Are ESOs doing enough to connect entrepreneurs and investors?

In late 2020, Afrilabs released a Needs Assessment Report considering opportunities and gaps in the African innovation ecosystem. The report raised interesting questions about whether expectations are being met across stakeholders in the value chain, while simultaneously highlighting the importance of skilling and resourcing entrepreneur support organisations (ESOs, also called hubs) to adequately support the entrepreneurial ecosystem. 

The research sample was a cross-section of 87 ESO representatives, 133 entrepreneurs and 72 investors from 30 countries across Africa, giving an ecosystem view of the issues. 

ESO and investor mis-match
A key insight was that 79% of entrepreneurs wanted support in investment readiness and fundraising, while 54% of ESOs felt that “training in entrepreneurial programme design” was a significant need. There is clearly a mismatch between what ESOs are able to offer and what start-ups need, and it comes down to capacity in the hubs.

ESOs are not producing investment-ready businesses
Investors concur. Only 7% of investors believe that ESOs contribute to entrepreneurs being investment ready, but 65% report that investment readiness is important to them. When asked “What do you think is the biggest disconnect between investors and entrepreneurs?” investors rated ‘lack of experience’ (17%) way below ‘entrepreneurs are not investment ready’ at 49%. While some of this may be due to under-developed markets constraining growth, much of it could be attributed to inadequate preparation by the entrepreneur. 

ESOs are not sustainable
And ESOs are struggling to fill the gap. It doesn’t help that 52% of ESOs in the report revealed that they were not financially sustainable. Very few are managing to diversify funding sources in order to operate: More than half rely 100% on outside support, such as grants, to remain operational. 

ESO’s work needs to align with the wider ecosystem
This is disappointing, as ESOs can play an important role in the innovation ecosystem. But while 35% of investors said they benefited from hubs as a source of pipeline, 45% said that they did not benefit from hubs at all. If hubs are to remain relevant to both entrepreneurs and investors, that dynamic needs to improve. Over a third of investors believe that with capacity building support ESOs could start to overcome their limitations, and the need for them to do so is clear.

Investors and entrepreneurs can benefit from hubs as skills trainers, intermediaries and ecosystem enablers, but ESOs need to become capacitated to deliver investment readiness training and support. 

Viridian has released a survey conducted with a sample of 11 tech-focussed entrepreneur support organisations from across South Africa, commissioned by the UK-South Africa Tech Hub, which gives insights into the local ESO ecosystem.