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Poor people are getting terrible investment advice

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You’d think the response to the question “How should I invest for retirement?” would be further, deeper inquiries about the individual hoping to retire someday, and then a nuanced plan considering that information. However, when you boil it down, age is the single most important factor when determining the investment advice you’ll receive from the retirement industry. The guiding principle: younger people get more stock (considered more risky), older people more bonds (less risky). But if you look around your office, you’ll see people with varying income and career trajectories, so the idea that everyone should have the same investment strategy—and risk tolerance—because of age seems beyond nuts.

That’s not the only way in which investment advice can suffer from oversimplification. Consider people with lower incomes, who are often lucky to have a retirement account at all. Several states are now stepping up and offering retirement accounts to people who don’t get such benefits through their employer, which tend to be low earners.Each state is taking a different approach to how the money will be invested. While most don’t offer much choice, there is a uniform push toward low risk investments. The thinking? Low income people can’t afford to lose any money in the market. That also means they have no shot at upside either. For that reason, some in the industry argue the states have it backwards—low income people should have riskier portfolios because they’re already starting from a lower asset base and need to be aggressive.

The states’ approach is closer to how lower earners currently invest. Using data from the 2013 Survey of Consumer Finances, the chart below shows how much stock Americans age 35 to 50 hold in their retirement accounts, segmented by income. I focus on retirement holdings because low-wage Americans often don’t have access to the stock market, but everyone with a retirement account has equal access to the market and is faced with similar investment choices.

As you can see, higher earners typically invest in stocks significantly more than middle to lower earners.

Researchers at Morningstar argue it should be the other way around. It’s not as crazy as it sounds. They point out that lower earners receive a more generous Social Security benefit relative to the income they need to replace in retirement. That benefit ends up representing an overwhelming share of their assets. Assuming Social Security is a safe asset, low earners, from a diversification perspective, should be positioned to take on more risk elsewhere. Another argument is that low income people are being left behind as the economy increasingly favors the owners of capital. Owning stock gives them a way to join that party.

That’s the theory and it makes a compelling argument that low earners may want to take on a lot of investment risk. But the reality is many low earners have meagre savings beyond their relatively small retirement accounts. The figure below takes the same group above—people with a workplace retirement account age 35 to 50—and takes the median liquid assets (checking, money market, or saving accounts) for different levels of household wage income.

The lowest income group has less than $2,000 in liquid assets. That means they have almost no financial cushion should they lose their job, need car repairs, divorce, or have a medical event. That leaves their retirement accounts as an emergency saving vehicle. Sadly, many people do use it this way: According to a survey from Aon Hewitt, low salary people withdraw from their retirement accounts at twice the rate higher income people do. Risky investments are a bad idea for an emergency fund because you may need to sell just when the market tanks.

As more people with diverse financial situations have retirement accounts, one thing is for certain: A one-size-fits all investment strategy based on age or some presumed risk tolerance is completely inadequate. There needs to be full consideration of your savings and income—both present and future—to figure out how much risk you can take.

