What attracts investors to start-ups run by youth?

Investors, educators, and young entrepreneurs from across Africa came together at the Very Young Entrepreneur Education and Acceleration summit to discuss the transition of youth from school to the world of entrepreneurship. CNBC Africa had the opportunity to speak with Sawa Nakagawa, Founder of Three Arrows Impact Partners, about the criteria investors in South Africa are using to identify early-stage businesses run by young entrepreneurs. Nakagawa emphasized the importance of focusing on the individuals behind the businesses when considering investments in the early stages. She highlighted that at the initial phases of a business, there may not be a proven product or significant traction, making the entrepreneurs themselves the crucial factor for investors to analyze. Spending time on due diligence for the founders rather than solely on the business idea can provide valuable insights into the potential success of a startup. When questioned about the overall sentiment in the early-stage investing landscape over the past year, Nakagawa noted that the sector, especially concerning young entrepreneurs, has not seen significant growth. Despite the rapid expansion in early-stage investing in South Africa, there are challenges to be addressed to stimulate growth effectively. One major obstacle identified by Nakagawa is the perceived lack of investable businesses in the pipeline. Investors often hold back capital due to the limited opportunities they find compelling. To overcome this hurdle, she stressed the importance of nurturing businesses founded by young individuals. By encouraging and supporting young entrepreneurs, investors can help create a robust pipeline of innovative startups. In terms of funding sources, Nakagawa pointed out the significant role angel investors and philanthropic capital can play in supporting early-stage businesses. Angel investors, typically seasoned professionals with financial resources, can provide valuable mentorship and financial support to startups. On the other hand, philanthropic capital, although traditionally associated with donations, can be strategically invested in early-stage ventures to yield potential financial returns. Addressing the challenge of investors' risk aversion, Nakagawa highlighted the African Leadership Academy's initiative to establish a catalytic fund. The fund aims to match investments when fellows secure a term sheet from commercial investors, effectively reducing the risk for individual investors and encouraging more venture capital flow into early-stage businesses. Overall, the discussions at the summit underscored the need for collaborative efforts to foster a conducive environment for young entrepreneurs in South Africa. By investing in the potential and talent of youth, the country can cultivate a new generation of innovative businesses that drive economic growth and prosperity.