In 1996, 15-year-old Ashish Thakkar took out a $6,000 loan from his parents and opened a computer shop in Kampala, the capital city of Uganda, selling PCs to his classmates.
From the get-go, the U.K.-born Thakkar, who moved to Uganda when he was 12, confronted many challenges not found out of Africa. For instance, he had to fly to Dubai on weekends to replace inventory for his store, which he lugged back in his carry-on bags.
“I couldn’t afford air cargo,” he recalls, “And it took weeks for orders to arrive.”
Thus were the humble beginnings of Thakkar, now a billionaire with business interests that stretch across continents.
“Funding [in Africa] has been the missing link, but we’re completing the ecosystem with the launch of our fund.”
Mara Launch Uganda Fund
In July, he announced the launch of the Mara Launch Uganda Fund, a Dubai-based seed fund, to boost the fortunes of would-be entrepreneurs in East Africa.
He’ll contribute up to $400,000 to the fund, which will operate under the aegis of his nonprofit Mara Foundation. He said the typical investment will run $1,000 to $10,000.
Thakkar admits that the mid-six-figure pot is a modest sum, even in a regional of the world where there is a dearth of financial resources.
But he says that even micro-investments can have an impact on a continent where residents earn less than $350 a year on average.
As an example, Thakkar talks of a 17-year-old school girl who was sewing uniforms for classmates, generating about $16 a month in profit. After six months of mentoring by his foundation, she hired six classmates and started generating $700 a month in sales, nearly four time times what her parents earn in the civil service.
His foundation is already helping 120 businesses in Uganda and Kenya through a 2-year-old mentoring program, he says. And he’s working with another 110 businesses in other ways, such as providing office and work space, not to mention online support.
As founder and CEO of the conglomerate Mara Group, Thakkar employs 5,000 in 24 countries, including 19 in Africa, working in 11 separate businesses. The businesses range from hospitality to real estate to telecommunications. And his interests are growing. His commercial real estate-focused Mara Capri Africa is a joint venture with Chicago-based Capri Capital Partners. Mara also manages the African allocation of the $500 million Capri Global Emerging Markets Fund. He also announced recently the opening of an investment arm modeled after Warren Buffet’s Berkshire Hathaway Inc.
Thakkar says he’ll nurture new businesses instead of acquiring existing companies, some of which might come from his seed fund.
“We have to set up new businesses, because that’s where the opportunities are,” he says.
The Mara Launch Uganda Fund joins a number of VC funds active in Africa, such as the Nairobi, Kenya-based East Africa Capital Partners, which manages a $100 million fund, and the Netherlands-based eVentures Africa Fund, which manages a $28 million fund.
The Kenyan government has also established a $40 million fund for new ventures in the fast-developing region of East Africa, which has 350 million residents. The fund hopes to start investing in 2013.
Thakkar says 50% of the continent’s population is under age 15. Another 35 percent is between the ages of 15 and 35. He says entrepreneurial hotspots include Kenya, Rwanda, Tanzania and Uganda, as well as the East African nations of Ghana and oil-rich Nigeria.
Even the Congo, which has been mired in a series of bloody civil insurrections over the past 50 years, is rife with entrepreneurialism.
“All of these potential markets are quite large, with a lot of energy,” he says
“Access to finance is a challenge for entrepreneurs all over Sub-Saharan Africa, regardless of geography, size of business or sector.”
To be sure, investing in Africa is not for the faint of heart, even as it appears to be reaching some political and economic stability.
Robert Durden, managing director of private assets at Chapel Hill, N.C.-based Morgan Creek Capital Management, says that while the political and economic situation has improved in many countries, there is still a high degree of risk investing there.
“Investor thinking about funding companies in Africa needs to have a very deep understanding of the business culture, regulations [or lack thereof] and the risks involved,” he says. “Only a handful of firms and managers at this time have this expertise and that’s primarily why most [investors] have shied away from Africa.”
But money is one of the biggest hurdles.
“Access to finance is a challenge for entrepreneurs all over Sub-Saharan Africa, regardless of geography, size of business or sector,” says Simon Merchant, CEO of London-based private equity firm Jacana, which focuses on small-to-medium enterprises in Africa.
Jacana has invested $20 million in 18 companies, and Merchant said he’s in the process of raising $70 million to $100 million for a second fund focused on the region. He notes that African entrepreneurs in the small-to-medium classification face numerous obstacles in growing their businesses, especially when it comes to dealing with local financial institutions.
“Entrepreneurs struggle to get finance from conventional sources, such as banks, that require high levels of collateral,” he says. “The few that do receive loans often struggle with cripplingly high interest rates and short repayment terms, and they often lack the expertise to use the capital effectively in growing their businesses.”
For Thakkar, he and his family have overcome numerous obstacles in the 120 years they’ve called East Africa home after emigrating from India.
After notorious Ugandan dictator Edi Amin took power in a coup in the early 1960s, he expelled most non-Africans, including Thakkar’s father and mother.
“They lost everything,” he says. His parents moved to the United Kingdom, set up a business, and then returned to Rwanda, where they ran a number of businesses.
Their challenges were far from over.
In 1994, during the Rwandan genocide in which 500,000 to 1 million residents were massacred, Thakkar and his parents fled to the safety of the Belgian-run luxury resort Mille Collines in Kigali, the capital city, an event later recounted in the film “Hotel Rwanda.” The Thakkars, along with hundreds of other refugees, hovered in the hotel for three weeks before a United Nations peacekeeping team escorted then from the strife-ridden nation.
“I started my business at age 15, and I understand the challenges that youth go through in this are to grow their businesses,” he says. “Funding [in Africa] has been the missing link, but we’re completing the ecosystem with the launch of our fund.”
African Growth Spurs Exit Challenges
While many economies worldwide struggle in the current downturn, some of Africa’s 47 Sub-Saharan countries are growing (averaging 3% a year), and as a result drawing more investor interest from Europe and elsewhere.
For example, the London-based British Venture Capital Association is working with the London-based African Venture Capital Association, to help boost more deals there.
Under an agreement signed a year ago, the BVCA is providing technical support to AFCA, including expertise in delivering training to fund managers and other professionals in Africa’s private equity industry.
The need is evident.
The Washington, D.C.-based Emerging Markets Private Equity Association (EMPEA) in August reported that Sub-Saharan Africa drew just $1.3 billion, or 7%, of the $17 billion in deals completed in all emerging markets during the first two quarters of 2012. The fastest growing regions on the continent of 1 billion include East Africa, which features Kenya, Rwanda and Uganda, as well as South Africa on the tip and West Africa, which features fast-growing Ghana and Nigeria.
Some of the investment dollars are flowing through development banks and similar organizations, which take stakes in funds, although an increasing number of private firms have raised capital for deals involving small and medium enterprises.
However, one challenge is finding exit opportunities for the investments. Unlike other parts of the globe, equity markets in Africa are more modest in size, and don’t offer similar levels of liquidity as those in Europe, Asia and the United States. The market capitalization for listings on 19 of the 23 exchanges in Africa runs about $730 billion, according to a report earlier this year, which is small when compared to the near $16 trillion market capitalization of the U.S. markets.
But existing exchanges are expanding, with two new bourses scheduled to open in 2012 and 2013, bringing the number of local exchanges to 25. The good news here is that they will be regional as opposed to national markets, which could help investors when seeking viable exits.
In the interim, managers of smaller funds will continue to seek out their counterparts in larger funds to buy out their stakes, or seek out multinational firms that want to do business in Africa, both the mostly likely scenarios for the time-being.