9th-10th Oct, 2009.

I’ll be speaking about, in general, the challenges that investors and entrepreneurs face in Africa, with a specific focus on my partner organisation Appfrica Labs. Come out if you can.

Details at Africa Gathering and on the EventBrite page.

I’m on at 11 AM on Saturday– and to be quite honest, the lineup of speakers puts me in pretty esteemed company.

I’m working with Mike on his pitch for SBSVC. He don’t exactly need capital, but it’d make AEP move faster, further, and achieve profitability sooner.

The early-stage companies that I’m working with, has got me thinking, as I always do, about the market and landscape here in sub-Saharan Africa, most of the same problems and issues that entrepreneurs face back in Silicon Valley, London, New York, or Asia– they are just magnified here.

Venture capital
There are a lot of misconceptions around venture capital and angel investing. Most entrepreneurs go out looking for the largest possible cash flow at the lowest valuation, without considering what else the VC might bring to the table, i.e.

Experience
Contacts
Networks
Advice
Business
Modeling

These are just a few of the things. Most VCs (the only ones I’d want investing in me) have experience as entrepreneurs and at running businesses. Most of what I see as the big failures in VC from the past– I lived & worked through the heart of the dot.com and the Web 2.0 bubbles– have been, broadly, the fault of having the wrong investors. Kozmo.com being the prime example– some guy with an Excel spreadsheet thought they should take this FMCG service company and sell Palm Pilots at a huge markup.

The VC should be the person who, once they’ve picked you as an investee, will do the right things to make the pie bigger. It doens’t matter so much if you give her huge equity slices; she should work to make the pie big enough so that all parties have more actual cash.

Partner
One of the women I’m pre-screening as a p0tential investee is a fascinating woman. She’s lived and worked all over the world, but is here in Uganda and has invested heavily in a fish farm. Fish farming is controversial worldwide, but here in Uganda the fish that are typically farmed are catfish and tilapia– two of the “OK” fish to farm (low resource usage, high tolerance for variable conditions, etc).

She is excited about the opportunity to work together on an equity basis, in partnership.

Mentor
Mike had originally been using the term “Venture Search” for our model, but it has a fairly specific meaning that is tangential to, rather than describing exactly, his business model.

I like the term “Mentor Capitalist”: Provide many of the benefits of a traditional VC, but in a more hands-on fashion. Provide network breadth while the VCs provide depth.

Building markets
The market for angel investing and venture capital has to spring from the fertile ground of entrepreneurship; entrepreneurs, however often need start-up capital. In some cases– in the cases where AEP is trying to work– tilling that entrepreneurial soil to attract interested investment capital and a new network of angel investors, setting up a virtuous cycle.

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I often (as often as almost always) get advice, along the lines of

You just be careful, you put your money where no one can touch it, and you get that money back. People will steal it. Don’t trust anyone. Everyone is out to get you. They all see you, the rich Mzungu, and they just want to work for you and eat up all your money.

This can, as you might imagine, become disheartening.

The best jobs for graduates
If you’re a top student from here, you might be lucky enough to go on to MIT or Harvard, or you might go to either KIU or Makerere University. And when you graduate, what do you do? What are your preferred options?

1. Go work outside of the country, preferably outside of Africa: This is usually the top option, and it’s understandable– it’s exciting to move away, to a bigger, richer, more exciting place. I did it, thrice, now.
2. Go work for the government: Secure jobs are in the government, and the government is full of interesting positions. In some cases, this may be because goverment workers amass powerful contacts, which can benefit in the form of power or cash. In other cases, this comes from a desire to change the situation from within– to work on anticorruption, for instance.
3. Go work for an NGO: I have no problems with NGOs, but it seems odd to me that this would be a top job, except for the security and stability. NGOs protect their own, and understand (and often index salaries for) inflation. Plus, the benefits are great. You get to meet people from other countries, and you may get to help out people in your own company.
4. Go work for one of the big companies: Big companies, stable jobs, decent benefits. No real surprises here.

But that, pretty much, is it. Almost no one starts a business early on. The best and brightest leave.

What is it that drives some people to return to their communities, start a business, and create jobs? What makes a student is inspired by a teacher and becomes a teacher? What is it that drives a bright young student to forego lucrative opportunities to work as a community organiser?

And what keeps that from happening?

Problems don’t get fixed
One of my biggest challenges here is in understanding expectations.

Lots of things go wrong, all the time. One of my South African friends reminds me that “Africa works, just not as fast or as reliably”, and he’s right.

But there’s another issue– that because of this working this way for such a long time, it’s become the norm.

People turn up late for meetings regularly– as much as an hour late. And they don’t call to let you know, it’s such a common problem. (There are lots of people I work with who don’t accept this and are relentlessly punctual. I thank them profusely).

