Supporting MSMEs for Investor Funding in Sub-Saharan Africa

The investment landscape in Sub-Saharan Africa presents a high-potential yet challenging environment for investors, including venture capitalists. While Micro, Small and Medium Enterprises (MSMEs) drive economic growth and job creation, many investors hesitate due to a lack of financial transparency, informal business operations, and inconsistent reporting standards. To bridge this gap, Nulana conducted the following for the investor-side and MSMEs:

• MSME startup and technology strategy development

• Connected investors to startups with innovative business models for positive impact in Africa

• Sourcing of MSMEs to meet investor criteria

• Developed measurement models for MSME impact

• Developed a Due Diligence Rubric tailored to the African MSME ecosystem, allowing investors to assess investment opportunities with greater confidence and precision

Challenges Faced by Investors

Investor firms encounter several barriers when evaluating MSMEs in Sub-Saharan Africa:

• Limited Financial Transparency: Many MSMEs operate without audited financial statements, making it difficult to assess profitability and creditworthiness.

• Informal Business Structure: A significant portion of businesses lack formal registration, compliance with tax regulations, or structured governance models.

• Market Uncertainty: Investors struggle to gauge the scalability and competitive position of MSMEs in fragmented and emerging markets.

• Operation Risk: Supply chain inefficiencies, leadership gaps, and resource constraints increase investment risk.

Solution: A Structured Due Diligence Rubric

While utilizing innovative models and conducting strategy sessions with MSMEs is imperative for attracting investors, it is also important to boost investor confidence and mitigate risks for investments. We developed a comprehensive due diligence rubric to cover four critical areas with quantifiable scores:

1. Value Proposition:

   1. Fully defined and validated through Customer Discovery Process.

   2. Addresses an unmet need with a sustainably differentiated solution.

   3. Problem/solution statement clearly articulated and well-defined.

   4. Clear problem-solution fit and innovation aspect identified.

   5. Scalability beyond early adopters assessed.

2. Economic Model:

   1. Clearly articulated and supported with operating data.

   2. MVP tests validated or early test results confirm feasibility.

   3. Market size and growth potential are quantified and believable.

   4. Customer Acquisition Cost (CAC), Lifetime Value (LTV), and sales strategy defined.

3. Market Opportunity:

   1. Go-to-Market plan validated or in progress.

   2. Channels for awareness, trial, and conversion identified.

   3. Competitive landscape and existing players addressed.

   4. Market size, key differentiators, and positioning assessed.

4. Funding Allocation:

   1. Investment allocation plan is clear, effective, and efficient.

5. Environmental, Social, & Governance (ESG):

   1. Solution addresses a United Nations Sustainable Development Goals (SDG).

6. Team Structure:

   1. Co-founders and key team members have relevant industry and startup experience.

   2. Team expertise is complementary, with well-defined roles.

   3. Passion and commitment to solving a real problem are evident.

   4. If gaps exist, a plan to fill them is in place.

7. Overall Presentation:

   1. Presentation is well-organized, engaging, and clearly structured.

   2. Speaker conveys enthusiasm and conviction.

This rubric can be used by investors to support their investment decisions and by MSMEs to strategically place themselves in a position to receive investments.

Results and Impact

Implementing this structured framework has yielded tangible benefits for both investors and MSMEs:

• Increased Investor Confidence: The rubric provides investors with a standardized approach to assess MSME viability, reducing ambiguity in investment decisions.

• Higher MSME Funding Success Rate: MSMEs that meet the rubric's criteria have significantly improved their ability to secure funding, aligning with global investor expectations.

• Reduced Investment Risk: By identifying key risk factors early, investors can make more informed decisions, resulting in a higher rate of sustainable investments.

Conclusion

This rubric was applied to investments made by Meet the Drapers in Sub-Saharan Africa, but can be utilized by other investor firms in conjunction with business models and measurements models for MSME funding. Investor firms can unlock high-growth investment opportunities in Sub-Saharan Africa, fostering economic development while achieving strong returns. This framework ensures that promising African MSMEs gain the capital needed to scale, innovate, and thrive in global markets.

For investment inquiries and collaboration opportunities, contact Nulana via email at trahman@nulanaglobal.com.