In this ALN2015 sponsor article, from social enterprise crowd-funding platform Malaik, we explore how a deeper approach to due diligence has yielded a richer investment pool and greater support for worthy causes on the continent.
African start-ups regularly encounter boundaries to growth. Volatile economics and unpredictable politics make planning difficult, talent is often scarce, and sometimes international investors fail to see potential in a continent that is brimming with it. Despite this, young African businesses are able to forge ahead, access to capital being the main limiting factor for most. No matter how innovatively they dissolve or negotiate local barriers, companies are restricted by a lack of funds.
Crowd funding is one way to solve this issue, but it presents new challenges of its own. Malaik is one of the first platforms to provide crowd funding for social enterprises, allowing investors in the United Kingdom to buy equity in fast-growing social enterprises across Africa. When we developed our platform and concept we had to ask questions about the risk that we exposed our investors to.
Malaik recently concluded a partnership with PwC Nigeria that will complete a very strong series of due diligence checks. In developed markets the risks that crowdfunding platforms expose investors to are easier to track, but in Africa more advanced diligence is needed. With Malaik’s system, potential companies will first be screened by Malaik’s team, then by its board, and then each company will undergo a full audit by PwC.
More thorough diligence will ask more of companies, but it will also allow Malaik to quantify the starting point for the companies it funds. As a result, their growth can be more easily tracked. This clarity has opened Malaik to new sources of funds.
Corporate Social Responsibility programs have become the norm for international firms operating in Africa. Many operate on principles created by aid organizations over the past half-century that are very well-defined. They build schools and give to communities, but these contributions are short-term in nature. They make life easier, but not necessarily more prosperous.
In the minds of many, including the CEOs of prominent multinationals that Malaik has consulted, the aid model has been superseded by the idea that doing business in Africa can provide more benefits than merely giving. The transparency that Malaik’s final audit of companies provides will allow CSR programs to invest in selected social startups and track the performance of those investments. Currently, the impacts of CSR funds are not always tied directly to social benefits. Malaik will track the number of jobs a business creates as well as its growth, so that corporates can participate directly in the communities they operate in.
Crowd funding is in its relative infancy as an industry, but in 2014 the market for social enterprises reached $1 Billion. This development has the ability to bring real change to Africa. Malaik’s first company, a revenue-sharing water purification device that will soon be installed at locations across Nigeria and is already up and running in South Africa, has already raised over half of its target funds of $300,000 dollars. We hope that by innovating to mitigate risk and broadening the base of investors we can help young companies raise the funds they need to break the boundaries between them and lasting impact. We are very proud to be launching at ALN and hope to create more strategic partnerships to help scale viable African enterprises and strengthen Africa’s job force.