For Global Entrepreneurship Week, we’re following the discussion in various media outlets around the flow of capital to early stage startups. Most agree that entrepreneurship is a necessary tool for development and we’re happy to see that capital is beginning to flow to places where it's needed.

The Africa Enterprise Challenge Fund is continuing to promote the flow of private investment to clean tech entrepreneurs in Tanzania. To earn funding, businesses must offer an affordable product that is accessible in rural areas or an innovative solution to climate change to help small-hold farmers. Solutions must be financially viable, beneficial to the user, and conducive to the adoption of clean tech. EGG-energy recently won an AECF grant. Applications for this round close December 15, 2011.

This week’s celebration of entrepreneurship across 123 countries is a reminder of the many emerging markets that are welcoming and enabling startups. Some emerging markets have Ease of Doing Business Indices competitive with the likes of Switzerland and Singapore. This doesn’t come as a surprise, Ortmans says, and iterates: “New firms are indeed the greatest source of new wealth for struggling economies and a powerful weapon against poverty.”

This week’s discussion surrounds the flow of investment capital into startups around the world. Sean Parker, somewhat controversially, thinks that the number of investors outweigh the number of fundable startups. He says that this leads to a diffusion of talent and VCs scrambling to get deal flow. Parker may think that “talented engineers and product designers … starting their own companies” lacks “impact,” but we think that entrepreneurs developing innovative technologies in mobile tech and energy open many more opportunities for impact. 

Facebook and Groupon backer, Accel Partners, raised a $155 million dollar fund called Accel India III. While Accel Partners isn’t the typical investor you’d find seeking to invest in impact at Sankalp, Accel India III will fund high-growth technology companies in India, include mobile technology. Investments will be early stage between $500,000 and $1 million.

Recreating Silicon Valley and technology incubators to promote social impact -  it’s happening in Guatemala, a huge achievement for a country known for its wide income gaps. Campus Tecnológico is an innovative new space that is promoting development on a large scale by housing startups dedicated to technology as a catalyst for change. Locally, the entrepreneurs at Campus Tecnológico are making the once run-down neighborhood attractive by filling apartments and simply buying lunch. Check out the article to learn more about the companies and their impact.

Ethiopia is infamously lagging behind the African standard of mobile penetration rates. Currently, mobile penetration in Africa is around 50% and climbing, but Ethiopia’s mobile penetration is around 12%. The Government of Ethiopia, who controls the telecommunications industry in the country, has set some ambitious goals for the next five years to increase mobile penetration rates. While there are many benefits that come along with a mobile phone in the hands of the poor, here at ID, we’re wondering if Ethiopia can achieve their lofty goals. We looked at a few factors to find out if lagging Ethiopia can reach African mobile penetration standards, and it looks like it is possible.

The Ministry of Finance and Economic Development detailed its five-year strategic goals in Ethiopia’s Growth and Transformational Plan (GTP). To achieve the goal of 75% penetration by 2015, 65 million Ethiopians must have mobile phone subscriptions. It is important to note, however, that Ethio Telecom, the state-led telecom, wants to reach 65 million subscribers while maintaining a government monopoly over the industry.

Many political and circumstantial indicators point to Ethiopia’s ability to reach 65 million mobile phone subscribers. Research by the Economist Intelligence Unit indicates that the underlying political climate is stable and should prove accommodating to telecommunications expansion (2008). Additionally, the US will continue to invest in Ethiopia to enjoy strategic advantages that come from the country’s proximity to Middle East and North Africa. China, Ethiopia’s dominant foreign investor, also has strategic benefits to gain from investing in the country to promote its global image. Relatively conservative predictions of 7.5% real GDP growth imply more than enough government revenue to afford the necessary capital expenditure (Lake & Walker, 2011).

In order to determine if the government’s goal is feasible from a financial standpoint, we must understand if planned government expenditure can meet the cost of development. We estimated the cost of development by multiplying Ethiopia’s goal number of new subscribers (55 million) by the average capital expenditure necessary per subscriber in Africa. Public data from five operators (MTN, Vodacom, Orascom, Zain, and Vodafone) covering 16 African countries and over USD$5 billion in capital expenditure suggests an average cost per new subscriber of USD$32 per person (rounded towards the worst-case scenario). Based on that data, going from 10 million to 65 million subscribers in five years will require USD$1.76 billion in capital expenditure over the same period.

Assessing the government’s ability to pay for this infrastructure requires as estimation of expected values for GDP, tax rates, percent of government spending on capital expenditure, and percent of infrastructure spending on telecommunications.

Based on our analysis, reaching the additional 55 million subscribers will cost USD$1.76 billion while telecommunications expenditures should reach USD$1.8 billion. Though the numbers are a bit rough, Ethiopia could theoretically have enough money to reach its goal.

Speculation that the government’s state-led development model hinders potential mobile penetration growth is justified. Nonetheless, the country reached their interim goal of 10 million subscribers in July of 2011 (Ethio Telecom, 2011) thanks to a $500 million loan from the Chinese government. Our analysis did not consider external funding but even with our conservative estimations indicate that the Ethiopian government could achieve its ambitious goal.

High penetration rates in Ethiopia will open many new opportunities for mobile transaction technologies to fight poverty, but it’s just the first step. State-run entities are often capable of building larger scale infrastructure but lag desperately behind the free market. The government can provide the infrastructure, but will need the private sector’s participation for value-added services like mobile money and information exchange. Will the government allow the private sector to participate? Time will tell.

Mobile phones can provide information to the otherwise isolated citizens at the base of the pyramid. When mobile phones facilitate the exchange of information, this has perhaps the most wide-ranging impact on its users.

