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VC4Africa was started as a LinkedIn group in the spring of 2008 and has grown organically into what is now the largest online community dedicated to Venture Capital in Africa. The VC4Africa community and related platforms have always been free for anyone to join, and the entire network and its content remain open and accessible.

Currently the community can be found on social networking platforms like LinkedIn (+/- 3.900 members), LinkedIn Incubators (+/- 2.200), VC4Africa.com (+/- 3.300 members), VC4Africa.biz (+/- 3.400), Facebook Group (+/- 550 members) and Twitter (+/- 5.000). Members of the VC4Africa community use these social platforms to connect with other members and to exchange knowledge, information and contacts.

A core vision behind the project is that VC4Africa is only a platform within a larger social movement. Open communication and collaboration is encouraged and all members are invited to become active participants in both growing and developing the project. This means members are encouraged to invite new members, post content, start discussions, initiate networking events and join the VC4Africa management team in a more concerted effort to grow, develop and evolve the concept. Every member is expected to contribute in some meaningful way.

A few key points that make VC4Africa unique:

1. SME Pipeline:

We work to help entrepreneurs connect with the external partners or needed investment. Entrepreneurs crunch their venture by choosing icons that represent some of the standard answers that a business plan must provide. Members can vote for ventures and their input is used to rank the projects per country, stage of investment and sector. The output is a dynamic Digg.com style feed that sees the best projects rise to the top of their respective field so we can connect them with capital. See the VC4Africa Ventures section and registration.

2. Matchmaking:

Organizations and individuals interested in investing in African businesses are able to register their investment profile with VC4Africa. Once registered as an investor we can facilitate targeted e-mail updates with 'high potentials' that match their investment criteria. This is currently a manual process that we look to automate in the next phase of development. See the registration process.

3. Member initiated networking events:

Second to networking online, VC4Africa makes use of the Barcamp model for events and organizes its own VC4Africa Meetups. These are informal networking events initiated by any member in the network interested in bringing together members in their own area. These events are organized without a budget, agenda or speakers. It is exactly the community initiated format and informal structure that allows for effective networking. Meetups have already been hosted in Johannesburg, Kampala, Nairobi, Kigali, Abuja, Lagos, Tunis, San Francisco, Atlanta, New York, Washington D.C., Amsterdam, Leuven and London. See a video about a VC4Africa Meetup. Want to bring together members in your area?

4. Open Source Approach:

VC4Africa is an open source project built on open source software. Anyone can contribute or access code to the VC4Africa platform. We are also working on an open Application Programming Interface (API) that would allow anyone to access VC4Africa data and repurpose it for their own use. See the VC4Africa Developer’s Wiki for the community wish list and concept notes. VC4Africa content and network are also open to anyone who wants to join the community and we do not require any fee to participate. That said, interaction or direct engagement with the network requires registration and an obligation to abide by the community established rules. See the Terms of Reference.

5. Officers Program:

The VC4Africa community also initiated an Officers Program used to engage active members in running and building the network. Officers take on different tasks in managing the community and are responsible for specific functions i.e. someone that manages the blog, someone that invites new members on LinkedIn or is responsible for growing the network on Facebook. These individuals are instrumental to the vitality of the project and help spread the word virally through their own networks. Moreover, they bring in new ideas and make valuable contributions that help define the scope and focus of the project. To this extent VC4Africa only builds what members demand.

Given the current structure members are well empowered to interact, find and share information within a network dedicated to building innovative businesses in Africa. Moving forward we are looking to improve our matchmaking capabilities and took the first step with the November launch of the new VC4Africa.biz matchmaking platform. We are pleased to share some of our first testimonials:

1) “Hey guys, Market Fleas already has a potential investor, so big ups on the platform. We tried many different platforms and none of them even gave us a response, but after only three days we got a response here. Keep up the good work and i’ll be spreading the word.” Rick

2) “Being an entrepreneur, I've been around the block when it comes to sites of this nature. And I must say; awesome! If you are able to attract investors successfully, this will become the one-stop shop for African business development. The site is easy to use and best of all, unique. All the best and thank you!” Louis

3) “Your web site has been very helpful to me. I was able to connect to a company that wants to represent Next2.Us geosocial sms network throughout Africa. We have executed a Framework Agreement. We are finalizing a relationship with a SMS provider that will allow Next2.Us Africa to offer our geosocial network service in Kenya in the coming weeks.” Brian

4) "That sounds great, I believe that through this platform (with its business plan crunching) is going to help many entrepreneurs." Wikins

5) “Please let me know how to support your work with the "Start-up Tool Kit" for entrepreneurs in Africa, perhaps including intellectual property and creativity content, templates, etc. and also by providing feedback to investors about valuation, due diligence, strategic guidance and advising, etc. for innovation and IP-based companies started in Africa, whether they're planning on being a regional or international business.” JiNan.

