. Some of these individuals are mentoring 1. Weak entrepreneurial culture in general has and coaching young innovators from the initial resulted in few entrepreneurs. Traditionally, stages of idea development through finalizing educated or uneducated youth are encouraged of business plans. There are also those who to seek employment. The absence of an participate in mock pitching sessions and entrepreneurial culture is particularly evident provide feedback. All these individuals believe in innovators who are unable to turn a brilliant that their mentees have the potential to be idea into a viable business due to a lack of successful entrepreneurs and intend to invest robust business skills. In the tech sector, in the near future. They also have a wide for instance, youth entrepreneurs design social and professional network of potential technically sound products and services, but angel investors, which can be tapped into once they may fail to conduct market research entrepreneurs present fundable ideas. and ensure demand exists. Moreover, some 4. No formal BDS market exists and catalytic innovators may not follow through with a agents are curiously absent beyond mentors. project if the pre-incubation process seems A formal BDS market is a sign of a well- cumbersome. There is also a mistrust of functioning tech ecosystem. This market is 16 Photo: m2work South African Hackathon absent in Zambia’s tech sector, which is instead Close “tech community” ties with populated by government and donor-funded entities that provide components of business Kenya and South Africa appear to support. Some argue that these grant-financed help influence young entrepreneurs entities have prevented the emergence of a real to pursue technology through their BDS market by providing free but fragmented support services. Others suggest that grant- own ventures. financed BDS will create demand for such services in the long term and stimulate the or through grant instruments, so they wait. rise of formal BDS providers. For-profit BDS Successful entrepreneurs, however, react in companies for technology start-ups are just the following manner: (a) they make personal starting to develop. Evidence from the field sacrifices and bootstrap in order to finance suggests that while innovators are increasingly a tested and fundable idea; (b) they conduct realizing the importance of BDS, they are “consulting” activities by seeking clients and currently unlikely to pay premium price due providing them with tailored business solutions; to financial constraints and low valuation of and/or (c) they participate in hackathons, these services. This may change in the long competitions, and similar activities in order term such that entrepreneurs demand these to win financial awards. As a result, they are services, thereby facilitating the entry of formal able to raise seed capital while simultaneously BDS providers. building a track record that will attract future 5. Entrepreneurs demonstrate a wide range of investors. initial capital needs. Current understanding of 7. The lack of growth financing for a small seed financing needs is imprecise, particularly number of tech SMEs inhibits growth potential across the different technology subsectors. of start-ups. There is a genuine lack of growth Evidence on the ground suggests seed financing for start-ups that are looking to grow financing for the tech sector is two-tiered. It into small or medium businesses, although is lowest for the ICT sector, with a range of it should be noted that these are very few in USD 2,000–5,000. In this subsector, the cost number. Debt financing for formal SMEs in the of pre-incubation and incubation is relatively tech sector—particularly in ICT—does not exist, low, although the process still involves rigorous imposes stringent conditionality, or is punitively proof of concepts, market research, building priced. Banks show little interest in adapting prototypes, and testing. Seed financing for the financing instruments for SME needs despite climate and agribusiness subsectors, on the ongoing efforts by the Bank of Zambia and the other hand, is larger in scale, at around USD Zambia Development Agency (ZDA) on issues 20,000–500,000, as it involves the use of capital of collateral and interest rates. Venture capital inputs such as machinery and land. Proofing (VC) presence is negligible in this sector and a business idea in these subsectors may also gravitates toward larger entities, particularly in take longer. the mining sector. 6. The perceived importance of seed financing 8. The policy environment does not adequately for tech start-ups is hindering committed promote entrepreneurship and investment entrepreneurship. Many innovators expect to in the tech sector. The cost of doing receive seed financing from angel investors business—registration and licensing, opening 17 bank accounts, obtaining and enforcing At the grant level, two established government intellectual property protection, paying grant programs exist. First, the Technology taxes and accessing information—is high Business Development Fund (TBDF), hosted by for entrepreneurs. Outdated policies in the National Technology Business Centre (NTBC) rapidly changing subsectors such as mobile within the Ministry of Science and Technology, provides grants and concessional loans to technology and the absence of guidelines in entrepreneurs demonstrating technology transfer relatively nascent areas, including biofuels or innovation in business planning. The TBDF and e-commerce, stunts progress in the tech is still a pilot program, and as such has limited sector and inhibits the growth of technology resources. Last year, it provided three grants for entrepreneurship. While the government seems business preparation activities, bringing its overall to recognize the employment potential through grant count up to six. However, it should be noted entrepreneurship, its initiatives are under- that only one of these awardees could be included capacitated and are not actively supporting in the technology subsectors as an innovative technology entrepreneurs. agribusiness venture. Supervision and support following grant award is limited due to the NTBC’s limited staff capacity and other programs. The Finance Supply Landscape Citizen’s Economic Empowerment Commission (CEEC) exists, but it has recently been re-focused As with Mozambique, the three Fs dominate the due to accusations of corruption. Hence, at least in finance supply landscape in Zambia. However, the Lusaka province, it is solely focused on poultry there are currently a limited number of other and fisheries start-ups. Generally, it is observed donor and government programs that provide that the CEEC focuses on supporting transition grants and short-term loans to entrepreneurs from survival to growth entrepreneurship in at affordable rates. Commercial financing, traditional sectors. It is unlikely that technology either in debt or in equity, is notably absent entrepreneurs will be able to access CEEC until entrepreneurs are able to form fundable resources soon. Independent foundation-funded businesses. Figure 6 depicts the active supply grantors, such as Innovations Against Poverty, landscape in Zambia aside from the three Fs. Figure 6: Finance Supply Landscape in Zambia Idea Monetizable Formal Business Fundable Concept Concept Business Concept Grants National Technology Business Center / Tech Business Development Fund Innovation Against Poverty USD < 100,000, approx. 3 grants/year USD 20,000,-200,000, 50% matching Citizen’s Economic Empowerment Commission USD < 20,000, sector specific (e.g., poultry/fisheries in Lusaka province) Debt Youth Development Fund Cavmont Capital Bank Ltd USD 2,000-500,000, > 100% collateral, < 60-month < 12-month tenure tenure IR >, 16% Equity 18 provide ongoing grant support to technology a single business concept. Co-working space that businesses oriented toward social business on a is constructive for business development rather matching regime. than tinkering and “hacking” is noticeably absent, and the tools necessary to promote innovation in In terms of debt, entrepreneurs reported that agribusiness and climate technology are similarly microfinance was generally unavailable. This absent. Fear of unenforceability of intellectual is mainly due to exorbitant interest rates and property protection causes entrepreneurs to stringent collateral requirements. Another expect investors to make blind investments or government program, the Youth Development Fund prevents them from soliciting for investment in the (YDF), provides reimbursable grants structured first place; many entrepreneurs indicated personal as notes with a 12-month tenure. No examples of or third-degree experiences with idea theft. Figure successful acquisition of YDF concessional loans 7 depicts, in blue, these unmet needs and support by technology entrepreneurs were observed. gaps. Furthermore, stakeholders indicated a general lack of focus for YDF activities, resulting in high Despite strong mentorship, technology competition and feelings of politically motivated