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VENTURE
CAPITAL
The
innovator
ecosystem
Creating a healthy SME environment
means fostering innovati...
to create the jobs which are very much
needed in this continent, which has a
very young population…you have to
imagine tha...
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VENTURE
CAPITAL
putting their money outside, to protect
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Banker Africa June 2015

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Jean-Claude Bastos de Morais shares his views on African innovation and the developments in the region's VC and banking sector in a recent interview with Banker Africa, a publication of CPI Financial. Read the full interview here.

Publicado en: Economía y finanzas
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Banker Africa June 2015

  1. 1. www.cpifinancial.net20 VENTURE CAPITAL The innovator ecosystem Creating a healthy SME environment means fostering innovation, says Swiss-Angolan investment leader Jean-Claude Bastos de Morais J ean-Claude Bastos de Morais is a man who wears many hats — entrepreneur, venture capitalist, and philanthropist, to name a few. In 2003, Bastos de Morais founded Quantum Global Group, an international group of companies focused on African development in corporate finance advisory, asset and private wealth management, real estate and investment consulting. Then, in 2008, he led the establishment of Angola’s first investment bank, Banco Kwanza Invest. Just a year later, Bastos de Morais founded the African Innovation Foundation (AIF), a more personal project looking to jumpstart innovative business ideas throughout the continent. Started originally as an ode to his spirited Angolan grandmother, who had asked that he find a way to give back to Africa, the Foundation seeks out original ideas and entrepreneurs across the continent. “I tried to find out, what can I give back to Africa, and how can I do it with what I have? The main thing was I saw all this potential in Africa, and I said how can I be part of unleashing that potential, which is there but sleeping?” Bastos de Morais recalled. “I founded the AIF because I feel that innovation is one of the driving forces that Africa can use, and should use, to diversify their economies and create small- and mid-sized enterprises, page 20-26 Venture capital.indd 20 10/06/2015 15:28
  2. 2. to create the jobs which are very much needed in this continent, which has a very young population…you have to imagine that all these young people, they want to have jobs. Innovation is the key to creating jobs and stimulating the economy,” he said. Along with the AIF, he established the Innovation Prize for Africa, a $100,000 prize supported by the United Nations Economic Commission for Africa (UNECA). This year’s winner was Adnane Remmal of Morocco, a scientist who developed a patented alternative to livestock antibiotics that could potentially change the livestock industry by reducing serious health hazards to both cattle and human consumers. Second and third place for the prize also showcased dramatic innovations for the lives of millions of average Africans: Kenyan Alex Mwaura Muriu, in second place, developed Capital Africa, a risk- sharing agribusiness funding model to help smallholder farmers expand their operations and attract potential investors. Meanwhile, South African Lesley Erica Scott’s Smartspot TBcheck efficiently examines the accuracy of TB detection machines, a small step in curbing the still devastatingly prevalent disease. “What I wanted to do was create this innovation spirit in Africa, because that was something that was lacking. People have started to believe that ‘yes, we can do it ourselves; we don’t have to import, we don’t only have to believe that the others have better ideas. We also can create something’,” Bastos de Morais said. CREATING AN ECOSYSTEM Speaking about the Innovation Prize just before the winner was announced, Bastos de Morais said that, “This prize gives its contribution but it’s obviously not enough because we need to create an ecosystem.” The Foundation has been able to build a database of more than 250,000 innovators on the continent and has helped prize winners towards regional recognition and further funding. But beyond that, there’s the process of create a financial ecosystem ready to support young innovators and entrepreneurs. “Now comes the next challenge. This is probably the bridge to job creation, investment, and venture capital. I think that what’s missing now, because we’ve created the innovation spirit and the belief that the ideas coming from Africa, according to African necessities and needs, are very interesting innovations; but now comes the complication—how do you bring that to the market? How do you finance that? How do you protect that? How do you make a business plan?” Bastos de Morais said. A large part of building and fuelling the ecosystem will come from a combination of bank lending and the growth of venture capital, he says. “Banks do a bad job on small companies and they do an OK job on mid-sized and bigger companies. On the small companies, they are confronted with a business that has no track record most of the time, or has no governance