Crowdfunding comprises several mechanisms of fund-raising, including lending (debt), equity, and royalty-based models, as well as non-securitized types, such as charitable donations and rewards crowdfunding. In simple terms, equity crowdfunding enables an investor – an individual or institutions – to buy a small piece of a startup or small (private) business via an online platform. Companies in early-stage growth are prime for investment crowdfunding opportunities because they are usually seeking small capital injections (between $100K and $1M) to gain a foothold in the market and become established. Equity crowdfunding sites have been around for about six years but, until LelapaFund, none focused specifically on African ventures. While Lelapa does work with tech start-ups, a majority of its offerings are in the fast-moving consumer goods sector where small businesses – many of which are owned by women – struggle to get access to funding.
She Inspires Her spent some time with LelapaFund co-founder, Elizabeth Howard, to learn more about the platform and how it aims to close the estimated $140 billion SME funding gap in Africa.
Please tell us about LelapaFund. How does the model work? Can anyone invest in these businesses and can the latter be based anywhere as long as their target market is Africa?
Our model combines two key products – LelapaFLOW and LelapaFund – to support investment in African ventures. Simply put, LelapaFLOW is a collaborative online due diligence tool which allows institutional investors to access deals that have already been significantly vetted by our team. On the other hand, LelapaFLOW allows entrepreneurs to complete only one due diligence process to access multiple investors, saving them a tremendous amount of time and money. Once a lead investor has been secured, the deal is opened to individual investors on our syndication platform, LelapaFund.
It is important to note that LelapaFund itself does not invest directly in the ventures on its platform. In that sense we are not a classic fund, but a partner of funds and angel investors.
We do not target the general public with a pure “retail investor” offering, however anyone can sign up and validate their accreditation on lelapafund.com in order to access deals. Businesses must be based in an African country, or be based elsewhere and target the African market principally.
I recently wrote a piece in LinkedIn that explains the thinking behind Lelapa.
“We are excited about developing a micro-equity finance model that is built to the needs of African SMEs simply because no capital markets infrastructure has ever done that successfully. African stock exchanges, including alternative exchanges, have mostly failed in channeling equity finance to small and medium-sized enterprises. Growing the next crop of large corporates capable of generating jobs is hampered by this, so we believe it is an important problem to solve.”
Your current portfolio is focused on consumer products and services, tech start-ups, clean energy, and health? What is your vision for the platform? Does impact investing have any influence on the sectors with which you work? Do you have a gender focus?
Yes, that’s correct. Our vision for the platform is to provide offerings that fit within a range of investor mandates, including finance-first investors, impact investors and gender-lens funds.
LelapaFund is among the first equity crowdfunding platforms operating in Africa. Investment crowdfunding can take different forms. Why did you choose to go the path of equity rather than debt or royalty-based crowdfunding as the former is subject to a high level of regulation and scrutiny and no doubt is more complicated to implement?
We certainly chose the hard option here. We are excited about developing a micro-equity finance model that is built to the needs of African SMEs simply because no capital markets infrastructure has ever done that successfully. African stock exchanges, including alternative exchanges, have mostly failed in channeling equity finance to small and medium-sized enterprises. Growing the next crop of large corporates capable of generating jobs is hampered by this, so we believe it is an important problem to solve.
What is your acceptance/selection rate of deals? What do you look for in the firms you carry in your portfolio?
Our monthly uptake rate is currently around 10%, however less than 1% of companies complete our due diligence and investment-readiness, hence the need for us to build LelapaFLOW and collaborate with donors and financial inclusion experts. We look for early-revenue companies, that is, companies which have started generating revenue, no matter how little or how recently. Companies must have the ambition to grow fast, and the dedication to get through rigorous due diligence.
You have described investments in this space as patient or development rather than speculative capital. Can you explain what you mean by this?
Investors in early-stage African ventures understand that capital is committed for five to eight years while the company grows, and that liquidity (the ability to sell one’s shares) is limited or impossible. Patience is truly a virtue in this case!
We gather from your accent that you are South African. You got an undergrad degree in Economics (and interestingly Philosophy) from the University of Cape Town, but you received your Masters from Sciences Po Paris and speak French fluently. Can you tell us a little about your background and personal story?
I am indeed South African, and went on exchange to Sciences Po during my Honours year in Economics at UCT. I had a real passion for the French language, so it was a dream come true. I decided to pursue my Masters at the same university, before coming home to South Africa to work for a short stint at an Africa-focused economics firm. I then returned to France to pursue my PhD in financial econometrics at Paris-Dauphine University while working in risk management. In the fourth year of my PhD, having been disillusioned during the financial crisis, I started working on LelapaFund. I submitted a business model to Stanford Ignite (a mini MBA programme designed for PhD students by Stanford University), and was accepted. I had to abandon my PhD to dedicate myself fully to LelapaFund from that point on (pro tip: do not start a start-up before you’ve defended your thesis!).
Why is LelapaFund registered in France?
France’s regulations were favourable to cross-border equity crowdfunding. We also have a subsidiary in Kenya.
We understand the pipeline of firms are currently all Kenyan. Why is that and do you have plans for expansion? Where can we expect to see LelapaFund looking for offerings next?
Our global pipeline is pan-African, with the number of Nigerian start-ups soon to overtake that of Kenyan start-ups. However, since our team only has a permanent presence in Kenya at this point, we can only undertake due diligence on Kenya-based companies. We hope to make Nigeria our next permanent office.
What has been the most challenging aspects of building the company? Securities and financial regulations in different markets? Managing client expectations?
Yes, working with regulators is a slow process and not at all adapted to start-ups. We felt that many governments in Europe made overly ambitious press releases about equity crowdfunding simply to position themselves nominally as fintech-friendly places without there being sufficient legal resources to follow through on their promises.
We always ask the women entrepreneurs we feature two important questions, so we are not letting you off the hook without answering these!
1) What do you know now that you wish you knew before you started your business?
2) What is the best advice you’ve gotten or lesson you’ve learned as a founder that you’d like to pass on to others?
So many things, and no doubt many more to come! I would be less naïve about regulatory press releases and put more focus on fitting our solution to our actual clients’ needs instead of ticking an interminable list of boxes for regulatory licences.
I read Zero to One (Peter Thiel) and The Hard Thing about Hard Things (Ben Horowitz) – those are pretty much my entrepreneur bibles. I also benefited hugely from the Stanford Ignite programme as I had five great people working on my idea for three months, which allowed me to test some of my leadership skills, build my confidence as well as acquire useful skills in accounting, etc. It was expensive, but well worth it for first-time entrepreneurs.
If you are interested to learn more about LelapaFund, visit the FAQ on their site, connect on Twitter (@LelapaFund, Facebook (facebook.com/lelapafund) and Instagram (@lelapafund). You can connect with Elizabeth on LinkedIn.