6) "VC4A Team: Thank you for your kind welcome and above all for being one of the the founders of this medium. I believe it is going to be a very useful tool for entrepreneurs from everywhere who have the best interest of Africa and Africans. I will look forward for more interactions in the future.” Kebede

7) "Hi Team, thanks for the thumbs up. Great platform you have founded here! Looking forward to meeting up with those interested in getting involved in my business with either funding and/or mentoring." Nicolette

Want to get involved? Has VC4Africa been useful to you in any way? Do you have a venture you would like to promote/share with the community? Please reach out and share your ideas and experiences with us!

Small and medium-sized enterprises (SME's) are the backbone of most economies in Africa. Innovative and creative entrepreneurial approaches are needed to help African SMEs adapt to global standards and realize their economic impact. SMEs in Africa face different social, ethical and environmental challenges, opportunities and dilemmas than their counterparts in Europe or the US.

Their problems are shaped by economic factors (e.g. poverty, debt, industrialization, trade flows), political factors (e.g. level of democracy, corruption, legislation, institutional capacity), social factors (e.g. cultural context, urbanization, ethnicity, basic services, public health, HIV/AIDS), and ecological factors (e.g. drought, desertification, deforestation, resource scarcity, pollution).

SME Challenges & Opportunities

Labor costs may be low but often not enough to offset the high costs of transport, raw materials, utilities, and other inputs. African businesses therefore find it difficult to compete in export markets, particularly in markets outside the region, and to compete against imports of a range of goods from other developing regions.

Moreover, many African companies, especially SMEs, lack reliable financial data that allows financial organizations to scrutinize the health and prospects of the company. Most SMEs in Africa also lack assets that can act as collateral and mitigate the risk involved. As a result, capital in Africa remains too expensive for most entrepreneurs looking to build a sustainable enterprise.

Africa faces the challenge to provide better economic opportunities to its citizens, through sustained growth led by the private sector and to alleviate the poverty that has long plagued the region. A strong private entrepreneurial sector plays a vital role in this respect, in particular the small and medium-sized enterprises (SMEs) that provide many Africans employment, income and hope for a better future. As the Shell Foundation says:

"SMEs contribute around two thirds of national income and provide the foundation for a stable middle class in many countries. They help form strong communities and are a powerful force for poverty reduction. Indeed, SMEs play a significant role in building economic stability and sustainability for the future."

SMEs Need Financial Resources

Paul Collier, in his book The Bottom Billion: Why the Poorest Countries are Failing and What Can Be Done About It, he argues that the bottom billion needs private capital and says:

"clearly there are brave people within these societies who are struggling to achieve change. It is important to us that these people win their struggle, but the odds are currently stacked against them.

He goes on to explain the numerous challenges ahead, but introduces a valuable line of thinking that builds the case for supporting local entrepreneurs seeking to implement solutions that are designed for a local context, the needs of a billion consumers rising as a middle class.

Andrew Mwenda, the chief editor of the Independent Magazine in Uganda, argues we need to replace "Poverty Reduction" with "Wealth Creation."

The focus needs to be taken off of symptoms (food, medicine and peace keepers) and in the effort to start addressing the real underlining problems i.e. the ability to generate an income, a trading opportunity and the ability to find a well paying job. His argument is clear; wealth is a function of income.

The focus should be placed instead on entrepreneurs as agents of wealth creation. Entrepreneurs make up about 4% of the population and 16% of the population then follows as ‘entrepreneurial imitators.’ Any development efforts should thus be focused on these individuals and the areas of the economy where there are opportunities to productively grow. An emphasis should be placed on private investment and on the institutions and tools that can empower these individuals to do business.