entrepreneurs demonstrated a high degree of selection. Commercial debt is not available misguided expectations and were similarly unable to businesses that are not fundable. Even for to convey business ideas/concepts in viable established SMEs, collateral requirements are value terms. Furthermore, they demonstrated a reported to be a minimum of 70 percent, though tendency to chase multiple concepts as a herd actual evidence indicates 100 percent collateral rather than focusing on the development of a requirements. Interest rates are high. single business concept. The absence of co- working space dedicated to business concept Venture capital exists in Zambia on a very small development, rather than development of technical scale and only for more traditional sectors. Kukula skills and tinkering, likely contributes to this lack Capital is the first and only Zambia-focused VC of single-focus discipline. Strong leadership within firm in the country. However, its strategy orients it teams using collaboration space appears to be the toward growth in the mining value chain and other leading source of discipline to focus on a single traditional sectors. Other impact investors, such business model. However, fostering this leadership as Accion Frontiers, Sarona Capital, and Omidyar is not a priority within the free flow of existing Network, have made early-stage investments in collaboration spaces like BongoHive. one technology company in Zambia. However, all indicated that they will not seek additional Management training and access to higher-level deals in the technology subsectors in Zambia. technology remain key obstacles. In terms of ICT Furthermore, all indicated that they would developers, access to sufficient hardware and probably not be willing to make other VC deals, software platforms remains an outstanding need. even in traditional sectors. One of the interviewed Lack of access to modern tools is an impediment fund managers indicated an openness to receiving to innovation for agribusiness and climate solicitations, but did not indicate a strong appetite technology entrepreneurs, though entrepreneurs for further investment. This is due to the high cost in these sectors appear more able to overcome of managing these investments, the limited exit this obstacle by developing their own tools— possibilities, and competition with other markets, designing inexpensive and low-tech machinery or particularly South Africa. labor-intensive approaches. It is obvious that they will not be able to scale up activities and grow their businesses without advanced capital goods. Unmet Needs and Support On the other hand, the absence of management Gaps training and business skills development prevent technology entrepreneurs, who are generally Many needs are left unmet and gaps persist engineers, from learning the “language of in support in the entrepreneurial ecosystem. business.” This inhibits their ability to formulate Mentorship is strong, but mentors indicated a realistic business plans and contributes to their persisting distrust from entrepreneurs; good inability to convince would-be angel investors advice appears to sometimes fall on deaf ears. of the value of investment. Multiple examples Similarly, entrepreneurs are constantly innovating were identified wherein an entrepreneur was and lack the support necessary to focus them on positioned to receive philanthropic or concessional 19 Figure 7: Unmet Needs and Support Gaps in Zambia Idea Insuficient Lacking Undefined Misguided Technical Basic Value Entry Expectations Skills Resources Statement Networking & Collab. Commercial Technical Mentorship Space Mentorship Pre-Incubation Concept Incoherent Lacking Lacking Insufficient Business Technology Team & Motivation Planning Access Support Management Mentorship & Co-working Space Training Success Stories Monetizable Incubation Insufficient Informal Unverified Unregistered No IP No Proof of Concept Financial Resources Market Business Protection Mgmt. Structure Revenue Adv. Mgmt. Sales Initial Capital Legal Support Training Contracts Formal Busines Insufficient Insufficient Concept No Capital No Corp. Launch Human Financial Base Governance Resources Reports Follow-on Corporate HR Support Accounting Investment Structuring Fundable Business 20 contributions for market research from mentors Furthermore, providing more working space but was not able to access such capital because of with integrated BDS and/or supervision would his or her own disinterest and lack of motivation in alleviate the current “herding” mentality of undertaking market research. As such, this unmet the entrepreneurs and push them to focus on need is more related to the lack of business skills developing a business with market-tested products development than the actual material absence of and services rather than tinkering with ideas. initial capital. Provided the community of technology Long processing times for patents and unclear entrepreneurs continues to grow, leveraging the levels of enforcement against infringement were interest and experience of the diaspora networks cited as inhibitors of business growth. Whether or in the United Kingdom presents an excellent not these are real issues, they have impacted the opportunity to secure additional capital and way entrepreneurs do business. Entrepreneurs expertise for the growth of technology start-ups. generally displayed unwillingness to seek investor For example, the U.K. diaspora association Amaka support because of fear of having their ideas ya Bwingi has been working through the Zambia stolen. A general lack of access to affordable Development Agency (ZDA) to identify potential legal support propels this guardedness, as mentorship/investment opportunities in start- entrepreneurs indicate that they feel vulnerable ups. However, the ZDA is not designed to manage against many well-supported potential investors. investments on behalf of diaspora associations and One entrepreneur benefited from an intern sent lacks capacity to identify or conduct due diligence from a U.S. law school, indicating that this made a on viable opportunities. Bridging the gap between profound difference in the young business’s ability interested diaspora and domestic entrepreneurs is to formalize its practices and protect itself. A a great opportunity, but may require building up of detailed summary of catalytic agents in Zambia is in-country investment management capacity. provided in Appendix C. Within the country, enhancing the capacity of mentorship champions is another excellent opportunity. There are many passionate mentors Key Opportunities that could be leveraged to have a greater impact in While the aforementioned gaps exist, opportunities raising the profile of technology entrepreneurship for intervention abound. Generally, it was observed in Zambia if directly supported. These mentors that there is a high potential for angel investment come from diverse backgrounds, and it was clear in Zambian technology entrepreneurs that can be that while they may be aware of one another, there catalyzed by seizing key opportunities. is currently no engagement nor concrete plans to work together in a strategic sense. While they Perhaps the most catalyzing opportunity is each have different views on how to best support building up (pre-)incubation support through entrepreneurship in Zambia, formal collaboration the newly founded private BDS player. Ensuring among them would bring their unique experiences coordination and perhaps also a degree of to bear in a highly impactful way. Furthermore, competition among these players as well as their combined social and professional networks grant-funded catalytic agents would engender could form the foundation of an angel investor a professional cadre of support providers. network. 