There is a growing tech startup scene across all Africa. The continent’s budding tech culture and ecosystem are beginning to emerge, keeping analysts guessing as to what extent the culture will engrain and the scene assume a global dimension? What are the prospects, challenges and the way forward in developing an enduring tribe of successful innovators on the continent? What roles can ecosystem participants play in creating the enabling environment and culture of enduring tech start-ups for the transformation of the African business firmament and, by extension, the wellbeing of the continent’s people? Olubayo Abiodun, Clifford Agugoesi and Chimezie Ndubisi report
The global picture
START-UPS are manufacturing outlets where dreams are transformed into reality. In the United States, as in other developed economies, technology startups have played, are playing and will forever play a critical role in reshaping the economies in those climes.
As stated in the book Digital Rush, Nine Internet Start-ups in the Race for Dot-Com Riches, by Jonathan R. Aspatore with Alicia Abell, the founder of Hotmail, Sabeer Bhatia, sold Hotmail for hundreds of dollars to Microsoft Corporation, and just after a year of concluding the deal, was ‘back with another top secret startup, spending countless hours in cramped office space and eating leftover takeout.”
The same book has also the story of the founder of Netscape Communications and Silicon Graphics, Jim Clark, “who after making more money personally than most Fortune 500 companies in a matter of a few years, added two more feathers, Healtheon and Shutterfly.com, to his cap.
“Both men’s stories attest to the fact that there is an undeniable magic about starting and growing an Internet company. They further prove that, for some people at least, the allure of the Internet startup goes beyond just getting rich quick.”
The African picture
START-UPS are proving to be Africa’s hope of winning the war on unemployment, poverty and disease. Analysts underscore the critical place of tech startups in the continent’s development equation. They say the transformation of Africa resides not in the plenitude of natural resources, but in the creative ingenuity of Africans themselves, through entrepreneurship. There is a great surge in the number of budding technopreneurs on the continent. And there is increasing recognition for the public and private sectors to forge a reasonable partnership in order to midwife a successful regime of innovators evolving from the hubs being established across the continent. And, for many a tech innovator, who calls forth ideas from nothingness into something concrete, there is a reward, whether the ideas are original or a progression from work already done by others.
The African tech start-ups renaissance
THE African tech scene is agog with activities, but Kenya readily stands out among its peers in terms of birthing many an African tech startup success. Today Kenya has become an IT hub in Africa and is inspiring the emergence of other hubs on the continent, thanks to its virile public, private partnership, (PPP) architecture.
M-Pesa is a household name across the world when mobile money is the subject of discussion. In 2007, Kenyan telco Safaricom launched the mobile money service to a market bereft of retail banking infrastructure but rich in mobile phone users. The product transformed ‘even the most basic cell phones into roaming bank accounts and money-transfer devices,’ and under two years, became the continent’s most visible example of technological leapfrogging: enabling ordinary unbanked Africans access into the digital economy.
Similarly, in late 2007, political developments in Kenya led to the creation of Africa’s first globally recognized crowd-sourcing apps, Ushahidi. Four technologists — an American who grew up in Kenya, Erik Hersman, activist Ory Okolloh, IT blogger Juliana Rotich, and programmer David Kobia partnered to find a solution to the ensuing sporadic violence as a result of an inconclusive presidential election and the Ushahidi software that evolved has since become a highly effective tool for digitally mapping demographic events.
As Kenya became stable, requests came offshore to adapt Ushahidi for other purposes. By the end 2008, the app had gained multiple applications in more than 20 countries listing Haiti and Egypt where it was used for search and rescue during 2012 earthquake as well as documenting sexual harassment, respectively.
Hersman later fleshened out the ideas that spurred Africa’s innovation hub movement. He wrote in a blog post to other techies, that what African tech needed was “permanent community spaces. Hubs…in major cities with a focus on young entrepreneurs. . . . Part open community workspace (co-working), part investor and venture capital (VC) hub and part idea incubator. The nexus point for technologists, investors, [and] tech companies.”
The exchanges pioneered by him hatched the iHub innovation center on Nairobi’s now African IT–synonymous Ngong Road. It has 15,000 members and daily, numerous young Kenyans work in its laboratories and interact with global technologists such as Yahoo CEO Marissa Mayer (a past speaker). iHub gave rise to Africa’s innovation center movement, inspiring the upsurge in tech hubs across the continent. Since 2010, 152 companies have spurned out of iHub.
