By Matilda Dibakwane, Chief of Staff for the Anzisha Prize
FACT: Access to finance is difficult for any entrepreneur. This is especially difficult if you are very young, with deep credibility and trust factors at play. According to Dr Adesina Akinwunmi, Executive Director of the African Development Bank Group, âyoung people face many institutional obstacles. when looking for financing for their businesses. Often times, funding comes a bit too late, especially in today’s turbulent economic conditions. ”
The Young Entrepreneur Fund established by the Anzisha Prize is a âguaranteed follow-upâ fund that will match investments in businesses led by pre-approved graduates of African Leadership Academy programs. This fund is designed to incentivize investments in young entrepreneurs in Africa through an innovative debt instrument linked to income.
In creating the Young Entrepreneur’s Fund, the program intended to design an âage-appropriateâ funding model with the following five key characteristics:
- Simple Design – We opted for a rules-based debt instrument designed to be easy to understand, coupled with legal agreements with minimal fuss.
- Operate on âthe borrowed trustâ – the Fund issues a letter of guarantee to give credibility to the young entrepreneur that he can use to âseek outâ for financing. This letter of guarantee is issued to high potential and pre-approved graduates of African Leadership Academy programs and guarantees that the fund will match any co-investment up to $ 50,000.
- This income-linked fund is designed to be flexible, as the entrepreneur is not required to make repayments in months when there is no income. Conversely, the entrepreneur pays at least 5% of the income generated in the months when the income increases.
- Structured exists: The Fund intended to offer a debt instrument as we did not want to tackle the complexities of valuing companies for equity transactions. Additionally, we found discussions about cash flow and debt servicing to be more useful for early career entrepreneurs.
- It takes a village: through collaborations within the ecosystem, aim to provide business start-up support beyond funding to improve the success rate of young entrepreneurs.
One of the beneficiaries of the YEF fund is Andrew Mupuya of YELI Papers who used the funding to build his own manufacturing warehouse. YELI is the first local paper bag and envelope production company in Uganda. His business has grown and employs 22 people. Its customer base includes local hospitals, retail stores, roadside vendors, supermarkets and large local flour manufacturing companies. In addition to running his growing business, Andrew found time to train over 500 people, mostly young people, in making paper bags through which 16 other projects were set up.
With this modest fund, we hope to help minimize the red tape faced by young entrepreneurs in seeking funding. Navigating the fundraising field has not been easy. However, we are determined to continue to fail.
Lessons learned from the creation of the Fund will be shared openly to help other leadership and educational institutions launch similar alumni funds. It is important to note that this is a call for potential investors to contact us by supporting one of our pre-approved candidates. Funding is currently only available to Anzisha Fellows and African Leadership Academy alumni.
This pioneering access to finance was made possible by Imaginable Futures and is managed by the Anzisha Prize. To find out more, visit anzisha.info/investors