21 Option Appraisal Process among catalysts and supporters, alignment of all stakeholders’ interests, and progressively more advanced preparation, in commercial terms, of entrepreneurs. In order to leverage infoDev’s comparative Gaps within the ecosystem of technology advantages, best options need to be innovative in entrepreneurship in Mozambique and Zambia approach, authoritative in terms of channeling were clearly identified in the preceding chapters. impact on the ground to demonstration at the Unique circumstances in each country contributed highest donor levels, and agile in terms of to the existence of these gaps. However, there adaptability and scalability. The guiding principles are universal root causes that continually inhibit and comparative advantages are discussed in growth of the ecosystem and the progression of more detail in the following sections. Figure 8 innovators into full-fledged entrepreneurs with graphically depicts how the guiding principles and successful businesses. comparative advantages are used to formulate These root causes serve as the basis for best options for infoDev’s intervention in each formulating guiding principles. The purpose of country. these principles is to provide the foundation to which viable options should adhere. Root causes are stated in objective terms, while guiding principles are stated in normative terms. Guiding principles thereby verify the validity of options as they are considered and developed. Options that Figure 8: Option Appraisal Process do not adhere to all the guiding principles are therefore not viable as best options. Guiding Principles Concurrently, an option that is best for the Alignment ecosystem may not suit the comparative ity Pre advantages of infoDev. infoDev has a unique ntar pa e ra structure, approach, and strategy within em pl tio international development and even among those m n Co institutions seeking to address the access to finance for enterprises in emerging economies. As such, key comparative advantages serve to determine which options infoDev is best suited to take on versus its sister initiatives and organizations. Innovative Comparitive Advantages Guiding principles form the logical criteria for developing best options that address the Authoritative root causes of insufficient access to finance for technology entrepreneurs in Mozambique Agile and Zambia. Comparative advantages form the practical criteria for selecting options that are best suited for undertaking by infoDev. At the Best Options level of guiding principles, best options ought to demonstrate that they foster complementarity 22 Photo: iHub, Nairobi, Kenya Summary of Root Causes in order to leverage infoDev’s • Growth-oriented entrepreneurship exists in comparative advantages, best options both countries, but it represents a miniscule portion of entrepreneurial activity. In both need to be innovative in approach, countries, entrepreneurship is a survival authoritative in terms of channeling concept more than a wealth-generating concept. Over 90 percent of entrepreneurs in impact on the ground to demonstration both countries are sole proprietorships in the at the highest donor levels, and informal economy. Furthermore, interviewees indicated that growth is perceived as a mortal agile in terms of adaptability and risk by these kinds of entrepreneurs, as it scalability. represents tax burdens and social pressure to “share the wealth” with extended family. The constituency of entrepreneurs looking to catalysts that were organized under the establish high-growth technology companies same umbrellas of government and donor numbers in the dozens, if not less, in each programs. As a result of this discordant country of study. support, entrepreneurs must expend exorbitant • Most growth-oriented entrepreneurs are resources to overcome some obstacles. This stuck at the very early stages of development. reduces motivation and, interviewers reported, Out of approximately 150 high-growth leads some entrepreneurs to give up. entrepreneurs encountered in the fieldwork, • Most potential investors do not see technology less than 10 percent observed were beyond the as a high-return investment. At present, idea and concept stage as defined in the EDP. angel investment in the countries of study As such, they struggle to demonstrate a track is basically nonexistent in the technology record and are therefore unappealing to return- subsectors examined through this assignment. oriented investors. Furthermore, the lack of While some newly established ICT companies ongoing management training and structured have attracted early-stage capital from private mentorship allows for entrepreneurs at the idea sources, the project developers are seasoned and concept stages to be continually distracted entrepreneurs entering the countries of by new concepts and ideas, particularly those study from abroad with substantial previous being developed by teammates, rather than experience and, in most cases, international developing a business around a single idea. financial support backing them. No cases of • Catalysts acting independently of each domestic technology entrepreneurs engaging other are disjointed and, as a whole, do not domestic angel investors were observed and provide continuing support to entrepreneurs. those involving international angels were Some support needs are well addressed in limited.1 Low trustworthiness of entrepreneurs, each country. However, continuing support unfamiliarity with technology as a business, through the stages of the EDP, and even within individual stages, does not exist. Interviewees 1 In the one case of angel investment in Zambia, an reported very limited coordination among expatriate CEO joined a company. Through his existing catalysts. This was observed even between social network, he was able to attract two angel investors, both from North America. 23 and better investment opportunities abroad • Financial interests of all stakeholders must were cited as the primary inhibitors to domestic be aligned on commercial terms. Every angel investment. effort should be made to build common • Grants and other forms of “free” support financial interests between stakeholders. This have partially distorted the ecosystems. encompasses sharing of success as much The source and terms of external support as bearing risk of failure. Without clearly received by an entrepreneur can also play articulated alignment of interests, stakeholders a role in a potential investor’s appraisal of from all sides are more likely to distrust their likely returns. Entrepreneurs who receive a counterparts for good reason. Hence, building high degree of support on concessional terms up the ecosystem through the application of can be seen by potential investors as much market principles across all relationships will less likely to succeed in establishing high- build a stronger ecosystem that is, in fact, growth businesses. Those entrepreneurs who preparing business on market norms. bootstrap from their own resources, whether • Entrepreneurs must demonstrate their financial or through their own “sweat equity,” capacity in terms relative to the capital they are perceived by potential angels as much seek. Investors should not be unduly expected more likely to succeed. The nature of support to provide early-stage capital without sufficient mechanisms can therefore indicate, in the assurance that such an investment has some perspective of potential angel investors, the potential to provide returns. This is not to say underlying potential of a budding entrepreneur that risk aversion on the part of the investor to succeed. should be fostered. Entrepreneurs should be prepared to the point where demonstration of success is tangible before significant angel Guiding Principles investment is sought. Similarly, soundly A culture of growth-oriented entrepreneurship prepared entrepreneurs will have more must be fostered throughout the ecosystem in both experience and negotiating leverage to apply Mozambique and Zambia. This is the overarching when selecting investors. principle that guides the formulation of any options Through adherence to these three guiding for intervention. However, defining how a culture of principles, a culture of growth-oriented technology entrepreneurship looks and how it can be fostered entrepreneurship can be fostered in Mozambique in general terms are best left to academic forums. and Zambia. Options that adhere to all three For the purposes of this report, three key guiding principles will have the secondary impact of principles must be adhered to by any viable option. building trust within the ecosystem. Stakeholders indicated that mistrust is a major factor inhibiting • Complementary structures and links among investment within the ecosystem. Furthermore, catalytic agents must be cultivated. A variety trust is a major part of building a coherent of programs, players, and facilities are entrepreneurial culture. already in place in each country to promote the advancement of entrepreneurs. While effectiveness may be marginal at the overall ecosystem level, any option for intervention Comparative Advantages of should leverage existing mechanisms and infoDev support rather than displacing or overlapping Best options leverage the comparative advantages existing support. Furthermore, best options of infoDev. Options that leverage infoDev’s present clear modalities for compounding the comparative advantages will have the highest effectiveness of existing structures by building potential for success in terms of achieving desired strong links. impacts. In addition, such options will provide lessons learned that can be readily adapted to future interventions undertaken by infoDev in the target countries, as well as globally. 