What does it take to attract Private Equity and Venture Capital for growth?

Seven of the world’s ten fastest growing economies are in Africa, 52 African cities have populations of over 1 million people and by 2040 it is expected that 1.1 billion Africans will be of working age.  Africa has 60% of the world’s uncultivated, arable land; 56.7% of the world’s diamond (gemstone) production, 66% of the worlds’ cocoa production, 10% of the world’s oil reserves, 80-90% of the world’s platinum group metal reserves and 40% of the world’s gold reserves. 

With Foreign Direct Investment flows to Africa set to reach a record high of $150bn by 2015 (now $80bn), and with Africa being seen as the next frontier in growth terms over the next five years, it is predicted that there will be an increase in Mergers and Acquisitions across all sectors throughout Africa from:

  1. Global companies looking to grow in Africa;
  2. Private Equity (PE) sector; and
  3. African conglomerates looking to expand in Africa.

Significant growth across sectors

We are therefore seeing significant growth in the consumer markets, financial services, telecommunications, agricultural, infrastructure and natural resource sectors in Africa. By extension, East Africa is a favored investment destination for private equity and venture capital firms.

Private equity refers to investors and funds that make investments directly into private companies or conduct buy outs of public companies resulting in the delisting of public equity.

Venture capital refers to money provided by investors to startup firms and small businesses with perceived long-term growth potential.

A key question that runs through the mind of the key management of all SMEs today is what it takes to attract Private Equity (PE) and Venture Capital (VC) to support their growth agenda. Given our bullish economy and the forecast increase in GDP (5%), SMEs should be thinking of Private Equity and Venture Capital funds as an alternative source of funding.

The key questions SMEs need to address to attract PE and VC funds are:

  • What is the company’s short-, medium- and long-term strategy?
  • How will the company find capital to achieve its strategy?

What is my business strategy?

Key management of the company needs to develop a clear business strategy which defines their company’s direction in the short, medium and long term.  A robust business strategy, which can be implemented, will instantaneously give the company a competitive edge to its competitors.  It will also reflect positively on the key management and their leadership ability.

Such strategies, typically tend to address one or all of the following challenges:

  • Growth targets;
  • Performance enhancements; and
  • Succession policies.

Watch this space for more on what it takes to attract Private Equity and Venture Capital for growth…

About Sheel Gill

Sheel Gill is the Head of Transactions and Restructuring - East Africa. She has 19 years of financial and accounting experience, having qualified as a UK Chartered Accountant in 1996. She has been responsible for a range of audits, corporate finance and transaction projects to a diverse portfolio of clients. Sheel has worked in Kenya, UK and Germany across all sectors. She has experience of leading some of the largest acquisitions, vendor and refinancing due diligences and demergers.

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