Traditional Financing Options Fall Short

In order to promote the development of the private sector access to finance is crucial. This can take many different forms form bank loans to overdraft facilities. Unfortunately, Africa is still seen as a risky and expensive place to do business. Indeed, transactions costs are often higher than elsewhere. Speaking to entrepreneurs actively working to set up their business I find that getting a loan from a bank in Africa is like getting a root canal. They always take more than expected and the process is painful at best. As reported in Uganda’s the New Vision:

"Data shows that the lending rates remained high over the past year, standing at over 20% but consistent with trends over the past five years. Despite a slight decrease over the financial year from a peak of 21.8% in August 2009 to 19.6% in January 2010, lending rates remain high by international standards and significantly higher than in any of the other four East African Community partner states, where the average is about 15%.” East Africa is not alone and entrepreneurs face these rates or worse across the continent.

And don’t think its only the small business who struggle, I remember interviewing Mo Ibrahim, the founder of Celtel, and hearing about the challenges he had getting funding for a telecom proposition that was already in the black and operating in thirteen countries, otherwise the lucrative foundations for what is now Zain (recently acquired by Bharti).

Amazing to learn that a company that eventually made 100 people millionaires the day it was sold, had just of a hard time finding the financial support and business trust needed to make it happen. Of course few would turn him away if he called this afternoon, but where was the support when he started out and how many other entrepreneurs on the continent are in this situation today?

The Case for Venture Capital

Venture Capital can be characterized as long-term, risk equity finance in new firms where the primary reward is capital gain.

Complementary to existing lending facilities and micro-finance programs, there is a growing need for Private Equity and Venture Capital, to fuel the development of the private sector in Africa. Equity investments can be instrumental in helping small enterprises grow into medium-sized enterprises and semi-formal into formal businesses. An important role in this respect can be played by Venture Capital (VC) Funds.

VC funding can support business opportunities through investment relations with private companies in the South and the North, introduce new business concepts and offer mentorship and guidance many entrepreneurs need to tackle tough challenges they will face along the way. Hence the VC impact on the business environment can be significant.

Looking to support the continent’s aspiring entrepreneurs there is reason to believe we need a lot more of it. VC4Africa is one way we canhelp bridge the gap between need and solution. Looking at a map like this we can see there is still a long way to go.

This post was originally published as The Need for Venture Capital in Africa.

The entrepreneurs, business angels and venture capitalists behind the start-ups of the last 2 decades are still looking for the "next big thing" to bet on. A small number of these are beginning to bet on Africa. The eVentures Africa Fund launched last month is one of these.

Even by the risk-hardened standards of America and Europe's entrepreneurs, this is a bold move. Working in Africa presents some phenomenal challenges. There are not only gaping cultural differences, but also weaker commercial laws, higher overhead costs when working across continents and less liquid stock markets.

Most investors who have ventured here have either given up the aim of profitability in favour of more philanthropic goals (e.g. E+Co), or restricted investments to very large sums in the millions (e.g. Actis), in order to justify the huge overhead costs and lower returns.

The eVentures Africa Fund promises to make no such compromises. This fund plans to invest €25 to 250 000 in companies and generate "attractive financial returns for investors" alongside strengthening enterprises, developing economies and creating jobs. Quite some claim.

Why is this so exciting? For two reasons. Firstly, because the vast majority of African entrepreneurs don't need millions to start their business ventures; they need tens to hundreds of thousands. Secondly, if an investment fund is for-profit rather than non-profit, it can move beyond dependency on applying for millions of dollars from donors and foundations, and can tap into the billions available through international financial markets.

This is a risky gamble with high rewards - which makes is a fitting playing field for venture capital. But in order to succeed, the managers of the eVentures Africa Fund are going to have to have to show at least as much skill and innovation as the entrepreneurs in whom they invest.

Maurice Pigaht is an entrepreneur involved in two energy start-ups in Rwanda and a consultant on renewable energy, development aid and private sector development.

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If you're looking for Venture Capital funding for your African business, here are several resources you can use to get equity financing:

• Venture Capital Ning Group
• Startups Nigeria
• African Venture Capital Association

Also, be sure to look at the ICTworks Venture Capital posts to keep current on our findings around financing.

Last but not least, please add any resources you know of in the comments below.