T H E M E 3
Sus ta i nab i l i t y cha l l enges threaten ESOs and Ent repreneur s l ong- term sur v i va l
Entrepreneurs need access to capital to support their development
How did you finance the start-phase of your business? (% of rating) 85%
0% 10% 20% 30% 40% 50% 60% 70% 80% 90%
78%
77%
71%
67%
Startups are not generating enough revenue to cover their operational costs. They use personal savings, loans from friends and family to keep their business activities alive. 85% of entrepreneurs finance the startup phase of their business through personal and family savings. As for the working capital, entrepreneurs think it is equally “very relevant to use personal or family savings”. Findings from focus groups reaffirm that startups are not generating enough revenue to cover their working capital. Most entrepreneurs only have ideas and not the technical expertise to build a product or the business development skills to position themselves in a market. This has contributed to their inability to generate sufficient revenues to cover their working capital. Entrepreneurs are not able to obtain loans from banking institutions or non-banking institutions. While these challenges are common to both men and women, in many cases, they are more significant for women. Women are less likely than men to indicate that they can access the financing needed to start a business or to grow a business. This gender gap in access to finance has been examined by many studies providing evidence that women face higher hurdles in financing their businesses. For example, the restrictive financial barrier that prevents women from obtaining funding due to lack of collateral. It is well noted that over 90% of startups in Africa collapse before their 5th anniversary and it is mostly attributed to lack of a viable business model, team competency and lack of funding.
53%
32%
30%
24%
20%
18%
16%
14%
11%
11%
11%
10%
9%
9%
9%
8%
8%
8%
6%
3%
3%
4%
2%
Personal or family savings
Finance from relatives/friends
Borrowing from banks
Borrowing from non- bank financial institution
Angel Investment
Equity Investment from an institution (Private Equity or Venture Capital)
Other
Very Relevant
Significant
Relevant
Insignificant
How did you finance working capital for your business? (% of rating)
90%
79%
79%
80%
69%
68%
70%
63%
62%
59%
60%
49%
50%
40%
30%
26%
16%
17%
20%
17%
15%
16%
15%
15%
13%
12%
11%
11%
11%
10%
10%
8%
8%
9%
8%
10%
5%
5%
5%
5%
3%
0%
Angel Investing VC Funding
Other
Cash flow from the firm
Personal or family savings
Borrowing from relatives/friends
Borrowing from banks
Borrowing from non bank financial institutions
Very Relevant
Significant
Relevant
Insignificant
34
N E E D S A S S E S S M E N T R E P O R T
Trends and insights from ESOs, entrepreneurs, and investors
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