24 • Innovation is a core focus for infoDev. As such, the options that infoDev is best infoDev benefits from wide recognition in the suited to execute do not rely on direct, hands- development community as a highly innovative on management of infoDev experts below and agile program. From its establishment, it the program level. This enables infoDev to has sought to support development in emerging devise communications materials on wider economies through interventions that are programmatic levels while delivering project- considered “outside the box” by the wider level interventions through international development establishment. This should be experts. leveraged in the exploration of best options, • infoDev can use quick innovations to adapt and as it predisposes infoDev to taking on more scale long-term interventions. infoDev has creative approaches. The risk of failure may substantial experience supporting short- and be higher for untested options, but infoDev’s long-term programs. As such, it has the unique structure makes it particularly capable of ability to implement both terms of projects undertaking experimental interventions that for the same eventual objective. infoDev can could have massive payback in impact terms. therefore leverage knowledge gained through • infoDev is authoritative in channeling a shorter-term interventions to adjust and direct link to scalable, on-the-ground revise approaches for long-term interventions. impact for donors. infoDev is recognized, Its small organizational structure makes it despite its relatively small size, as an active particularly nimble at applying lessons learned entity in promoting technology transfer and from various interventions for the overall entrepreneurship for economic development. enhancement of development outcomes. Where infoDev particularly excels is in Hence, best options can be piloted and then the demonstration of its findings and rolled out/scaled up. communication within the donor community. 25 Options and Recommendations presented with logical and practical validation via the appraisal process outlined in chapter 5. Some options apply to both countries, while others apply only to Zambia. This largely arises from the generally more mature ecosystem in Zambia, particularly This chapter lays out options well suited for in terms of the level of mentorship observed. infoDev’s support. Arising from the opportunities The options presented herein are intended to be identified in the country chapters, each option is modular. Options may be undertaken independently, Figure 9: Options Matrix Short Term Medium Term Long Term Supply of Finance #5 Angel Investment Guarantee Facility #6 Diaspora Investment Platform Catalytic Agents #2 Royalties Model #1 Technology Entrepreneurship Coordination Mechanism Demand for Finance #4 Startup Weekend Series #3 Entrepreneurship Boarding School 26 Photo: Suburb of Johannesburg or they may be implemented through a national program that organizes them under a single national Options may be undertaken umbrella. Figure 9 graphically depicts the intended independently, or they may be intervention time scale and ecosystem focus of each implemented through a national option. The options are then presented in a tabular format that provides more detail under a variety of program that organizes them under a relevant headings, including justification against the single national umbrella. option appraisal process. Option 1. Technology Entrepreneurship Coordination Mechanism (continued) An in-country/in-region team facilitating communication between stakeholders including entrepreneurs, industry players, catalytic agents, and government agencies with a particular focus on creating information flow within the ecosystem. Furthermore, it would plan events, run awareness campaigns, and generally seek to raise the profile of technology, innovation, and entrepreneurship in order to grow the ecosystem in each country. One major output would be a compendium or database of all players from all stakeholder groups in the target countries, as well Description as ongoing analysis of the needs and opportunities associated with certain players or groups of players. This could then be referred back to infoDev or to other donors, and may even turn into a donor and government knowledge platform if successful. This platform will be used to share viable local business opportunities with potential investors. It also serves as a centralized source of information on the legal, business, and regulatory environment for investors and entrepreneurs, including Practicalities procedures and costing for registering a business, obtaining a patent, and more. Applicability  Mozambique  Zambia Third-party expert firm would be hired to manage coordinated communications campaign: Structure • Ongoing database of stakeholders from all groups • Industry events and coordination with existing associations • Advocacy to policy environment; formulation of publications endorsed by community Resource Remuneration for experts; office space in-country Requirements Monitoring Annual infoDev staff reviews tied to contract renewal, including feedback on Requirements performance from local stakeholders; integration into lessons learned (continued) 27 Option 1. Technology Entrepreneurship Coordination Mechanism  uilds on existing associations and communication functions, which do not exist + B on a community scale Complementarity  ould displace/be redundant with some communications efforts, particularly - C those of existing networks (Asikana Network in Zambia) unless undertaken in collaboration with existing work achieved by these entities Adherence: GPs  uilds community around sharing of perspectives, which could increase overall + B trust in the ecosystem  s an activity that would be very challenging to commercialize/monetize if its focus + I Alignment remains on the entire ecosystem  ays the foundation for an ecosystem-wide network and then sub-networks for + L entrepreneurs/investors/catalysts/mentors/etc.  elps entrepreneurs better understand potential investors through continuous + H Preparation exposure; inverse also applies - Could displace/be redundant with existing communications efforts  ifficulty of measuring impact of communications campaigns in general makes + D them rare interventions, but infoDev has done this sort of activity successfully before Innovative  atabase of stakeholders does not exist; could become significant knowledge + D product with high value added for curious investors, catalysts, entrepreneurs looking for help, and so on - May not appeal to some donors who have other priorities Adherence: CAs  ould provide unprecedented depth of understanding of the ecosystems in each + W country + Is a model with great scale-up potential in other countries Authoritative  ould feed in to other donor activities related to entrepreneurship development, + C and be used as a channel to monitor impacts/set baselines of other initiatives - Proving impact could be difficult with a weak in-country team  ould be scaled up or down quite easily; specific subsectors/subnational regions + C could be prioritized for higher focus without jeopardizing ongoing activities Agile  ould enable infoDev to gain direct feedback from the community it seeks to + W support on an ongoing basis - Could displace/be redundant with some communications efforts 28 Option 2. Royalties Model Through sustained advocacy, this option would build a common commitment among existing BDS providers to adapt a new business model that bases a substantial portion of their revenue stream on royalties gained by marginal increases in profits for the entrepreneurs/SMEs they advise (royalty of X percent based on difference between sales after BDS and sales before BDS for a certain period). This is in contrast to technical support fees (or equity), which has been the customary Description remuneration of BDS providers. Direct advocacy would be undertaken to BDS providers on the basis that reduced up-front costs to entrepreneurs would allow them to be perceived as more competitive, thereby stimulating demand for BDS. Policy advocacy may be necessary to ensure legal environment is conducive for collection of royalties. Some donor-focused advocacy may be undertaken in order to exert pressure through existing and ongoing grant support to BDS providers in- country. Practicalities Applicability  Mozambique  Zambia Individual champions in each country would be supported through provision of salary and budget to lobby for change and to undertake pilot activities using the Structure abovementioned model in the BDS market in both countries: • To adjust current models in Mozambique • To establish royalty-based BDS services as the premier model in Zambia Resource Remuneration for champions/lobbyists Requirements Monitoring Semi-annual or more frequent consultations with lobbyists in each country; Requirements establishment of success criteria for pilots  omplements innovative approaches taken by some BDS providers that have been + C undercut by fixed-salary BDS schemes Complementarity  isks being perceived as a campaign to end the “gravy train” for supply-driven - R BDS providers, thereby necessitating a lot of energy and time to be invested in changing this mindset  oyalty models are the best way to ensure alignment between catalytic agents and + R Adherence: GPs entrepreneurs on financial terms Alignment  ould demonstrate market orientation of other stakeholder groups to potential + W angel investors + Ensures top-quality BDS persists, and low-quality BDS exits the market  romotes practice of market norms and risk sharing in BDS/entrepreneur + P relationship, which would enhance entrepreneur’s capacity to negotiate with angel