Google’s Eric Schmidt said in 2010 that he believed Kenya would be the “African leader” in technology. According to TechCrunch, that may be slowly happening. The country’s tech sector got a boost when US president Barack Obama opened the Global Entrepreneurship Summit (GES) in Nairobi in July 2015. Soon after, General Electric opened a workshop for technical and manufacturing skills. Microsoft chose Nairobi for the global launch of its latest operating system. International media began hailing Kenya as the world’s latest likely tech hub.
“There is no doubt that GES helped raise the profile on Kenya, and that did benefit BRCK, ” says president of BRCK Moja, Peter Ngunyi. BRCK is a firm ‘of software developers, engineers and technologists who are from Africa and live here.’ Ngunyi says the money they raised will go toward new products and expanding operations. BRCK most recently launched portable education kits with tablets, a BRCK modem, and its own charging station.
The amounts these startups are raising are not big enough when compared to US or European investments, but it does signal an improvement. Startups in Kenya have traditionally depended on grants and foreign donor funding, a trend that some critics say has crippled local innovation. Now, equity investment is growing. A report last year by VC4Africa, an online community of very-early-stage startups and investors, found that of 113 venture-backed startups it identified, 17 per cent were based in Kenya.
Tech startups, in Kenya particularly, are expected to be relatively insulated from macro-economic trends. “We expect to see more international VCs pumping in cash, while local investors will gradually realize there are opportunities in the country [aside] from real estate,” says co-founder of startup news site Disrupt Africa, Tom Jackson. Disrupt Africa aims to be the go-to source for all things startups, investments and innovation in North, East, West and Southern Africa. Alongside news articles, the site also focuses on interviews and stories on important stakeholders of the industry.
The fact that more startups are focusing on business-to-business (B2B) operations and seeing positive revenues earlier on, may also be attracting more investments, according to director of investments at Omidyar Network, Ory Okolloh. “I think the start-up scene is just maturing,” she says. The Omidyar Network is active across the African continent, as it is around the world. Founded by the founder of eBay, Pierre Omidyar the initiative has not only established itself as a leader in intelligence and advocacy in the region’s startup ecosystem, but has been funding a range of ventures from Lagos to Cape Town and Nairobi. Besides providing venture capital, the Omidyar offers human capital capabilities, from serving on boards to consulting on strategy, coaching executives to recruiting new talent. The firm recently invested in payments company Paga.
Others also anticipate more funding, but to a select number of startups. “There’s more money, and there will be more money but for fewer products,” says a tech blogger and head of marketing and business development at Gigwapi, a local event marketing platform, Kinyanjui Njonde. Njonde points out that the companies who raised the most, like M-Kopa or Okhi, startup that provides an alternative address system to businesses, are those with regional ambitions.
“These are guys who actually are wanting to go into other regions beyond Kenya. Most [investors] who are coming are looking for companies that are interested in going into other countries. Kenya alone is not a big enough market,” he says.
Analysts caution that the apparent increase in funding could be as a result of more companies going public with what they have raised. And as the sector gets exposed to international players, a new attitude towards business and money has emerged, Njonde says as he believes more Kenyan companies are willing to share numbers, an attitude they tested negative to in the past.
But Kenya’s tech industry has not fully arrived as startups see themselves grappling with bottlenecks that technology alone cannot fix including but not limited to government bureaucracy, recruiting good staff, electricity outages, and poor roads.
Kenya inspiring Africa
OUTSTANDING as it has become, Silicon Savannah is a tip of an iceberg of what Africa’s tech movement has become. Across Sub Saharan Africa (SSA), other startup hubs are taking shape and the parts of a budding SSA tech startup ecosystem are crystalizing.
So far, venture capitalists, angel investors, startup owners, private equity, government, accelerators, incubators, corporates, local champions, role models, media, telcos, conferences, thought leaders, buyers, decision makers, banks, influencers, networking organisations and potential recruits, et cetera, are cohabiting in what analysts see as a fast developing tech startup ecosystem.
Ecosystem players and their roles
IDEAS are critical in creating a robust innovation ecosystem and these reside with innovators, ideators, creators, or technopreneurs. The nexus of any good startup idea, however, is that it provides value that someone will pay for. The African tech ecosystem throws open an immense window of opportunities for helping startups take off, grow and promote themselves and for other players in the loop to benefit as ecosystems, essentially, thrive on the principle of reciprocity, which tasks and taxes stakeholders to feed those who feed them.
From the outset, analysts point out that tech startup entrepreneurs or visionaries should concern themselves, either as individuals or groups, to take the critical decision of pursuing both acquisition and initial public offering (IPO) strategies simultaneously or in part, while stressing their DNA must incorporate a clear exit strategy.
