USADF's Vision for Investing in Africa's Entrepreneurs  

Nov 16, 2020

 A #GEW2020 Reflection Post from USADF's Chief Strategy Officer Kwasi Donkor

 

Welcome to Global Entrepreneurship Week 2020. The U.S. African Development Foundation (USADF) is excited to highlight African entrepreneurs we support in developing solutions to some of Africa’s biggest challenges while creating employment opportunities in their communities. 

Global Entrepreneurship Week (GEW) is a collection of tens of thousands of events, activities, and competitions held annually in November that inspire millions to explore their potential as entrepreneurs.  GEW provides a platform to connect these entrepreneurs to each other and celebrates innovators who dream big and launch startups that bring ideas to life. 

According to the United Nations, three of every four Africans are below the age of 35 and, from this population segment alone, 12 million people enter the workforce every year. To meet this employment need, the International Monetary Fund concluded that Africa needs to create 20 million jobs every year through 2030. This number is twice as large as what the region produced annually from 2017 to 2019.  

At USADF, we understand these challenges well and are doing our part to create pathways to prosperity for Africa's bulging youth population. That is why, as we close out 2020 and plan for the future, USADF is reimagining how we deploy grant capital to accelerate job creation across the continent. We continue to make direct grants to social entrepreneurs while harnessing new ideas and partnerships that deepen our grant capital's impact to strengthen grantee resilience and enterprise growth. The COVID-19 pandemic has crystallized a critical need for innovation as business ecosystems and funding paradigms are disrupted and impacted in ways never seen before.  

Evolution of the Entrepreneurship Portfolio  
In 2014, the USADF Entrepreneurship Portfolio began as a pilot initiative in the inaugural year of President Obama's Young African Leaders Initiative (YALI). The goal was to leverage USADF's awarding of small amounts of grant capital to a cohort of early-stage social entrepreneurs to test our ability to develop, grow, and scale viable entrepreneur-led businesses. Fast-forward to 2020, USADF has awarded over 345 entrepreneurship grants in 35 countries exceeding $7.7 million in grant capital. This unique initiative started by testing a simple concept via YALI entrepreneurship grants and has evolved both in its objectives and sources of prospective entrepreneurs to now include Ashoka Fellows, Echoing Green Fellows, and Whitaker Peace and Development Initiative (WPDI) Peace through Entrepreneurship grantees. Additional entrepreneurs come from USADF’s matching funds partnership with the Lagos State Employment Trust Fund and USADF’s partnership with the U.S. Department of State's Academy for Women Entrepreneurs (AWE) through which USADF is funding promising African women graduates to start and scale businesses.  

As USADF’s entrepreneurship portfolio continued to grow and evolve, we became more intentional in making strategic investments in promising entrepreneurs and embraced experimentation. For example, in 2018, as we started seeing positive impacts and dividends from our investments in YALI Fellows and their ventures, we decided to test a hypothesis. We did this by assessing and identifying the best and brightest entrepreneurs in the portfolio and "doubling down on them." Specifically, we provided these selected former grantees follow-on funding to test if additional catalytic capital would accelerate their growth. We were particularly interested in future increases in net income.  

In 2020, we surveyed the portfolio and analyzed those same grants to compare their growth, and the findings were nothing short of astounding. This cohort tested and affirmed a critical proposition: USADF can identify and support high performing ventures that, with additional support, can continue to scale.  

Exploring Ways to Build Creditworthiness and Business Sustainability  
By doubling down on promising and impactful ventures, USADF expanded the finance tools in our capital provision toolkit. We will do so again.  

Starting in 2021, USADF will pilot the provision and use of recoverable grants – also referred to as zero-interest loans – to create a revolving funding source for USADF's entrepreneurship portfolio. We believe this will enhance the creditworthiness of growth-oriented social impact ventures of USADF-supported entrepreneurs.  

Through a partnership with Entrepreneurial Solutions Partners, a pan-African, Cote d'Ivoire based organization, USADF is funding the piloting of the African Resilience Initiative for Entrepreneurs (ARIE) recoverable grants programs. This program aims not only to expand the level of support to high performing social entrepreneurs but also to introduce sustainability in our grantmaking and entrepreneurship portfolio. ARIE will target the very best entrepreneurs in our portfolio who have grown beyond the need for USADF grant capital but are still out of reach and remain unattractive to financial institutions.  

The timing of the introduction of this innovative finance tool into our portfolio could not be better, as the impact of COVID-19 is far-reaching with specific impacts on entrepreneurs. The pandemic has significantly undermined efforts to create jobs, especially for youth and women. The lack of jobs and employment opportunities can easily lead to social tensions and instability while adversely impacting all efforts to support indigenous, high potential micro-, small- and medium-sized enterprises (MSME). Beyond survival, the ARIE initiative will help African entrepreneurs who need the right combination of technical assistance and innovative capital to recover from COVID-19 and build resilience.  

Additionally, a key anticipated successful outcome will be to build the creditworthiness and business sustainability of the selected MSMEs to attract capital, following USADF’s investment. This emphasis on "follow-on funding" serves as a proof point and is an essential step in developing a graduation model for our grantees with the ultimate goal of creating pathways to their prosperity for underserved communities.  

We look forward to collaborating with you as we create communities of practice to enhance social entrepreneurs' success across Africa. Follow us on social media this week to learn more about USADF's entrepreneurs and impact. 

@USADF