investors Preparation + Keeps the present cost of BDS down for entrepreneurs  ay cause a contraction in BDS providers in the near to medium term, thereby - M necessitating the establishment of strong incentive structures up front (continued) 29 Option 2. Royalties Model (continued)  ould be the first of its kind in terms of a lobbying effort promoted by a + W development organization for change in business practices of private companies  ay run counter to current practices of many donors and both governments; may - M Innovative render some grant programs obsolete if successful  uccess relies on whether the right kind of incentive structure is in place (for both - S entrepreneurs and BDS providers)  odel has potential to lay the foundation for a sustainable, long-term impact in + M Adherence: CAs terms of stimulating the BDS market and providing entrepreneurs with much needed, consistent, long-term technical assistance and capacity building  ould take global name of infoDev straight into the ecosystem to advocate for + W Authoritative more market-oriented practices to support the growth of entrepreneurship  roving impact could be difficult as a causal link between advocacy and increased - P provision of BDS  ay cause infoDev to lose political capital if intervention damages reputation of - M donors/governments  ould be rapidly scaled up and successful in a short period if lobbying was + C comprehensive Agile  ong-term impact on ecosystem could cause a transformation in the way donors - L support entrepreneurship and SME development Option 3. Entrepreneurship Boarding School An end-to-end incubation facility where entrepreneurs spend a predetermined period residing and working at the facility. Intensive courses would be structured to ensure entrepreneurs’ commitment to professional growth. No up-front costs would be charged to the entrepreneurs attending, but postgraduation profit sharing/royalties Description could help to motivate facility staff. Failure to perform would result in expulsion from the program. Candidates for entry would be selected by referral from mentors/ champions, through business plan competitions and the like. Participants would be provided with physical and financial inputs to ensure advancement through the EDP. “Graduation” from the program entails a fundable business and investor contacts. Practicalities Applicability  Mozambique  Zambia A physical entrepreneurship institute would be established to provide residential incubation and ongoing “boot camp” for entrepreneurs from: Structure • Winners of business plan competitions • Referrals from hubs and labs (such as BongoHive) • Referrals from verified external mentors Resource Physical space, facility staffing, overhead cost subsidies Requirements Monitoring Annual or more frequent site visits; report cards and semiannual participant Requirements progress reports (continued) 30 Option 3. Entrepreneurship Boarding School (continued)  nsures full complementarity with hubs, labs, associations, and open + E competitions  nsures that the best candidates from each source are shepherded through (pre-) + E Complementarity incubation  ay displace/cause competition with other incubation programs, where they are - M active Adherence: GPs  romotes cooperation and alignment of early-stage catalytic agents and may + P provide reward schemes for their referral of high-quality participants Alignment  oes not inherently promote alignment of interests, but rather imposes alignment - D on entrepreneurs and forces them out of the program if they do not comply  nsures full preparation of business concepts by robust teaching staff and + E curriculum upon successful graduates  ngoing pitching sessions to potential investors could be included as part of the + O Preparation program to further enhance preparation  till may not ensure that entrepreneurs have that “special something”; takes a - S pedagogical approach to preparation  esidential approach would intensify the program and would also free up all focus + R of the entrepreneurs (no need to worry about basic needs)  ace of program could be quite fast if the curriculum is intensive; risk of expulsion + P Innovative serves to align interest of entrepreneurs Adherence: CAs  hysical incubation facilities have been tried by infoDev in Mozambique already, - P though they have not taken this exact approach nfoDev would effectively be building a whole cadre of local business leaders if + i Authoritative successful  ould be marketed to top international business schools and other programs to + C build ongoing partnerships; forges new partnerships Agile  ould be a long-term commitment with very high OpEx and CapEx; affords little - W flexibility over time Option 4. Start-up Weekend Series World-class business start-up/boot camp events arranged in such a manner that entrepreneurs entering the program have to demonstrate achievement of predefined milestones between each portion of the class. Rigorous evaluation of the Description entrepreneur’s work toward the milestones by “boot camp cadre” would determine an entrepreneur’s continued participation. The series would culminate in a pitching session to pre-identified mentors, who would have agreed in principle to provide ongoing support to most of the program graduates. Applicability  Mozambique Practicalities  Zambia A teaching team would be selected from world-class start-up coaching companies (e.g., UP Global) that have already developed curricula, materials, and networks to Structure execute such training. Training would be structured to provide time for achievement of intermediary milestones by entrepreneurs. In-country mentors would be engaged to provide ongoing monitoring based on a predefined (and simple) monitoring template. Resource Remuneration for training company; in-country facilitation of meeting between Requirements international trainers and in-country mentors Monitoring Participation in some/all training events, ongoing semiannual or more frequent Requirements monitoring of graduates (continued) 31 Option 4. Start-up Weekend Series (continued) + Builds on the work of hubs by providing the “next step” for advanced participants  rovides intensive training, but ongoing support postgraduation from mentors and + P Complementarity other BDS providers will still be necessary (and undertaken by entrepreneurs) - May displace/cause competition with other incubation programs  ilestone demonstration approach ensures that entrepreneurs enrolled in + M program are applying what they learn and not simply benefiting from free classes Adherence: GPs  ace of program could be quite high if the curriculum is intensive; risk of + P Alignment expulsion serves to align interest of entrepreneurs  o-charge structure may diminish perception of value by some entrepreneurs, but - N this may be mitigated by having a closed application/selection process rather than simply opening enrollment to anyone interested + Greatly accelerates the preparation of entrepreneurs  + Builds on existing mentorship and builds confidence of mentors in entrepreneurs without forcing mentors to do it all themselves Preparation  ther investor interest may be piqued by raising the profile of the event (“best of + O young Zambian entrepreneurs,” and so on) and may convey a better standard of preparation to potential investors  top-and-check structure requiring performance of enrollees is a new approach + S to BDS/acceleration Innovative  ace of program could be quite high if the curriculum is intensive; risk of + P expulsion serves to align interest of entrepreneurs Adherence: CAs - Has been done in varying forms already nfoDev would effectively be building a whole cadre of local business leaders if + i successful Authoritative  ases of successful business establishment could be quickly documented and + C demonstrated at the donor/WB level  daptation of program would be relatively easy, and deployment to other country + A Agile contexts would only be dependent upon identification of committed mentors; costs are scalable as well 32 Option 5. Angel Investment Guarantee Facility In order to catalyze investment, preregistered potential angel investors would be able to secure 25–75 percent downside protection (depending on overall “preparation” of investee) for a predetermined period on their investment through a guarantee facility. The guarantee would only be paid in the event of total failure Description and closure of the investee business. In the event of a successful business, the guarantee would expire after a reasonable period (18–36 months) and be recycled into the fund. Outstanding guarantees would never exceed the cash value of the facility. A third-party facility manager would operate the fund and be charged with all fiduciary and due diligence responsibility.  