The exit strategy related to startup funding, is what happens when investors who had previously put money in a startup get money back, usually years later, for a lot more money than they initially spent…Investor exits normally happen in only two ways: Either the startup gets acquired by a bigger company, for enough money to give the investors a return as was the case when LinkedIn acquired Newsle, or the startup grows and prospers enough to eventually register for selling shares of stock to the buying public over a public stock market, akin to what Facebook did in 2012 and Twitter in 2013.
In January, 2015, iKubu, the Stellenbosch, South Africa-based company popularly responsible for the Backtracker bicycle radar technology, exited to satellite navigation multinational Garmin. Grindstone fellow, iKubu in 2014 introduced its Backtracker technology to the world as a means to test out the market and make a name for itself internationally. Although the company did not manage to reach its US$194 000 (over R2.2-million) funding goal, it turns out its plans ended up working out after all.
“iKubu has found a way to implement short-range radar into a low-power system that addresses a common concern among cyclists – identifying potential hazards that are approaching them from behind,” said Garmin’s president and CEO, Cliff Pemble. “We are delighted to add this technology to the Garmin portfolio.”
iKubu was launched in 2006 when managing director Franz Struwig self-funded the company. Two years later, Nolan van Heerden came on board as a shareholder.
“Garmin is a technological leader among cyclists, and we are looking forward to integrating our technology and expertise into their outstanding products,” said Struwig. “Garmin gives us the resources to develop, bring to market, and showcase our products that we otherwise would not have.” Struwig told Ventureburn that this acquisition puts the iKubu team in a real utopia. “Garmin is the perfect fit for iKubu. We are now able to really focus on R&D, while having access to an incredibly successful manufacturing and marketing machine,” he says.
Most of the former employees of iKubu will become employees of Garmin’s existing subsidiary in South Africa and will continue to operate primarily as a research and development center based in Stellenbosch’s Techno Park.
New Role for Governments in the Era of ICT Startups
New Role for Governments in the Era of ICT StartupsWHAT role should governments and public administrations play in fostering the entrepreneurial ecosystem for information and communication technology (ICT) growth to thrive? Head of Startup Europe Sector, European Commission Directorate General for Communications Networks, Content and Technology (EC DG-Connect) and Continuing Policy Fellow, Centre for Science and Policy at Cambridge University, Laso Isidro explains says startups have a transformational impact on the economy and society, able to impact consumption patterns thanks to their innovative use of technology. For instance, the new ‘sharing economy’ is changing the way people consume limited resources and how they interact within their communities. Startups are also starting to have an impact on net job creation.
While only 5 per cent of new firms that survive past the first five years grow, they have a disproportionate impact on job creation, accounting for 21 per cent of the total job creation in the Netherlands to 52 per cent in Sweden, according to recent data from the Organization for Economic Co-operation and Development (OECD).”
New Government Role: Agile facilitator
ACCORDING TO HIM: “The main role of governments should be to facilitate the emergence of dynamic ecosystems by working closely with entrepreneurs, investors, corporates, local champions, role models, and other interested players. This would require a shift in the role of public administrations from the comfort zone of doing direct investments and launching large financial initiatives, to a more nitty-gritty action plan, empowering the ecosystem to implement the action plan itself. Government authorities can help startup ecosystem players, and encourage them, but should neither compete with nor replace them.
“There is a risk that public administrations might jeopardize startup ecosystems if they pour public money into them, which would compete against money from alternative finance or venture capital. If public money were used to fund startups, instead of ‘smart’ money from experienced former entrepreneurs, this would have a negative impact on startups, who would find their capacity for growth limited due to lack of connections and advice that often comes when serial entrepreneurs have provided the investment. There are, however, some creative ways of financially supporting startups that could have a positive impact. For example, Italy’s Lazio region provides extra funding only to startups that have raised a much higher amount of money from a recognized private investor.”
African governments are indeed believed to be 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.
Managing partner for Africa at Nest, a Hong Kong-based VC firm, Aaron 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. Fu believes the African opportunity is evident, although there is still a long way to go.
Roles of other ecosystem players
FROM the Cape to Cairo, evidence abounds the African tech startup ecosystem is taking shape, regardless of the structural flaws it inherently possesses. Strategic partnerships are vitally important in forging an innovative ecosystem and the roles of other ecosystem players become more visible within the framework of collaboration. Developing the right partnerships almost validates the business models put forward by startups. As the experience of the rest of the world has shown and analysts okay, the model of PPPs that Kenya represents, deserves to be replicated across all Africa, their argument being that if it worked in Kenya, chances are, it would work in the rest of Africa.