There was a leak in the office the other day. A few guys moved the photocopier, but took no pains to either shut off the water or to call anyone to fix it– nor, even, mentioning it to the boss when he came in.

I get monthly reports from entrepreneurs and there are numbers off, and, each month, I have to go sit down with my guys and work with them to identify where the problem came in.

There are lots more of these problems, and they don’t get due care or attention.

Defeatism
I believe that these are all symptoms of a defeatist attitude. Why start a business locally when it’s so hard? Why re-invest in your community? Fifty years and trillions of dollars in aid hasn’t made a huge difference (and you can see the effects of this aid all over– including in cultures of dependency). Get out while the getting is good.

Sure, you’ll miss your home, but why bother fixing it? The problem is too big for one man to change it.

Relentless Undefeatism
This defeatist attitude must change. This may be the biggest thing holding Africa back from significant development.

It will take committment, day by day, to change this. It will take huge effort by many people. Some of them will rise up and be Mandelas or Gandhis, while many will be the unnammed faces in the crowds. Whether you’re one or the other will be a matter of chance.

It will take boots on the ground, working hard, getting muddy, and facing the issues day by day.

It will take concerted effort by the Cheetahs to demand receipts for “stamp fees” from hippos, slowly but surely stamping out corruption and bribes.

It will take development and efficiencies in the tax code, so that police are paid enough that they don’t need bribes to survive and feed their families.

It will take investment, and not just capital, but labour investment by the best and brightest graduates, to come in and build pride– to develop Africa’s Richard Bransons and Henry Fords.

It will take pride, building a culture that looks for goods made in Africa rather than the USA, UK, or China.

It will take the gall to step up and say “Yeah, we can do that”, and to figure out how to do it, or to ask for aid to find out.

It will take determination to see something wrong and fix it.

It will take an end to hopelessness, and good examples.

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Without, hopefully, making strong generalizations, (Africa is, after all a continent comprised of 53 countries, larger in area than the USA and all of Western Europe combined, with over a thousand languages, spread over six distinct language groups-by contrast, the Indo-European languages span all of Europe, through half of Asia.), Africa is a land full of very spiritual people-you see it everywhere, from the surfaces of Mtatus (combi-taxis) and Boda-Bodas (100cc motorcycle taxis), to the ever-present music and dance, to the rise of evangelical “Born-again” Christianity and Mormonism.

President-elect Barack Obama
is, as you might imagine, enormous across Africa. Kenya took off the day after the election. Nigeria (with much less connection) took off three or four days. Uganda, less so, but there’s an Obama club in Kitintale, a shop in Makindye, and. People who speak only Luganda or KiSwahili here offer me a fist bump, chanting “Obama” as I walk to work.

(I’m one of the few Mzungus here who walks anywhere over 500m. Everyone else takes taxis…)

Aside from the obvious link with the neighbouring country and the African origon, there’s no apparent direct reason to support Obama. Additional aid is a possibility, but not a certainty, particularly in this global economic climate.

Which brings us to religion
As many of you know, while I’m interested in religion generally and historically, I’m not a particularly religious person; I used to describe myself as an atheist, but that seems almost like a religion to too many people– very anti-lots of things, and not really worth the energy. I’d rather do things with my energy. I don’t really think I’m much of anything, to be quite honest. However, my view of religion is changing after seeing it operate in Africa.

Religion and spirituality cut across much of daily life in Africa. Family and religion are the centres of people’s lives, and it shows, whether Catholic, Protestant, Muslim, or traditional/animist.

The Christian religions have adopted many of the traditional ceremonies– the Baganda wedding ceremony is now the “father’s giving-away” ceremony, for instance, and takes place a week or so before the Christian wedding.

There is strong take-up of Mormonism and Pentecostal or Evangelical Christianity (referred to locally as Born Again Christianity) in recent years, much of which is in the wake of the HIV/AIDS crisis. Mormonism’s strong sense of community aligns itself well with traditional community values– where, for instance, children are often adopted by locals or the extended family if something happens to the family. Islam also promotes strong community and family bonds.

The rise of the Born Again movements coincides both with the rise of the same movements in the United States as well as the coming to a head of the HIV/AIDS problems (including government’s finally recognising these as problems) and economic problems over the last twenty years.

…and its role in society
For many people, the coming of the church (or the church-based NGO) means the buliding of a community centre, or a kitchen, or mosquito nets, improved stoves, or an actual school.

One man that I met, Moses, is the head of a programme that has been building schools in Mbale for a decade. At the below school, when he arrived, “The mango tree was the headmaster’s office, the primary school was the Magnolia…”

A school built by a community, a community built heavily on religion.

Alcoholism
Alcoholism is an enormous problem in much of Africa, whether it manifests in fathers drinking away their problems in cities while their children starve or “Evening Class”– where men gather at the end of the day and drink locally brewed beer made from Sorghum, Millet, or Cassava, sold in buckets, and drunk in the last light of the night until it runs out– typically resulting in falling-down-drunkness.

