Despite the high number of women-owned/led businesses in Sub Saharan Africa (SSA), few successfully grow beyond the micro or small-size level. Though women in SSA are far more entrepreneurial than men, with Africa being the only region in the world where more women than men choose to become entrepreneurs, they experience significantly higher discontinuance rates, on average 10% higher than male led businesses. This is partly due to women having less access to funding, with an average male-owned/led business having six times more capital than a woman owned business. As a result, women led businesses in SSA face a funding gap of USD 42B.
Women entrepreneurs often have skills gaps and less access to networks, and face social constraints, which hamper their ability to access the needed capital and resources to grow their businesses. They also tend to be less knowledgeable about the different types of funding available, various investor requirements and the capital raise process, including how to become investor ready. Phyllis Karanja, founder of Sensei Institute of Technology in Kenya faces this challenge. She notes that, “I would like to expand the company beyond myself and immediate family; however, I would like to have a good understanding of what various investors are looking for, trade-offs between going public or getting private investors so that I can make an informed choice for my business.”
At Open Capital, more than 40% of the businesses we work with are women owned/led businesses. We use a multi-faceted approach to help them raise capital. Our support includes helping them define their funding needs; understand the various funding and investor types and requirements to determine the financing best suited to their needs; prepare investor materials; get investment ready and supporting them through the transaction process through deal closure.
In terms of funding needs, women entrepreneurs tend to prefer to grow organically, shying away at times from external capital. However, the right strategic investors have the potential to catalyze and accelerate the growth of their businesses. They also tend to have a lower risk appetite and can be more conservative in their financial projections, leading to a lower valuation affecting their ability to negotiate advantageous financing terms appropriate for their stage of growth. Being aware of this, we invest time in explaining the capital raise process, the benefits of external capital and recognize that women entrepreneurs need time to think though and make these decisions. When reviewing their projections, we work with them to anchor their assumptions on comparable proxies to be more bullish, as applicable. We have conducted various webinars for women entrepreneurs laying out different types of investors, investment instruments, requirements, and the benefits of external capital. Many of these include a panel for investors to share their perspectives on how to best position one’s company for investment and a Questions & Answers session for the women entrepreneurs to engage with the investors.
Beyond clearly articulating their funding needs, women led businesses also need support to get investment ready, and during the transaction process through deal closure. To that end, Open Capital supports them to develop strong business models, develop investor outreach materials and/or to address specific pain points to improve their operations. For instance, we facilitated a two-day investment readiness workshop for women-led SMEs in Zambia offering a tailored curriculum taking an experiential learning approach. In addition, as part of Invest2Impact (I2I), a special initiative of the 2X Challenge – Financing for Women aiming to advance women’s economic empowerment and gender equality in developing countries, Open Capital is supporting ~100 women entrepreneurs improve their investment readiness through a multi-pronged approach including tailored consulting projects, coaching and group sessions called “peer councils”. On the latter, knowing that women tend to be more relational and learn from each other, we ran the peer councils over a period of eight months, enabling women entrepreneurs to go through the investment readiness process together, share and learn from each other, and provide feedback to each other as they put their investor materials together. Our investment readiness support also includes coaching women entrepreneurs through mock pitch sessions to enable them to boost their confidence and effectively sell themselves and their business. For instance, as part of Invest2Impact, we ran a mock pitch workshop to discuss common pitfalls and best practices and offered one on one coaching sessions to businesses that were pitching to investors in a Gender Lens Investing (GLI) deal room; we provided them with feedback on their materials as well as on their oral delivery, executive presence and confidence. Pauline Karanja of Mwanainchi Bakery, one of the businesses that participated in the GLI deal room noted that “the pre-pitch coaching sessions were helpful in helping me refine my pitch to pull out the key insights and as a result of participating in the deal room I am currently in discussions with different investors.”
Breaking the barriers of inadequate capital flows to women entrepreneurs in Sub Saharan Africa requires a multi-pronged approach. With the right approaches from multiple ecosystem players including businesses, business advisors, investors, development partners and governments, more capital can be directed to women owned/led businesses to drive more economic and societal growth on the continent.
Nathalie Gogue-Ebo is a Partner at Open Capital Advisors and heads the firm’s Gender Practice
Ann Munyua was a Senior Project Leader at Open Capital Advisors