There is a caveat though, as some believe the Kenyan model is not fool-proof, cautioning restraint in replicating the model hook, line and sinker or a portion of it.
As the President of the Kenyan Computer Society, Dr. Waudo Siganga, told us in an exclusive interview, even M-Pesa met with resistance from banks at the outset, their basis for opposition being that the service is telco-led.
Firms playing supportive roles in growing startups
ANGELHUB Ventures debuted as South Africa’s “first group of angel investors” that provides pool funding, expertise and networks to fuel startup growth, has been supporting startups like GoMetro, Snapplify and AmaLocker.
The Acumen Fund invests in companies that are changing the way the world tackles poverty. Targeting West and East Africa, and more, some prominent investments in West Africa include Paga from Nigeria, Ghana’s Medeem and Esoko Networks Limited.
The Meltwater Entrepreneurial School of Technology (MEST) founded in Ghana provides training and mentoring for aspiring Afr ican software entrepreneurs with the goal of creating wealth and jobs locally in Africa. The organisation recently partnered with Interswitch to support startups from Ghana and Nigeria.
The Africa Angels Network invests in and partners with tech startups in sub-Saharan Africa. Its portfolio ranges from SureGifts in Nigeria, to South Africa-based Bozza and SweepSouth.
The Lagos Angel Network organises seed funders to invest in startups. The organisation organises pitch events where pre-screened business ideas are presented to the network by entrepreneurs.
Founder of ecommerce giant Konga, Sim Shagaya has followed up on the pay-it-forward route by investing in ride-sharing startup GoMyWay in 2015 as well as Printivo.
Kampala-based, the Angels Initiative Uganda provides solutions that optimise enterprise growth in Africa. By leveraging the support of its partners, the initiative has been backing companies such as Angels Hub, ViOffices, Care SMS and Sise Works.
London-based Helios Investment Partners is an Africa-focused private investment firm, led by co-founding partners Tope Lawani and Babatunde Soyoye. Helios Investment Partners is touted as operating a total of US$3-billion.
Among its bank loan products, Standard Bank offers Khula guaranteed loans — a loan type made possible through the DTI. The scheme is an indemnity to Standard Bank should the business fail to repay the loan. 50 per cent to 90 per cent of the bank loan can be indemnified under the Khula scheme. The maximum amount that can be approved under the scheme is R3-million.
FNB Private Clients, First National Bank’s specialist banking solution has partnered with business angel investor network AngelHub, to allow its wealthy entrepreneurs, business professionals and others to increase their asset values.
Nedbank offers free transactional banking for up to two years with a startup loan of R100 000 and its Nedgroup Investments Entrepreneur Fund invests in the shares of small- and medium-sized companies listed on the JSE — not surprisingly then, Nedbank has a private equity arm.
Since 2009, Nedbank has been investing in entrepreneurs when it launched a R3-million enterprise development project in partnership with Raizcorp, a private sector business incubator which saw 12 handpicked black entrepreneurs receiving support over a period of three years to develop their new enterprises.
In Nigeria, following the leadership of the apex bank-the Central Bank of Nigeria, CBN, Bank of Industries, BoI, First Bank Plc, Skye Bank Plc, Union Bank Plc, et cetera, have churned out products and services targeted at boosting the growth of SMEs generally and tech startups particularly, which have lately earned them the appellation ‘SME-friendly.’
The Centurion Mentorship Programme is designed to support young and innovative entrepreneurs with legal and business advice, including corporate structuring, labor and employment, and tax and customs issues. The pilot programme will first be made available to businesses in Cameroon, with plans to expand it to other Centurion markets across Africa.
What is Driving Startups?
BOLSTERING SSA’s IT hub is the rise of a distinct African tech culture—a movement to embrace technology in multiple forms, particularly among youth. Many members of the continent’s innovation spaces are in their 20s or even younger.
An established group of techies– most of whom studied in the U.S. and worked in American IT–is also emerging. These include iHub’s Erik Hersman and Juliana Rotich, Senegalese born, UK–based business-woman Mariéme Jamme, and AppsTech CEO Rebecca Enonchong. Nigeria has Konga’s Sim Shagaya and Hopstop founder Chinedu Echeruo. In addition to running various IT ventures, these individuals are becoming global spokespeople for African tech and mentors to some of its youngest ideator aspirants.