Mozambique (but only for climate technology and innovative agribusiness) Practicalities Applicability  Zambia Initial grant capital would be structured as an in-country facility (preferably in local currency) and a blended international-local team would be hired to oversee fund activities. Interested investors would preregister and then bring their proposed Structure investments, including terms to the facility for a guarantee. Facility management would not be remunerated on losses of the facility, but rather on success of guaranteed businesses and number of guarantees made per period. Resource Initial grant capital to fund facility and remuneration for facility management Requirements Monitoring Semiannual portfolio review and at least annual site visits/investor consultations Requirements  omplements demonstrated interest of mentors/potential angels in Zambia by + C giving them some downside protection on future investments  ay engender more interest from other potential investors who are unaware of + M technology as a viable investment opportunity Complementarity  rovides intensive training, but ongoing support postgraduation from mentors and + P other BDS providers will still be necessary (and undertaken by entrepreneurs)  ay detract from investor interest as it could be seen to imply that angel - M investments are too high risk to be done without guarantees Adherence: GPs + Seeks to entice investors to the table  as the added advantage of serving as an informal arbitration table to ensure that + H usurious investments are not guaranteed Alignment  rovides quick support to potential investors, and encourages them to + P demonstrate such quick access to their social/professional networks (thereby building momentum for angel investing)  f the facility is not phased out over time, it may create a long-standing distortion - I in investor perspectives on the viability of technology investments + Promotes preparation of potential investors to actually make investments Preparation + May help to leverage more sources of early-stage capital to entrepreneurs - Does little to promote preparation of entrepreneurs directly (continued) 33 Option 5. Angel Investment Guarantee Facility (continued)  pplies very high leverage guarantee structures to try to entice more investor + A behavior Innovative  ay appear like a “fund” to some stakeholders, thereby inciting internal criticism - M at the World Bank Adherence: CAs  f successful, this could catalyze a high level of investment with very low real + I costs (except if losses were high) and would generally raise the profile of angel Authoritative investment as a viable investment activity  ases of successful business establishment could be quickly documented and + C demonstrated at the donor/World Bank level  acility structure requires revision of documentation to expand geographic and/or + F sectoral scope, provided similar linguistic/legal environments Agile  ould be scaled to Mozambique by wholesale adaptation of model, if angel + C investment potential were more tangibly observed Option 6. Diaspora Investment Platform Establishment of a detailed IT system and web portal to build a knowledge base for diaspora investments, with the ultimate goal of mobilizing crowd-sourced equity and/or debt instruments to be managed by an affiliated in-country manager. The platform would feature investee profiles (akin to Kiva and IndieGoGo) accompanied Description with sound investment analysis provided by in-country manager. Would seek to build partnership with existing authorities, such as the Investment Promotion Centre in Mozambique and the ZDA in Zambia, in order to facilitate referral of interested investors. Would result in a comprehensive database of entrepreneurs with investment potential analysis for some profiles. Practicalities Applicability  Mozambique  Zambia Initial development would be focused on building a tested IT platform; later structure Structure would require the hiring of an in-country investment manager to identify and vet investment opportunities Initial capital to build and maintain an IT system would be substantial; ongoing Resource salary support to in-country investment manager may be phased as it moves over to Requirements a subscription fee and “finder’s fee” model based on volume of investments Monitoring Annual in-country supervisions and ongoing review of IT platform functionality Requirements (continued) 34 Option 6. Diaspora Investment Platform (continued) + Complements and encourages existing diaspora interest  omplements limited capacity of in-country investment promotion agencies to + C Complementarity provide tangible opportunities + May attract additional angel investors not part of the diaspora + Seeks to entice diaspora investors to the table Adherence: GPs  acilitates identification of opportunities that match the preferences of potential + F investors Alignment  ay allow diaspora investors to diversify through multiple investments and + M through different instruments  hird-party investment manager, if properly incentivized, could ensure a palatable + T common ground between investors and investees (that is, builds trust)  romotes preparation and access of diaspora investors, who may be more risk + P seeking Preparation  reating potential investee profiles may contribute to the preparation of + C entrepreneurs and could be used separately to pitch to domestic angels as well - Does little to promote preparation of entrepreneurs directly  eeks to access crowd-funding approach to provide early-stage capital to + S technology entrepreneurs  he IT system would be persistent capital—it could be adapted and applied to any + T Innovative context  ay cause infoDev to start feeling like a software company, as much resources - M Adherence: CAs would have to be committed to building a great platform  he instant access nature of the platform, as well as the inherent ease + T of monitoring quantity and type of investments, would be a huge asset to Authoritative demonstrating impact to donors  ases of successful business establishment could be quickly documented and + C demonstrated through a public portal + If successful, the IT system could be easily adapted for other markets Agile  ould eventually be sold as a commercial software suite to existing diaspora + C investment companies 35 Next Steps report. Comments will be received and addressed by the consultant’s team, and any outstanding research gaps can be addressed through direct consultation with interviewees and further desk research. 2. The consultant’s team will then revise the Putting the research gained through this final report, integrating comments and assignment to work is the ultimate goal of this critiques received and presenting detailed study. Hence, the next steps in the assignment best options for intervention. Best options are oriented toward building interventions will be presented against guiding principles that can be undertaken by infoDev to promote and comparative advantages, and will be entrepreneurship in Mozambique and Zambia. detailed in terms of resource requirements, While these options may not result in overnight structure, implementation timeline, monitoring transformation of the entrepreneurial ecosystem, requirements and risk mitigation measures. All particularly in terms of the provision of early- options will also be presented in terms of their stage capital to start-ups, best options can be likely impact in maturing the ecosystem in each formulated to address existing gaps and leverage country. The final report will be submitted by identified opportunities. November 11, 2013, and will be of publication However, before best options can be prepared, the quality. following next steps are necessary: 3. A supplementary management report will be delivered that outlines confidential notes and 1. infoDev should review and critique the contents guidance on key in-country partners. of this draft report in tandem with the interim 36 37 Appendix A: Interviewees Matrix Company Name Contact Name Title Mozambique Senior Adviser, Office of USAID Michael Jordan Agribusiness, Trade & Business Senior ICT Policy Specialist Southern World Bank Isabel Neto & Eastern Region Ologa Mulweli Rebelo CEO Operations Officer IFC Sustainable IFC Mario Gomes Business Advisory/Africa - SME Management Solutions/Africa Finnatia Consulting Andre Nogueira CEO GAPI Antonio Souto CEO/Administrator Idealab Sarah Fakir Co-Founder and Managing Partner Building Markets Stanley Chikakuda Consultant Access to Finance AgDevCo Rui Santana CEO TechnoServe Jane Crob Office Manager ICC Henriqueta Hunguana Founder and Managing Partner Jamo Macanze (SAIS) & Constantino MICTI/SAIS Program ICT Development Organization Sotomane (MICTI) Freelance Consultant Tracy Wyman Consultant IPEME Adriano Chamusso Deputy Director General BPartners Rui Brandao Founder and Managing Partner Finland Embassy Sirpa Sinervä Counselor (Education and Innovation) National Research Fund (FNI) Michael Hughes Consultant Program Coordinator PSI Benoit Renard Marketing Director Zambia 3C Development Management and Principal Consultant in Christian Chileshe Entrepreneurship Experts Entrepreneurship Development Accion Frontiers Michael Murai Senior Investment Officer Amaka Ya Bwingi John Lukomona Chairman Asikana Network Chisenga Muyoya Founder Bank of Zambia/Financial Sector Musapenda Phiri Project Coordinator Development Plan BongoHive Lukonga