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Addressing finance challenges for ICT4Ag start-ups

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To identify key issues affecting access to capital and profitability for ICT4Ag businesses owned by young entrepreneurs, over 30 participants, predominantly from ACP regions and the EU, gathered at the recent ICT4Ag Outlook event held in Rhenen, the Netherlands during 9-11th October. The participants included young ICT4Ag entrepreneurs involved in the AgriHack Talent programme.

Agriculture entrepreneurship, including ICT-enabled (ICT4Ag) entrepreneurship, is seen as an important vehicle to support youth employment and contribute to agricultural growth. However, too often, a lack of finance is wrongly perceived as the primary challenge for agricultural and ICT4Ag start-ups. The low financial literacy and weak business management of young entrepreneurs and poor institutional support also play a role.

A key issue for start-ups, stated Telly Onu, a consultant from St Kitts and Nevis in her key note address, is that they are operating as small businesses and not scaling up. “What we are not seeing is access to finance,” she said. “Some of the solutions for facilitating access to finance are networking and incubation, but financial institutions want validated business plans and a clear track record.” Onu added that mentorship and training play an important role in supporting start-ups but, “we have to ensure that these start-ups are investor ready; that they know what financiers are looking for.”

Gerald Otim of Ensibuuko, a Ugandan company providing mobile finance services, pointed out that African start-ups are the least funded in the world with 80% of investment being directed to Nigeria, Kenya and South Africa and 24% of this funding FinTech initiatives. Otim highlighted the importance of networking to attract finance as “people invest in people”. But he agreed with other presenters that attracting investment takes time and effort and stressed that, “you will fail many times before you win; when you ask for funding, you get advice; and when you get advice, you get funding!”.

Investors need a better understanding of the ICT4Ag sector

Experience shared amongst some agripreneurs, including Otim, highlighted the importance of grant funding or awards from organisations like CTA, and also USAID and others, which has helped them gain traction and refine their business models to leverage support and investment capital from other sources. Participants recommended that capital to fund ACP start-ups should be increased by governments and donors. Peer-to-peer lending platforms and angel investors (where people use personal wealth to support businesses, particularly start-ups) and crowdfunding were all discussed as alternative forms of accessing finance, but it was acknowledged that investment through these channels is still very new and not yet widespread in the agricultural sector.

Participants agreed that further support is needed for start-ups to help them develop greater intelligence in their sector, to refine their value proposition and to be more financially literate so that they are investor ready. A key recommendation was that governments and development organisations should create a more enabling environment for innovation and entrepreneurship. However, it was noted that investors also needed a better understanding of the agricultural and ICT4Ag sector and the challenges faced by start-ups. Strategic alliances and networks can foster an understanding of these challenges. An innovative example given was the online match matching platform, AXiiS, provided by the Finance Alliance for Sustainable Trade for credit-ready small and medium enterprises, who can request US$50 K to US$800 K in funding from a network of financial service providers.

Another important recommendation from Martin Stimela, co-founder of Brastorne Enterprises (owner of the mAgri service in Botswana) is that to be successful and attractive to investors, start-ups need to have multiple revenues streams, and not just a single one. Young start-ups also need to develop business models based on collaboration with institutions that have an important user base (such as telecom operators and farmer organisations). Business-to-business (B2B) services will then provide revenue more easily and create profitability for start-ups in the ICT4Ag market segment.

Some institutional participants, such as the African Development Bank and Rabobank Foundation, discussed opportunities they offer young entrepreneurs. The discussions ended with calls for more public-private partnerships, as well as for a stronger interest from investors, particularly local investors, in ICT4Ag, which are crucial for the growth of young ICT4Ag start-ups in ACP countries.

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