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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,
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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
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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.”
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