Capital movements
The venture capital gap: selected issues for the seed and early stages
Factors influencing the venture capital gap in Africa
Authors:
J. Adongo; C. Stork
Publisher:
Namibian Economic Policy Research Unit , 2006
This report examines the venture capital gap in Africa. It provides a synthesis of selected issues falling within the context of the investment climate, which may contribute to this gap. Selected issues identified on the supply side included risk aversion, the depositor protection paradigm, high costs, unrealistic expectations, investor demographics, the inexperience of venture capitalists, oversupply of funds, lack of investor diversity, transparency, standards and cross-institutional dialogue, inappropriate valuation techniques, organisational structures and signalling.
The selected issues identified on the demand side include low deal flow, inadequate innovation, equity averseness, initial motivation to start the business, inability to gauge competition, inadequate size and security, lack of management, growth potential and understanding of the venture capital process.
Other issues identified that possibly contribute to the venture capital gap include macroeconomic, bureaucratic, fiscal, legal, financial, technological and political factors. If solutions that alleviate the identified constraints are implemented many potential entrepreneurs will find appropriate financing and support to assist them in their efforts. In addition, a multiplier effect arising from positive externalities will lead to increased real benefits that contribute to the economic goals set by policy makers that rely on an effective venture capital mechanism.
