The role of angel investors and seed-funding is vital in nurturing the knack of young entrepreneurs and innovators. As the experiences of the technologically well off nations showcase, they managed to build empires out of technological innovations leaning on angel investors and their decisiveness to take risk. However, in a businessas-usual system innovations are crippled for want of support.
As to businesswoman, entrepreneur and expert Eleni Gebre-Medhin, (PhD) the business climate for startup is not conducive for youngsters in Ethiopia. According to her, despite the presence of numerous business tycoons and investors, a forthcoming inclination is lacking to be an “angel investor” and to tap young entrepreneurs on the back. Young innovators who try a startups have several challenges. “On one hand, I think a lot of attention is paid to microenterprise development training programs.
But, I see the issue in this way. If you are trying to do something ground breaking and do things in a different way or bring new technology, the type of programs that we are running are not suited. That is because they are tailored to the traditional businessas-usual system.” There is a need to think out of the box, said Dr. Eleni.
There is a need to create innovation space or the startup spaces where the youth can freely do experiment. They should also be given a chance to fail and get up again until they succeed. According to Eleni, the business registration process and other bureaucratic systems and poor internet connection are also serious challenges to startups. “ The bureaucratic labyrinth at the tax administration is demoralizing when one tries to involve in such kind of business.
Spending two to three days every month at the tax paying office is really choking.” By its nature, startup business is different from other businesses. It presupposes a risktaker mentality and government backup. It is a knowledge-intensive business where one will reap one’s fruit in the future. Startup business is not something that will be run by micro-finance fund which is short term and low risk venture.
Startup business is a high risk idea. It needs venture capital or seed funding. Countries like Singapore or Israel or any other developed nation have built high tech business out of start-up/seed funding where the government is a co-investor and take some risk. According to her, these gaps have to be filled. Otherwise those brilliant young Ethiopians will be demoralized. “We will miss the opportunity of creating the next Alibaba or Uber here in Ethiopia.”
Dedicated track in the policy for knowledge-based startups should be encouraged. They need be provided with ample opportunities, she said. According to Dr. Eleni, risk is one part of startup. For this reason, even if the venture does not work, the entrepreneur who has great idea would come up with a new idea without being discouraged or demoralized. The failed experiment could be an input for future innovation.
Asked “Who is going to invest?” Dr. Eleni said that, the system needs individuals who understand startup venture value and risks. In other corners of the world there are individuals who sponsor startup. They are called “angel investors” and they are treated by the government and the society with respect. Angel investors are individuals from different walks of life with a businessoriented mind and knew the value of risk behind every innovative idea.
In USA and other parts of the world, angel investors are considered as the first movers of capital and they are accorded due respect. This is because their contrition and risk taking actions do not only benefit them but also offers great value for the mass as a whole. Ideas of Mark Zuberg is converted into business because of angel investors. In USA, angel investors are registered and the tax policy incentivizes them.
This will encourage them to spend money on start-up. Because, it is the society that will benefit out of the fruit. According to Dr. Eleni, Crowd funding is the other mechanism to support startups. It is a new mechanism to raise money online and fund innovations. In Ethiopia we do not lack money. There are wealthy individuals.
But where do they put their money? They put it on fixed or tangible asset. They do not want to take risk by spending their money in startup. This has blocked the way towards innovation and creativity. There is no way to unlock the money. The traditional way of financing business is still preventing the youth from putting their idea into practice.
The Ethiopian Herald, February 24/2019
BY LEULSEGED WORKU
