“These are entrepreneurs who know what the problems are,” says Michael Luni Libes, who founded Fledge and is CEO of Africa Eats. “They aren’t outsiders with grand ideas that aren’t going to work.” The management team also includes Executive Director Jumaane Tafawa and COO Saif Ahmed.
Spinning Out a New Company
The problem Libes set out to address was this: Although most of the 1.1 billion people in Sub-Saharan Africa are farmers and food production is a significant industry in Africa, there’s not enough to feed the population at home, he says. The response by most governments there has been to spend over $11 billion a year on food to feed their people, funding they can’t afford. At the same time, there are lots of entrepreneurs trying to address these problems, but they can’t find adequate funding. When they get financing, the funders tend to move slowly, so the time between the need for capital and when it’s received is as much as 10 months.
But when Libes looked at the Fledge portfolio of companies, he saw something interesting: About 27 Fledge graduates were food and ag startups in Africa. Why not take these already funded and vetted enterprises, spinout a new company and hand over the portfolio to the business, in exchange for ownership shares?
That way, the holding company could address one of the funding problems. Most potential investors weren’t willing to write the small checks these ventures sought, typically instructing them to come back when they were bigger. In aggregate, however, those 27 enterprises earned $9.8 million in revenues last year and $8.3 million in the first half of 2021. “That’s not a small amount of money,” he says. They’re also mostly profitable. Plus, Libes figured that the total would reach $100 million by the middle of the decade—and the companies would also be a lot bigger by then.
The result: they’ve raised about $1.8 million, most of which has been deployed. Farmers also get a 1% ownership stake in Africa Eats and another 1% per year, every year in perpetuity.
Finance, Electricity and Trucks
But Africa Eats also provides access to vital support services the ventures need to grow. Specifically, that includes financial information, solar power and logistics (specifically, trucking). For the first need, the services are provided by one of the portfolio companies, which has what Libes describes as an “affordable Quickbooks for Africa.” The other two are or will be provided by solar power and logistics companies that are basically run by Africa Eats. (According to Libes, it’s difficult to lease trucks in Africa).
Take Chicken Basket, a Kenya-based chicken processor. It needed three things. First, it had to buy property because local authorities had ordered the company to move its slaughterhouses, according to Libes. So Africa Eats made an equity investment to allow the enterprise to purchase a new facility. Second, was a remittance gap: Customers paid 30 to 45 days after receiving the products, but Chicken Basket had to pay farmers immediately. The answer: Africa Eats provided the company with an operational capital loan.
Last was the problem of frequent electricity outages, causing thousands of dollars in losses from chickens that had to be thrown out. To address that issue, Africa Eats paid a solar vendor to install panels on the company’s rooftop. Next step: to help lease more trucks.
Frequent Check Ins
Libes and his colleagues talk to at least one portfolio company every day. “We have a relationship with them that’s tighter than a board member relationship,” he says. “It’s normal for an owner of a company to check in once in a while. We just check in more often.”
According to Libes, despite the pandemic, the portfolio companies are not only still in business, but grew by 40% from 2019 to 2020. They’re on track to do 70% growth this year. That’s come as a surprise to Libes. One company in Botswana, for example, had to shut down for six months. “We would have been happy if last year was flat,” he says.
Ultimately, the goal is to go public in “the next few years,” he says. That should be “somewhere in Africa”, and then in the UK or Europe.