Lindunda Co-Founder 38 Company Name Contact Name Title Demo Africa Hana Kefela Project Manager Dot Com Zambia Mawano Kambeu Founder Fist Drive Daryl Lukas and Francis Lombe Partners Innovations Against Poverty Andrew Kambobe Manager Java Foods Ltd Zambia Monica Musonda Founder and CEO John Ziba John Ziba CEO Kilbracken Capital Chipampe Mark Chibwe Principal Zambia Knox Organic Agro-research for Knox Mutale Founder Sustainable Development Kukula Capital Tue Andersen Managing Director Matt Chanoff Matt Chanoff Investor Motivational Center for Africa’s Gilbert Banda Managing Consultant Transformation (MoCAT) National Technology Business Centre Yvonne Mtumbi Mulambwa Innovation Promotion Specialist NetOne Bejoy Nettikadan Founder Renewable Energy and Natural Mutoba Ngoba Founder Soaps Sarona Fund Serge LeVert-Chiasson Senior Partner Senior Economic Development SNV Thomas Were Adviser Southern Africa Innovation Support William S. Mbuta Country Coordinator Zambia Programme (Finland) Start-up Junction Matthew Grolinek Founder Tucuza Irene Banda Mutalima Founder UNZA Techub Chifungu Samazaka Founder Yandapps Kelvin Aongola Founder Zambia Development Agency Chola Abel Mwitwa Manager – Planning and Policy ZamRize Antony Haankwenda Manager Zaneyo Rodney Katongo Executive Director ZICTA Kango Mbewe Economist Zoona Mike Quinn CEO Other Angelhub Wesley Lynch Homestrings Eric Guichard CEO 39 Appendix B: Mozambique Support Landscape The government has also created two agencies to stimulate entrepreneurship: IPEME (Institute to Promote SMEs) and CPI (Investment Promotion Centre). IPEME provides training and technical assistance, with centers in Maputo, Chimoio, The government of Mozambique has several Tete, and Pemba, and a fifth center soon to be programs and/or activities aimed at supporting operational. IPEME also launched and manages SMEs in the tech landscape. Most of the an incubator in Machava that is partially programs are public/donor-driven and offer links funded by the European Commission. Finally, programs, incubators, hubs and labs, training and IPEME also organizes fairs and communication technical assistance. The privately driven ones campaigns particularly to raise awareness about are mainly business service centers, consulting a government fund created to provide low interest and associations, and are targeting relatively loans to MSMEs. CPI promotes innovation, more mature entrepreneurs. These services expansion of domestic investment, development of include financial literacy, business skills such infrastructure, and facilitation of the development as marketing and advertising, and management of SME through inclusive joint ventures. CPI also skills. The main categories of catalysts in explores private and public partnerships with Mozambique are (a) government and donor- national participation. funded technical assistance, (b) private business In the technology sector, there are several developer services, and (c) private business ongoing initiatives, such as mobile application associations that directly provide support. contests and initiatives to create incubators. The Currently there is no formal pipeline for incubating most active program is the SAIS Programme an idea all the way to a fundable business. funded by the Finnish Ministry of Foreign Affairs (MFA), currently in Botswana, Namibia, Zambia, and Mozambique. Locally, SAIS is hosted by the Government and Donor Mozambique Information and Communication Funding Technology Institute (MICTI), a public agency promoting innovation in ICTs. So far, SAIS has This group of catalytic agents are the most diverse organized a mobile application contest with USAID. and numerous in the ecosystem. To date, the main They have also founded a partnership with the focus has primarily been to respond to demand Korean Electronic Technology Institute (KETI) to created by megaprojects through business link create a training program on mobile application and value chain programs. IFC’s Mozambique SME development with a contest where the winner linkages program (Mozlink I and II), which followed will earn a grant. The partnership also provides on Mozal’s Investment Promotion Centre (SMEELP) ongoing training on development of management program (2001–2002), has been in operation since skills to students and graduates in the technology- 2003 and is considered the country’s flagship related university program. linkages program. IFC also provides an online tool kit for an entrepreneur. IFC also provides more There was an attempt in 2011 that is still pending specific training via its Business Edge program, with the Ministry of Science and Technology (MCT), which provides training of trainers for 59 courses World Bank, and Finnish Embassy to create an ICT developed by IFC and adapted for local context. incubator in Maputo. The project is on hold since They also provide 16 hours of technical assistance then due to numerous reasons, including stringent to SMEs that qualified for the Mozal program. procurement requirements and conditions from the World Bank. For example, stakeholders indicate that the government had to provide a large 40 space at no cost to the incubator for at least a 10- the provision of BDS to entrepreneurs is almost year period. In the meantime, the MCT has created entirely donor driven. They link these two issues, a “Tech City” 65 kilometers away from Maputo, indicating that heavy donor subsidization of BDS financed by the Indian government, with a USD 80 and capacity building deflates the perceived value million building. An ICT incubator will be part of of BDS by entrepreneurs and similarly propagates this project, but implementation is on hold due to expectations for cheap or free BDS, if it is sought the appointment of a new minister last year. at all. There is a real motivation to promote technology Other stakeholders indicate that BDS and among all actors in the ecosystem, and the consultancy firms do provide critical services but catalytic agents could play a vital coordination role are too expensive for an early-stage entrepreneur. to bring the demand and supply together to create The megaprojects and international institutions in a solid development path. However, stakeholders such a small economy have distorted the market, indicate that the main barriers preventing this are and BDS is not an exception. Most services are the government bureaucracy and nonexistence of priced at international standard prices, leaving coordination and integration between actors due local entrepreneurs without affordable options for to different objectives and strategies that result in BDS services. disjointed, less impactful initiatives. Private Business Associations Private Business Service A few functioning business associations (for Developer example, Associação de Comércio e Industra, or ACIS) offer the potential for sustainable facilitation Many formal and informal suppliers of business mechanisms to complement support from public development services exist, even in rural institutions. ACIS, in particular, is setting up areas. However, these entities are not currently an online procurement platform, organizing meeting the needs of the MSMEs. Stakeholders fairs and conferences on specific topics, and representing this group indicate there is a creating an extensive database of companies real need for longer-term capacity building existing in Mozambique. These associations and technical assistance on financial literacy, are actively collaborating with government and booking, legal advice, auditing marketing, and donor programs to link the existing businesses sales support. Ideally, this training would be of Mozambique to high-growth potential provided by an experienced person who would entrepreneurs. provide mentoring or guiding that does not exist today at the price that entrepreneurs would be willing to pay. However, stakeholders indicate that entrepreneurs see little value added in BDS services. Furthermore, stakeholders indicate that 41 Appendix C: Zambia Support Landscape Community-Led The burgeoning tech community in Zambia is comprised of business associations, community organizations, tech hubs, labs, and thematic networks such as Asikana Network, ZANEYO and Under catalytic agents, the predominant groups Global Shapers Network. They are all engaged are tech communities, tech hubs, business in community building and networking activities associations, and government and donor- with successful entrepreneurs, businesses, and funded technical assistance programs. There industry experts. These entities also facilitate are also individual mentors and diaspora technical and business capacity through trainings, networks that provide some type of support. collaborative projects, and hackathons. They Catalytic agents in Zambia provide fragmented also have the potential to serve as matching business support services in the absence of instruments between clients and entrepreneurs pre-incubators, incubators, BDS providers, and and also lobby for policy changes. shared workspaces. The assumption is that they are creating demand for BDS services so that