According to analysts, three sources of funding into Africa’s IT ecosystem is a pointer to its future and are a major driver of developments on this scene. In part, grant donations are flowing into the continent’s innovation hubs, app competitions, and social venture focused startups. Some of these funding include U.S. foundations (Omidyar network to iHub), aid agencies (USAID to mLabs), and African governments (Nigeria’s funding of iDEA Hub), etcetera.
Global tech companies namely Google, Facebook, IBM, HP, Microsoft, Samsung, LG, Huawei, ZTE, et cetera are moving into Africa with expansion of their footprints on their minds.
Facebook recently named its first Africa head and SSA office. SAP announced it will invest $500 million through 2020 to introduce some of its newest technologies to the continent. And IBM opened its first Africa research center in Kenya–a $100 million facility creating an African version of its Watson supercomputer, dubbed Project Lucy.
Furthermore, there is a boost in VC funding and African startups. TechCrunch’s analysis indicates existence of nearly 3,500 new tech-related ventures in SSA, with countries such as Nigeria in the midst of startup booms. In Africa’s most populous nation and largest economy hundreds of online portals are popping up to provide just about every commercial service and solve any business problem. According to VC4Africa, the increase of capital is driven by three key trends: growing interest in startups from the African diaspora, the rise of local angel investors, and an increase in cross-border investments.
Africa currently boasts increased bandwidth capacity and the ubiquity and affordability of smart phones and devices means more innovators and digital natives have been empowered. Also, the projection by analysts 50 billion devices would be on the Internet by 2020 means innovators have a large coast for innovation.
Value of Funding to Tech Startups
ACCORDING to reports, African startups may prove the exception to a slowdown in funding for tech companies around the world. Startups raised $27.3 billion globally, down from 30 per cent from the previous quarter, according to the research firm CB Insights. In 2015, startups on the African continent brought in more than $185.7 million, according to a report from startup news site Disrupt Africa. And Kenyan startups especially saw their best year in fundraising since 2010. Kenyan startups raised over $47.4 million, according to the publication.
The value of VC investment fueling Africa’s startups is quickly moving from the millions to billions. Adding analysis to data provided by CrunchBase, TechCrunch conﬁrms more than $400 million in VC funding for African startups in 2014 and project at least $1 billion in VC investment in Africa’s tech startups for the period 2012–2018. Big takers are Nigeria’s e-commerce ventures Jumia, Konga and Yudala who are banking on scaling digital commerce to Africa’s most populous nation and beyond.
Disrupt Africa queried hundreds of startups, investors, hubs and other ecosystem players over a two months period and found that 125 tech startups secured the nearly $186million.
In South Africa, 45 startups raised funding, 36 per cent of the overall total. An estimated 24 per cent of deal value was recorded in Nigeria, while Kenya made up 14.4 per cent. Other investor hotspots include Egypt, Ghana, and Tanzania.
Though the total value of South African deals was found to make up 29 per cent of the overall value, co-founder of Disrupt Africa tells Ventureburn that the startups raised less funding each, compared to Nigeria and Kenya.
“The average of just over US$1.2 million [per startup funding round in South Africa] was below the average amounts in Nigeria, Kenya and Tanzania,” Jackson points out. This trend is echoed by the Southern African Venture Capital and Private Equity Association which found that while the deal activity has increased, the average deal size has declined by 22 per cent in recent years.
According to the report, the solar sector saw the most investor activity, accounting for 32.9 per cent of total funds raised. This is likely attributed to Kenya’s pay-as-you-go solar company M-Kopa’s US$19-million as well as its Tanzania-based counterpart, Off Grid Electric, which raised US$25-million.
The fintech sector is the second most favoured industry for investors, securing 29.6 per cent of the total funds. It’s also been the most popular industry in South Africa.
“There will have been many funding rounds across the continent that have taken place quietly,” adds Jackson. “But in terms of demonstrating the development of the ecosystem, these figures are an excellent starting point. We expect to see further growth in 2016.”
Amadeus heads $40M investment in Travelstart
AMADEUS the global technology investor, has announced a $40m investment in Travelstart in partnership with MTN, Africa’s leading mobile and digital life services operator. Travelstart is the leading online travel agency in Africa, and has built a market leadership position in South Africa, Nigeria, Egypt, Kenya and parts of the Middle East. The growth investment by Amadeus and MTN will enable Travelstart to enter new markets and extend its market dominance throughout Africa, as the online travel agency responds to strong demand from a rapidly expanding middle class with internet access.
