Omidyar Network has spent millions of dollars on African entrepreneurs.
And at a time when most VCs are looking for the next unicorn, Omidyar Network has chosen to focus on making an impact by investing in entrepreneurs that are creating opportunities and improving their communities, and the world around them.
The global funder pays a particular focus on emerging markets, backing African startups that are solving very African problems.
Some of the startups that the company has invested in include Andela which trains software developers in Africa; mobile money transfer service, Zoona which operates primarily in Zambia and caters for unbanked and low-income consumers as well as online marketplace Giraffe, that uses mobile technology to connect medium-skilled workers to job opportunities.
They have also backed other social enterprises such as Living Goods which operates networks of village-based health entrepreneurs that work to defeat diseases of poverty in countries like Kenya, Uganda and Zambia; one of Johannesburg’s first technology incubators, JoziHub that is dedicated to developing sustainable social change through collaboration and innovation as well as ed-tech startup, Siyavula Education, that aims to provide free and open access to textbooks and learning resources.
Described as a “philanthropic investment firm”, Omidyar Network is a private equity and venture capital firm that invests in both profit and non-profit organisations and was established by the founder of online auction giant eBay, Pierre Omidyar and his wife Pam in 2004.
The organisation specialises in seed, startup, early, and mid venture investments focusing on entrepreneurs who are impacting their environment in a positive way through their businesses.
SME South Africa got the opportunity to speak to Charmaine Padayachy, principal of investments at Omidyar Network.
Padayachy is responsible for sourcing and executing investments across several initiatives for Omidyar Network Africa, including consumer internet and mobile, education, and financial inclusion.
She shares what they consider when deciding which startups they will fund as well as what she considers as Africa’s Achilles heel when it comes to VC and private equity investments.
Q: How much has Omidyar Network invested in startups in Africa?
From inception until the end of the first quarter of this year, Omidyar Network has committed more than $84 million to Africa. From that total, more than $44 million has been committed in 45 nonprofit organizations, through 67 grants; and more than $40 million has been invested in 15 for-profit companies, through 28 investments.
Out of these investments, 38 percent were made through our Governance and Citizen Engagement initiative, 25 percent through our Education initiative, and 19 percent through our Financial Inclusion initiative.
Q: The organisation brings either grants or investments or a combination, why did you choose this hybrid strategy to investment?
When eBay went public in 1998, Pierre Omidyar found himself wealthy beyond what he ever expected. Almost immediately he started a traditional grant-based, philanthropic approach and set up a foundation, but very quickly became frustrated with the limitations of this model. Foundations do not take as much advantage as they can of the power of business and markets. His eBay experience has showed him that businesses can be a driver of social impact: More than a million jobs created, many of which went to underserved.
He looked conversely at the nonprofit sector and saw how difficult it is to scale impact without sustainable revenue models, so he decided not to be constrained by structure and redesigned a hybrid entity to give flexibility to do whatever fits the bill. We call it the “problem first, tool second” approach. Investment professionals treat grant and investment dollars equally and decide which vehicle to use based on what would create the most impact.
That is how Omidyar Network was born: built on the belief that businesses can be a powerful force for good and that market forces can be a potent driver for positive social change. Almost 10 year later, our hybrid model is being recognized and adopted by other philanthropists, such as the Chan-Zuckerberg Initiative.
Q: What types of startups do you consider for grants and why is this important, particularly for startups in the African context?
Organizations addressing public goods and infrastructure problems in a sector need adequate capital for the industry to grow. These can be for-profits, but are most often nonprofits. Nonprofits play a critical field-building role through research, capacity development, and advocacy. That’s why we invest in both for-profit businesses and nonprofit organizations, whose complementary roles can advance—or create new—entire sectors.
Q: What do you look for in a startup when considering them for capital investment?
When evaluating potential investments, initially we assess the company’s overall fit within our key initiatives and then their potential for financial returns, social results, and effect on the sector as a whole I’m looking for passionate, driven local entrepreneurs and teams who understand the market challenges and how to effectively solve for these, as well as models that while addressing real need are also scalable and commercially viable.
Q: Omidyar Network employs the ‘problem first, tool second’ approach that allows for market-based solutions. Why is this important, particularly on the continent?
Building ecosystems is a complex, multi-stakeholder effort. Markets cannot solve every problem. Some public goods and infrastructure needs can only be solved through government engagement or, as I mentioned before, through organizations addressing public goods and infrastructure problems—which are most often nonprofits.
This is important when investing in Africa because our approach is not constrained by structure, so we can do whatever fits the bill in order to reach maximum impact. From our venture checkbook, we can deploy patient capital to scale innovative solutions in the marketplace, while our grants checkbook lets us expand understanding and positively influence the environment around it.
Q: What are some of the challenges that come with investing in startups in Africa?
Lack of capital, and co-investors are hard to come by especially in the Seed and Series A stages. It is also hard to secure senior management talent at a price the startup can afford.
Q: What would you say is the company’s most significant success in Africa?
This is hard to tell right now, we have made a number of investments into sectors that are critical to the growth and development of Africa’s economy. We are actively managing these investments such that they can grow and become successful.
Q: What role do organisations such as Omidyar Network have in terms of realising Africa’s entrepreneurial potential?
As an impact investor, we seek both positive social and financial returns. Our ability to both invest and make grants gives us the flexibility to support the best organizations for helping sectors scale, whether they are for-profit or nonprofit.
We believe that accelerating the development of an entire sector can impact many more people than any single firm can reach. That is why our investments are focused on in five key sectors that are crucial building blocks of stable and open societies: Consumer Internet & Mobile, Education, Financial Inclusion, Governance & Citizen Engagement and Property Rights.
However, most important for the African context, is that we are committed to the hard and uncertain work of sparking and nurturing innovations at the very early stage. We build long-term relationships with entrepreneurs through patient capital, because we understand that solving the world’s most complex problems takes time and that building an impactful business is a journey.
In addition, we believe financial capital is only the beginning. We offer our entrepreneurs human, intellectual, and network capitals. Although vital for growth, scale, and capacity building, we understand that money alone cannot solve every problem nor bring about the positive social impact our companies seek. That is why we often take a governance role on our investees’ boards, and provide marketing, product, organization design, recruiting and compensation, legal, and finance, counsel to help entrepreneurs build and scale their businesses.
Q: What would you consider the Achilles heel of VC and private equity investments in Africa?
Not investing early enough, most companies don’t make it to Series A due to lack of Seed capital. Also expecting VC investment to come without risk.
Q: What do you see as the next big breakthrough in Africa?
Africa has many examples of pioneering ideas that have created a cascade of benefits worldwide. Mobile money is a great example of an idea that created an entire new sector and has benefited unbanked and underbanked consumers in emerging markets around the world. We believe that the vibrant entrepreneurial community in the continent can come up with a lot more. New trends in Digital Solutions that are serving a real painpoint of consumers, such as Health, Jobs and Transport will emerge.