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The Cost of Funding

Having a great idea is not enough to get millions of dollars of funding, or even any money at all. An idea is just a start.
Creating a plan, including a business plan, financial projections, marketing research and feasibility studies involves money, time and energy.
The effort of making that plan available to potential investors requires even more funds. Throwing it out on free platforms will not do the trick. It’s too busy there. Quality investors don’t have the time to roam all these solicitations. Actually, they don’t have time for any solicitations at all.
An investor or funding source needs to be approached professionally. By introduction or recommendation for example, or with a well crafted message. Find websites where investors look for funding opportunities, go to business plan contests, attend investing conferences.
Once the plan gets into the hands of an investor, and the investor shows interest, the end is not in sight yet. This is just the beginning. Before the funding source digs in its pockets to provide funds for you, it needs to check your funding proposal.
The questions are: 
Who is this person? What is their experience? Have they done business before?
What kind of qualified team will execute this plan? What are their credentials?
Are the numbers and projections quoted realistic? 
Are the facts stated in the plan true? 
What are the risks involved, what will you do to mitigate the risks?
How will I get my money back, what kind of exit is possible? How long will it take?
What is the potential profit in this venture? 
What is the competition like? 
The funding seeker will have to answer these questions. The way he or she formulates these replies tells the investor a lot. Replies that are to the point, with quality information and complete documents are necessary.
In order to verify all of this information, the funding source will have to examine the project. This is called due diligence. There will be all kinds of expenses:
Travel expenses
Accountants fees
Analysts fees
Legal expenses
Funding sources will not pick up all of these expenses anymore, things have changed in the financial world. Investment banks and venture capital firms are well paid professions. They don’t work for free. They do charge hefty fees.
Loan originators may be a bit more lenient and add on points to the settlement date of the loan, however, they need to do their homework. They are not banks who have you or the public in general as a customer. They want to be paid for their day-to-day routine. No matter what the outcome is of their time and energy invested in your proposal, they need to be paid.
Conclusion: in order to raise funds, you need some money. You need a budget to find funding. Use savings, partners, a small loan, or ideally, get started with your business. Start small, prove that it works and that it is profitable. It will buy you a lot of goodwill from your funding sources.
An afterthought: A great way to raise funds is to issue your own securities. It’s like turning the tables in the funding process. You’re the one in charge, setting the conditions. This prevents mistakes in the compliance process for raising capital with the public. The JOBS Act has relaxed the rules for fundraising.
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The African tech startup scene has been transformed in just four years

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Last month DEMO Africa took place in Lagos, Nigeria, with 30 tech startups pitching to an audience of investors. The event—one of the biggest of its kind in Africa—is only its fourth year, but in that time the startup landscape has changed enormously.

Back in 2012, investing in the continent was still considered a risk, and there were few success stories to convince investors otherwise. But last year, startups listed on the online funding platform VC4Africa raised $26.9 million, more than double the amount in 2013. And that’s just a drop in the ocean; the total of venture capital invested was more likely closer to $500 million, considering sizeable funding rounds for the e-commerce companies Jumia, Konga and Takealot.

2015 has brought more big investments. (an online booking platform), Parcelninja (a logistics service) and M-KOPA Solar (which provides solar equipment to rural households, and accepts mobile payments) have raised large rounds, and Kenya’s Weza Tele (fintech) and South Africa’s WooThemes Africa (web design) are starting to see some impressive exits.

That will further encourage investment, according to South African angel investor Daniel Guasco. “Success breeds success,” he told Quartz. VC4Africa’s founder, Ben White, noted that the number of venture applications on VC4Africa has grown 640% in the last three years, and their overall quality has risen. With a billion people in Africa, a growing middle class, fast economic growth compared to much of the world, and the rapid expansion of both internet and mobile penetration, White argued there are many new market opportunities for these startups.

What’s more, those opportunities extend beyond Africa’s borders, argued Aaron Fu, managing partner for Africa at Nest, a Hong Kong-based VC firm. He cited SuperFluid, a Kenyan startup Nest is incubating, which uses non-traditional data sources to assess people’s financial health. “While this certainly was accelerated by a need on this continent for alternatives to traditional financial statements and credit bureaus, it has applications to individuals regardless of where in the world they reside,” he told Quartz.

An interesting aspect of the recent flurry of investments in African startups is that they come from a variety of sources. These range from angel investors such as Guasco and his fellow South African Vinny Lingham, to big mobile operators such as Millicom and Safaricom. Private equity firms from abroad, such as Helios Investment Partners, are now starting to target the continent, while investment networks are also in vogue, such as the African Business Angels Network (ABAN).

African governments are also doing more. Rwanda has created a special visa for technology entrepreneurs. Kenya has launched Enterprise Kenya, through which the government plans to back tech startups itself, and has revised its company acts, including one that has been in place since 1948. The Nigerian government, a strong supporter of DEMO Africa, has launched a publicly funded incubator in Lagos and plans to back startups itself.

Fu says African governments could go still further—for instance, by mirroring schemes such as Singapore’s Early Stage Venture Fund (ESVF), whereby the government provides matching funds for VC investment. The African opportunity is evident, and there is still a long way to go.