entrepreneurs themselves will learn to value these services enough to pay for them. The Government and Donor major shortcoming in this category of actors Funding is the absence of a comprehensive stage-by- stage capacity-building approach that would This group of catalytic agents are the most diverse support innovators through the entrepreneurial and numerous in the ecosystem. It includes development path. individuals, for-profit businesses, and nonprofits who are all engaged to directly supply capacity The tech landscape is populated with “catalytic building and technical assistance. Financing agents” that provide business support services for such activities is usually channeled through in the absence of pre-incubators, incubators, programs and funds and disbursement is tied shared space and BDS providers. These services to pre-conditions and reporting requirements. include financial literacy, business skills such Critics argue that some initiatives have displaced as marketing and advertising, and management (or prevented) the existence of a BDS market by skills. The main categories of catalysts are (a) offering free services and have thus devalued the community-led capacity building, (b) government quality of the service/product. Examples of such and donor-funded technical assistance, (c) initiatives include Innovations Against Poverty individual mentors, and (d) diaspora networks and the Southern Africa Innovation Support that directly provide support. Currently there is no Programme. formal pipeline for incubating an idea all the way to a fundable business, and many respondents suggest with better structured business support entrepreneurs will be able to develop fundable plans. 42 Individual Mentors Diaspora Networks Mentors serve as catalytic agents and perform Zambians living abroad, particularly those in the some of the tasks of pre-incubators and United Kingdom, are actively seeking investment incubators, including guiding the entrepreneur opportunities in Zambia. One network based on various issues, including proofs of concept in London, Amaka Ya Bwingi, is working in and business plans. This is expected to improve collaboration with the ZDA to organize meetings the viability of the mentee’s business idea and and conferences among diaspora professionals access to seed financing. Some individual mentors and locals. Using a vehicle of capacity building, the encountered include Christian Chileshe of 3C, network facilitates exchange of information, know- Irene Banda Mutalima of Tucuza, and John Ziba how, and technical skills with a view to investing in who owns several businesses in Zambia. the future. 43 Appendix D: Key Definitions lower than market. Types of investments may include infrastructure projects that benefit the “base of the pyramid,” climate-friendly projects, and projects where there is significant and sustainable job creation, such as microfinance, and Angel investor – Refers to any individual who so on.3 invests his or her money in an entrepreneurial company (unlike institutional venture capitalists, High growth – The qualitative notion of high who invest other people’s money). The angel may growth is applied in the context of selection of provide capital to one or more start-up companies entrepreneurs to be further examined in this study. and takes a personal stake in the success of the As such, the priority is on new ventures or new venture. Such investments are characterized by business functions of existing MSMEs that show high levels of risk and a potentially large return on a high potential for rapid growth. A secondary investment.2 For the purposes of this assignment, aspect, though difficult to prove, is that this growth any arrangement of angel investors, whether is both profitable and sustainable. Two key criteria individuals, networks, or formalized syndicates, are to be considered. First, the new venture should are represented by the term angel investor(s) to be clearly defined with an articulated business more define their role in the ecosystem rather than plan rather than a vaguely defined business the precise nature of how they are organized. concept. Second, the growth potential should be articulated in terms of market saturation prior Impact investor – Refers to investment with the ex to the entrance of the entrepreneur and whether ante intention of generating a positive development the venture addresses a verifiable market gap impact (either a social or environmental return), or niche. Entities that do not qualify under these along with a financial return. A social return or terms, while potentially viable in other sectors positive environmental impact is targeted and such as retail, are deemed to not be considered then the outcomes are measured and monitored in the assignment. Some previous economic throughout the lifetime of the investment. There studies have proposed that only enterprises are typically two types of impact investors: at the expansion stage are undergoing “high financial first investors and impact first investors. growth.”4 However, following the objectives of this The primary objective of a financial first investor assignment, it is critical that examination not be is to maximize financial returns while achieving limited to established companies at growth stage a minimum social and/or environmental impact. (that is, no longer in research and development These investors seek to achieve competitive or product design/prototyping); in other words, returns consistent with other investment options. high growth is defined as both demonstrated and In some instances, the hurdle rate for investors potential high growth. It is duly noted, however, may be defined by existing regulation and that potential high growth is theoretical and requirements for specific types of investments. therefore cannot be ascribed definite criteria. For impact first investors, the primary objective is to achieve a positive development impact through Innovator/potential entrepreneur – An individual social and/or environmental returns while yielding or team of potential entrepreneurs who has some level of financial returns. These investors are generally in a position to accept higher risks 3 From Multilateral Investment Fund and Compete to reach the targeted development impact with Caribbean, Supply and Demand Side Assessment of a willingness to accept financial returns that are Impact Investing within the Caribbean, 2011. 4 Jonathan Adongo, “The Impact of the Legal Environment on Venture Capital & Private Equity in Africa: Empirical 2 From the infoDev ESIF Concept Note, forthcoming. Evidence,” 2012. 44 identified a solution to be explored, but who has or services, as innovation and first-mover types not yet formalized the idea into a commercially of businesses are more likely to qualify as “high viable business concept. growth.” Technology entrepreneur (TE) – For the purposes Climate technology (CT) entrepreneurs – of this study, a technology entrepreneur is defined Climate technology is defined as those business as an entrepreneur and existing MSME that is ventures whose core functions are to exploit seeking unsecured financing in order to establish natural resources as a key input to provision of or grow a line of business that can be considered products or services to clients. The preference is to fall under one or more of the following for the exploitation to be of renewable resources. categories: information and communication However, products or services that enhance technology (ICT), climate technology (CT), or the efficiency of exploitation of non- renewable innovative agribusiness (IA). These subsectors resources may also be included should these types are furthered defined below; however, it should of businesses be prevalent in either focus country. be noted that enterprises engaged in both the Again, this category includes the manufacturing, provision of services and/or products are to be distribution, and installation of products as well included in the study. as any services, including, for example, energy auditing. ICT entrepreneurs – For the purposes of this study, TEs engaged in the ICT sector category hold, Innovative agribusiness (IA) entrepreneurs – as a primary business function, the provision of These entrepreneurs are notionally a subcategory information and/or communication technology as of the CT group, as they provide products and either a product or a service, including software as services whose core function relies in the a service. Provision of ICT as a product can either enhanced provision of cultivated plant and animal be undertaken as an importer/distributor or as products (which are inherently renewable). This is a manufacturing function, but does not include particularly true wherein a core business function retail distribution of already-present technology, is related to the production and/or distribution such as GSM telephones. The provision of ICT as of energy from a primary or secondary output of a service can either be related to the provision agricultural processing. 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