Provide empirical evidence of your proposed solution's success/impact at present. If your project is in the idea phase, please provide evidence that speaks to its potential impact
TechnoServe launched the Accelerator pilot program in early 2009 and ran it till early 2010 with support from Rockefeller and GBF. Under the pilot program, the Accelerator team helped raise $750,000 in reduced-rate debt financing for two clients in Tanzania and Uganda and $100,000 in start-up capital for one client in Kenya. The Accelerator’s first focus client was a cocoa bean exporter from southwestern Tanzania. They sourced from over 11,000 smallholder farmers. The entrepreneur was a small-scale business export between five and ten tons of beans a year. The Accelerator introduced them to GBF, helped navigate GBF’s due diligence process and developed a taste profile for the beans from expert purchasers in Italy, France and the US. In the fall of 2009 the company received its first firm order for 350 tons of beans, and received $350,000 in financing from GBF. After the investment was made, further post-investment consulting in both supply chain and cash management was provided.
The Accelerator’s second client was a cotton gin miller based in central Uganda. With revenues exceeding $1 million annually, they sourced from over 1,000 smallholder cotton farmers. The entrepreneur was struggling with the high cost of capital and extremely competitive economics of commodity cotton lint. He proposed the development of a production line for medical cotton wool, to be sold regionally to hospitals, pharmacies, and NGOs. The Accelerator designed and implemented a consulting intervention, created a financial model for the new business line, developed a business plan, and conducted research into the local market for the product and created a local sales database with over 100 leads. In the winter of 2009 the client received a firm commitment for a $400,000 reduced-rate debt facility from Uganda Development Bank, relying heavily on the end products of the Accelerator’s interventions to reach their decision. The production line will come online later in 2010, and the company should be able to dramatically increase profitability while doubling the number of impacted smallholders.
The Accelerator’s third focus client was a Nairobi-based exporter of green beans and snow peas to UK markets in small volumes, sourcing from around 500 smallholder farmers. The two entrepreneurs had previously worked as an accountant and a business consultant respectively. The Accelerator introduced the firm to a number of potential financiers. An introduction to GBF proved fruitful. As of May 2010, GBF has confirmed a $100,000 seed investment, an amount that is slated to grow over time.
The Accelerator has brokered relationships with financiers for two additional SMEs, as well as provided strategic and marketing advise that have led to additional markets. The two remaining clients are in the midst of the initial due diligence processes to secure additional capital.
How many firms do you expect to reach?
Based on the results of the pilot program, we believe we can help six to twelve clients per year raise financing over the first three years of the program. The average client should impact around 5,000 farmers.
What is the volume of private SME finance you aim to catalyze?
In the first three years of the Accelerator, we aim to mobilize approximately $25 million in capital.
What time frame will be required to reach these targets?
While the project is scoped to last for three years, we see a need for the Accelerator as long as the challenges persist to facilitate capital into the SME space. In the third year of this proposed project, potential continuation will be evaluated by measuring capital market maturity (including the knock-on impact of the Accelerator itself, i.e. whether it stimulated any replication), general interest in agriculture investments from the development space, and the extent to which the population has urbanized. If it is to continue, we will explore financier receptivity for moving it into a more commercial model.
What would prevent your solution from being a success?
a) The depth of the potential pipeline: During the original pilot phase the Accelerator Manager met with over 75 regional agri-processing businesses that were seeking capital expansions of some kind. The majority of these businesses were unsuitable for one reason or another, and the actual potential client base ended up consisting of about 20% of all scouted businesses. It is unclear at this stage to what extent this was the tip of the iceberg, or a more significant section of the potential client base.
b) Availability of capital: while the amount of capital available for SMEs in E Africa is increasing, it is still not that available for agri-SMEs. Should some of the pending mechanisms not materialize this will increase the extent of the challenge.
c) Expectations on success:failure ratios: In advanced countries about 80% of small businesses fail within their first three years. While the Accelerator will be purposefully strengthening the clients, they are operating in a high-risk environment and there will be failures. Realistic expectations are that at least half the businesses will fail – and this should be considered success.
d) The capacity of the financiers to support the businesses post-financing: The Accelerator’s primary focus is on pre-deal strengthening – with the assumption that good financiers will be able to help their clients post-investment. If this is not the case, they will be dependent on finding support from other local development programs – if they can be identified.