The ability to access information about weather and prices leads to make or break decisions for farmers. To facilitate quality access, organizations like the Grameen Foundation have developed schemes that allow poor farmers in Uganda to gain access to valuable market data. This empowers the farmers by granting them access to information about market prices, weather reports, and planting advice. Without the data and information, farmers can suffer costly losses that would be preventable with timely knowledge. A designated “community knowledge worker” (CKW) identified by Grameen collects information from farmers and uploads it to the database for other CKWs. This sort of data collection and information sharing is hugely empowering, but it’s impossible without access to a mobile phone. Other examples of organizations seeking to fill this gap are mFarm, iCow, and Esoko. 

There are transaction systems that have revolutionized the job and talent searches in the developing world. As more corporations are moving into emerging markets, they need to source and hire talent. Mobile transaction platforms like Assured Labor (branded as Empleo Listo, think of Monster on SMS), allow companies to access potential employees on existing channels – mobile phones. On the other side, users can search for job openings on their phones. This enables users to find local jobs and avoid emigration where possible. This platform is especially advantageous for those who do not have access to traditional Internet on a PC, where most jobs are posted.

The mobile phone creates opportunities in markets that are beyond the reach of a traditional laptop.  You’ll find farmers and job seekers in all populations, but continued innovation in mobile technology can further extend the benefits of information exchange on a mobile phone.

Ennovent’s Sustainable Enterprise Fund announced yesterday that it invested in Barefoot Power. Barefoot provides renewable energy and lighting to off-grid or under electrified communities in India. Co-investors include Insitor, Oikocredit, and The Grace Foundation. There is still a large need for greater investment activity in India to electrify the country and eliminate energy poverty.

Benink, an investment manager at InReturn Capital, discusses the firm’s investment criteria and portfolio, and the interest VC firms are showing in Africa. Africa is attractive to both impact investors and traditional venture capitalists because of its demonstrated and expected growth. The population is young, political environments are stabilizing, and there is a growing middle class and an abundance of natural resources.

“Venture Capital Office Hours with Sean Smith” by Patrick Munyi on iHub Blog

Now that Invested Development is growing and expanding globally, our team member Sean Smith is getting settled in Nairobi, Kenya. He’s now holding open office hours at iHub Nairobi every other Friday. Entrepreneurs, innovators, or those interested in venture capital are welcome to come by and chat.

November 14^th marks the beginning of Global Entrepreneurship Week. A project supported by the Kauffman Foundation. Local activities in participating countries include competitions, conferences, and networking events. This is an exciting opportunity to drive venture capital into emerging markets and to encourage entrepreneurship.

“Libyans Need Economic Freedom” by Jay Hallen on The American

Libya is at a crossroads. Similar to Egypt, there are high numbers of unemployed youth. The article recommends that the National Transitional Council use oil revenues to create venture capital funds for college graduates. A startup community would not only develop the country’s economy, but do so in an all inclusive way.

This week, we’re stepping back and looking at the explosive developments in the ICT industry and their effects in emerging markets.  In case you missed it, check out our ongoing series on how mobile transactions systems can fight poverty, Part 1 and Part 2.

“Ethio Telecom launches credit transfer service” Press Release from Ethio Telecom

Ethiopia is infamous for its lagging mobile penetration rates. The Government-led telecom released ambitious goals for mobile penetration last year. So far, it seems that the country is on target to meet them. Last week, Ethio Telecom announced that it would now allow prepaid users to transfer airtime to one another, an early version of mobile money. Airtime is like a currency in emerging markets, and we’re excited to see this type of development continue in Ethiopia.

With over 14 million customers signed up since its March 2007 launch, Safaricom’s M-Pesa is processing more transactions in Kenya than Western Union is in the entire world. M-Pesa provides mobile money services to more than 70 percent of Kenya’s adult population, according to the International Monetary Fund. M-Pesa has revolutionized the way Kenyans transfer their money, moving about 17% of the country’s GDP each year.

In Zimbabwe, mobile phone penetration has begun to significantly contribute to levels of entrepreneurship in the country. A report from the United Nations Conference on Trade and Development revealed,“59% of Zimbabweans have access to mobile phones compared with only about 5% in 2005.” The UNCTAD pointed out that Zimbabwean SMEs are using mobile phones regularly to conduct business and m-commerce. The Government of Zimbabwe indicated that m-commerce has been a significant economic driver. In addition to mobile penetration, phones with mobile Internet are always increasing; in Arica, “7 out of 10 are expected to be Internet-enabled by 2014.”

“UN Team Approves ICT Goals As EA’s Speed Lags” by Esmond Shahonya on All Africa

The UN’s Broadband Commission for Digital Development has endorsed new targets that aim to provide global broadband access. The first target requires all countries to have national strategies for implementing universal broadband access. Furthermore, broadband access must be affordable. The final target aims to provide broadband access to 40% of households in developing countries by 2015. The goals were developed at the International Telecommunication Union (ITU) Telecom World 2011 summit, which considers “broadband as a vital ingredient for development.” 

Image Courtesy of Simpa Networks

However, for real financial inclusion, mobile transaction systems are going to have to expand their services beyond simple cashless transactions. Some of this is happening already. For example, Safaricom recently partnered with Equity Bank to develop M-KESHO in Kenya, a product that provides M-PESA users with interest bearing mobile savings accounts. Another example comes from Simpa Networks, an ID portfolio company that leverages mobile technology to finance the costs of solar home systems. The Simpa Regulator allows users to make payments with their mobile phone to pay off the cost of the system over time. In this way, mobile transactions can expand one of the most important aspects of financial inclusion, credit.