Alcohol is linked in many minds as equivalent to idleness, lack of development, crops failing, insufficient rain, malnutrition, and a whole host of other problems.

The puzzle of Sub Saharan Africa
Economists are pretty good, over the long-term, at figuring out what will happen. They’re often even better at figuring out what happened and why (especially when they were wrong in the first place). The Solow model would have most of Africa in better shape than it is.

Sub Saharan Africa, however, resists all of the Macroeconomic models. There are many issues that point to reasons for these problems– HIV/AIDS (and other disease), changing weather patterns, distorted effects of aid (often brought in in incomplete packages, so building less Capital Stock than expected), corruption, etc.

Sociologists point to arbitrary land barriers, the difficulty of integrating cultures (Tanzania, with its dozens of tribal groups) seems to have had an easier time than places like Nigeria or Uganda, which have a few distinct groups), corruption, etc.

African Ingenuity and entrepreneurialism
Africans as a whole are amazingly adaptable and ingenious. The uses of trash- plastic bottles and bags– for other purposes is something that people see here regularly. Much of this is driven by necessity. Anyone who’s seen a bush mechanic work knows how much he can do to fix a 30 year old Land Rover with only a ball peen hammer and a pair of pliers.

I passed a guy just yesterday who’d rigged up a grinding wheel to his bicycle, with a stand, so that he could be a mobile knife grinder.

A little loud, but it works…

…and if you can’t fix it, live with it
Also, if you absolutely can’t fix something, then you live with it in its broken state. This applies to being on time for (or even remembering) appointments as well as selling parts off of your broken down car.

Huge swaths of Africa live on used things– whether it’s shopping for used American clothes (with goodwill tags attached) at Owino Market or importing vehicles from Japan (who have to get rid of them at 100,000 km on the odometer), Africans make do with a lot of things, passing them down and down until they’re completely used up.

The role of hope and opportunity
At the risk of sounding a bit too pie-in-the-sky, I would suggest that hope and opportunity play important roles in development.

Religion provides hope. It may not work for everyone, but it works for some people– and for many, it’s the strength (or community pressure) they need to keep out of the bar and go home to their kids. Religion also provides a thought for future planning– important in a country with a life expectancy of 47. Many of the poorer people I’ve met here who are religious are looking at their children’s welfare, trying to get them through Secondary, their Highers, or University– at the very least, a step beyond where they went.

The critical things that religion provides are hope, community, and opportunity. The role of a direct link with God breaks down sociological and tribal barriers, while allowing pride of self to remain. All over Rwanda I see people from Kenya, Ethiopia, and other tribes working– whether for religious or secular NGOs, for the betterment of the country and region.

Opportunity is interlinked with hope. For many people, scraping out a living is the best they can do, and they find opportunity everwhere, whether it’s driving people around on a motorcycle, selling phone cards in traffic, or buying and selling whatever you can.

These guys spent all day to make about $2.50 for this wood. They said it wasn’t worth it, but they had to do something.

Business and government
If you’re a government minister, you’re in good shape. You have access to a car, driver, a house, and cash beyond the dreams of nearly anyone else in your country. There’s nowhere up to go, except to PM/President or head of the Army. There’s also no reason to leave office.

If you’re the President, it’s even worse. To step out of office is to step into relative poverty from Armani suits, limousines, and private jets.

Large businesses, in Uganda at least, are run by foreigners. The situation was the same in Mozambique during the revolution, and the economy was crippled when the management skills left. Zimbabwe, similarly, has a shortage of management skills.

The role of entrepreneurship and aid
There’s a growing trend thinking that aid is Africa’s problem. I personally don’t agree, although it has been (and in some cases continues to be) part of the problem. My colleague down here Arthur and I talked about the difference between MIT thinking and Local thinking. You have these MIT engineers who design some widget that will help the local people, without taking into consideration the habits and adjustment factors that need to change, without looking at the problem as a whole and finding a whole solution (which may be less effective on paper).

Aid workers must do sonmething beyond just coming to a country and hoping to find a solution. Throwing resources at a problem can often make things worse over the long run.

Tntrepreneurship will be critical to Africa’s development– growing businesses from the ground up, building management skills, and honing the skills that people have into thinking bigger about problems, approaching them in a structured way, and solving them for themselves. Businesses need to learn how to hold money, track what they’re doing, and market effectively.

My step now is to spend the next five months (one down! Five to go!) figuring out how to support that kind of work, how (and if) I can do it on a large scale, and how I can make lives better while doing it.

Postscript: Just as I was struggling to get this posted over sketchy Internet, one of our partners sent me this, which seems to support much of what I’m thinking…

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