and no accounting, or which is owned by one guy they don’t know…it’s complicated for them,” Bastos de Morais said. “You cannot ask the banks, which manage the money of people with savings, to invest and give loans to these companies where they cannot even measure the risk or they don’t feel comfortable with the risk. So you have to find someone who is risk-aware, willing to take that risk, and is pricing that risk accordingly. Because if you ask a bank to price that high risk, they’re going to ask you for interest rates that kill the business — it’s impossible to do business with these kinds of interest rates, which are asked in Africa plus all this collateral — that means that the entrepreneur is afraid, because he has to put at risk his house, his home…so he doesn’t take the risk that is necessary to take if you’re an entrepreneur,” he said. “Therefore venture capital shall play a very core role, because these are the people that understand risk and should read risk and breathe risk, because they price this risk and get a share for it.” On the entrepreneurial side, this will mean building up trust in a system that isn’t all that familiar in many African markets. “The small companies need to have the open mind to let the risk capital come into them, and have a partner that has a certain know-how to help improve governance and mitigate certain risks,” Bastos de Morais feels. “I really am pro-partnership with venture capitalists…it’s not always a piece of cake, because always they’re very demanding, but if the entrepreneurs let these venture capitalists in, they are going to learn and the VC are going to learn from the local entrepreneurs. I think this is really what we have to create, the ecosystem — and have an open mind for it.” Once the venture capitalists build up a small company’s equity, banks will be more comfortable with lending to the start-ups and further developing the SME and entrepreneurial ecosystem, he says. THE AFRICAN VC PROFILE When it comes to what these venture capitalists should look like, Bastos de Morais feel that a balance should be struck between the international investors who may be more familiar with the VC system and the African investors far more familiar with the market that surrounds them. “I have a strong belief that — the local investors, they have to stop cont. overleaf www.cpifinancial.net 21 page 20-26 Venture capital.indd 21 10/06/2015 15:28
  3. 3. www.cpifinancial.net22 VENTURE CAPITAL putting their money outside, to protect or create security. They must invest in their own countries. They must look at it as they are the first movers. Frankly, African investors know their environment much better [than international investors], so they have a better understanding of both the risk and the culture. They can have a better understanding of how to price this risk and how to price the opportunity and to structure the terms of the venture capital, and also the time it will take; which most of the time, the foreign venture capitalists do not understand. [The foreign venture capitalists] may come with very pre-defined structures INVESTING IN THE FUTURE “One of the major challenges for foreign banks operating in Angola is keeping abreast the changing regulatory frameworks, and provide access to bankable projects. It is necessary to have a strong local partner who can navigate these changes and access local opportunities,” Bastos de Morais said when discussing the investor landscape in the country. Despite the fact that Angola is resource-rich, little of its commodities wealth has translated to the financial sector. Accordingly to Deloitte, until October 2013, more than 90 per cent of the financial flows associated with the oil and gas sector did not enter the Angolan financial system. October 2013 saw the passage of a new Forex Law dictating that all oil sector players must put their financial flows through Angolan banks, but the law is far from implemented. “That [law] would have empowered the whole banking system and that would have been a fantastic engine for $45 billion to enter the market,” Bastos de Morais said. When the law does go into effect, Banco Kwanza Invest (BKI), Angola’s only investment bank currently, is ready. “BKI developed a strategy to leverage its universal banking license to operate in Angola, creating an immediate opportunity for a top tier international bank to access the growing Angolan banking sector,” Bastos de Morais said, adding that the bank currently has $1 billion in deals in the pipeline. or views which are not applicable at the present time—which will be applicable, but for the time being, the continent is at a very early stage, so you can’t expect these things, you have to help to build them up,” he said. “It’s an additional effort you have to give, therefore passive venture capital cannot work, it has to be active venture capital and then it has to be smart venture capital, which understands and goes along with the necessities of the local companies and structures, the local legal system and the market,” he added. “Local first and then foreign, or if foreign, than in combination with local.” cont. from page 21 page 20-26 Venture capital.indd 22 09/06/2015 10:30

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