Exclusive: A private equity fund for Ethiopia

Ascent Rift Valley Fund is a new private equity investor in East Africa. Ascent, which manages the Ascent Rift Valley Fund, announced in July 2014 its first US$50million to be invested in growth enterprises in East Africa. The fund will make investments in 10-12 companies in three east African nations: Ethiopia, Kenya and Uganda. On Thursday Jan. 22nd, Ascent announced the opening of its Addis Abeba advisory office. Following the announcement, Addis Standard interviewed Michael M. Selassie, Principal and Country Director, and Guy Brennan, Ascent Partner, on how the fund intends to operate in Ethiopia. Excerpts:

 

Addis Standard – I learned that Ascent Rift Valley Fund is a new Small and Medium Enterprises (SMEs) fund in East Africa. Could you briefly take us through the background of this fund? Where does the money come from?

 
Michael M. Selassie: Ascent’s fund is a $50m growth equity fund with offices in Addis, Nairobi and Kampala. The investors in the fund are the Ascent partners themselves, private individuals, Eastern African institutional investors and Development Banks.

 
AS – Ascent manages the Ascent Rift Valley Fund, and it first announced the availability of $50 million to be invested in growth enterprises in Ethiopia, Kenya and Uganda back in July 2014. But you have just launched the opening of your office in Ethiopia on Jan. 22 this year. What took you so long?

 
Michael M. Selassie: The Ascent team here in Ethiopia has been on the ground since the start of 2014. We moved into our new office at Abyssinia Mall, next to Bole Medhanyalem Church, towards the end of 2014 and would be delighted to welcome Ethiopian entrepreneurs on the 11th floor.

 
AS – I understand that Ascent Rift Valley Fund will focus to make alternative financing available mostly to consumer related businesses where, I quote, “the capital and competencies of the fund managers can contribute.” Does that mean you will not only make financing available but also your expertise and perhaps guidance to the beneficiaries of the fund?

 
Guy Brennan: At Ascent, we believe our strengths include our operational expertise and geographic footprint, which allows us to help expand Ethiopian businesses in the region where we have our permanent offices. Ascent is predominately made up of people who have spent their careers managing and running businesses in Africa. We believe that many of these experiences can help assist our Ethiopian partners on a day-to-day basis.

 
AS – Obviously Ethiopia is a country where the private sector is suffering from lack of financing from the traditional channels mostly banks. How hard will that make your decision to select which ones to provide your funding to and which ones not?

 
Guy Brennan: Unfortunately, outside of banks, there are not too many options for Ethiopian entrepreneurs to raise capital. We hope that with our new fund we can provide other financing options that may be more appropriate for certain businesses given their financial needs.

 
AS – You stated that “the most important sectors to fund will be, I quote, “healthcare, fast Moving Consumer Goods (FMCG), processing of agricultural products and financial services.” Other than, perhaps, processing of agricultural products, how relevant do you think are the other sectors to the be considered most important given Ethiopia’s current reality?

 
Michael M. Selassie: At Ascent we are interested in looking at all types of businesses. As long as the business is well run, with exciting prospects, and a great team, we would be excited to see how our capital and business experience could create a form a mutually beneficial partnership.

 
AS – What criterion do you follow to render enterprises eligible to receive funding?

 
Michael M. Selassie: For us to be able to work with a business, it must be currently operational and profitable. We are looking for businesses with a track record of growth over a number of years but, most importantly, we are looking for exceptional entrepreneurs who we can work with to grow the business to the next level.

 
AS – I understand that you will make a funding of between $2million and $10 million available per company. Can you explain in brief the terms and conditions?

 
Guy Brennan: As a private equity fund our principal form of investment is share equity. This means that we inject money into the company without requiring loan repayments. We become shareholders in the business on the same terms as the original owners.

 
AS – You said the fund will make “investments in 10-12 companies in Ethiopia, Kenya and Uganda.” Isn’t that too small a number?

 
Guy Brennan: This is Ascent’s first fund of $50m. Our average investment size will be $3-5m, which means there is a limit to the number of businesses we can work with in the beginning. However, in the future, we hope to raise another fund where we will be able to collaborate with many more entrepreneurs.

 
AS – Have you identified eligible companies in Ethiopia, yet? Or when do you expect to touch base with the actual work?

 
Michael M. Selassie: We have met with many eligible and exciting entrepreneurs in Ethiopia. We are in advanced stages of discussions with a number of businesses and hope to be in a position to announce our first investment within the coming month.

 

Cover Photo: Michael M. Selassie (left) & Guy Brennan

Photo: Addis Standard