Centurion Law Group is continuing its commitment to training and development with the introduction of the Centurion Business Mentorship Programme. This Pro Bono initiative will provide complimentary legal services to start-up companies and small and medium-sized enterprises.
The programme is designed to support young and innovative entrepreneurs with legal and business advice, including corporate structuring, labor and employment, and tax and customs issues. The pilot programme will first be made available to businesses in Cameroon, with plans to expand it to other Centurion markets across Africa.
Why Etisalat Supports Innovation
TO boost the creative instinct of young innovators, Etisalat Nigeria in December last year presented two young Nigerians; Obi Brown and Chijioke Ezeigbo with a N7 million cash reward in the ratio 5:2, for a publicity campaign and mentoring session at the EDC of Pan Atlantic University.
Etisalat Nigeria, one of the Mobile Network Operators (MNOs), at the forefront of innovation in Nigeria has rewarded the two youngster for their innovative products and ideas geared at making invaluable impacts on individuals and organizations using mobile broadband technology.
Ezeigbo, winner in the ‘Most Innovative Ideas’ category, developed the ‘Dedicated Traffic Mapping Device’ (DTMD); a GPRS enabled traffic navigation device with voice over interface, which is affixed to a vehicle windshield (like a rear view mirror) to help users navigate their way through traffic by accessing real-time traffic data and suggesting shorter or alternate routes.
Brown also won in another category as the Most Innovative Product Category, with ‘Study Math Lab’. It is a repository of over 1,300 videos solving mathematical problems in over 49 topics in the National Educational Research and Development Council (NERDC) curriculum for senior secondary school mathematics. The videos are solved by a team of mathematics teachers led by West Africa Examination (WAEC) Chief Examiner.
Chief Executive Officer of Etisalat Nigeria, Matthew Willsher, said, “We believe as an innovative company that we should support innovation and entrepreneurs throughout the country, and so what we do is organise the prize to encourage people to apply.
We also provide prize money that people could invest in their innovative products and ideas to make them a reality as well as a mentorship to follow through and help people actually deliver on their innovations.
The world is driven by innovation and Nigeria needs innovators whose ideas and products can drive development and help people live as they should. So we are pleased to provide a platform to mobilise the nation’s teeming young and undiscovered innovators to impact all areas of the society,” he said.
WeChat Africa to pump R50 million into tech startups
WECHAT Africa plans to invest 50 million South African Rand in tech startups in Africa, to support local entrepreneurs and technology innovations. WeChat Africa will identify promising tech startups, via an application and selection process, and support their speedy entrance into the market using the WeChat platform. Access to markets was listed as one of the biggest inhibitors to growth for African tech-enabled businesses in the recent Emerging Companies survey conducted by PWC and Silicon Cape. To coordinate the initiative, tech strategy practice firm, Batstone, has been appointed by WeChat Africa to source and coordinate early stage investment opportunities among tech startups in Africa.
Equity Crowdfunding Portal To Boost Pan African Start Ups
SMALL and medium-sized enterprises (SME’s) are the primary job creation engine in Africa, accounting for over 95 per cent of firms and 60 per cent-70 per cent of employment. Yet, SME’s on the continent report access to finance as the biggest obstacle to growth. However, Malaik, an impact-focused equity crowdfunding portal, has test launched, to connect investors interested in impact investment opportunities and entrepreneurs raising equity finance.
Malaik offers the global community clear and well-documented opportunities for high impact investing in African businesses, a chance to participate in Africa’s growth story.
CHALLENGES faced by startups are not any different from those encountered by other businesses. Power and other infrastructure bottlenecks tend to take the shine off efforts by startups to create and innovate.
A report published by research and credit rating firm, Credit Suisse, describes Africa as a ‘pain point,’ reflecting the continent’s plummeting fortunes as characterized by heavy currency depreciation, political uncertainty and dwindling crude oil prices. “Africa continues to be a pain point-with external factors (currency fall, economic weakness) and crude oil fall compounding an already tough competitive and regulatory environment,” the report published April 2015, says, emphasizing the challenges awaiting potential investors.
Startups are faced with legal issues, as well. “African entrepreneurs and businesses can only reach their full potential when they are given the right legal support,” according to the CEO of Centurion Law Group, NJ Ayuk. “The dreams of African start-ups and entrepreneurs should not be put on hold, slowed, or held back because of the lack of legal support. As a pan-African law firm, we believe we have an obligation to support them and we will provide that support.”
The programme is designed for entrepreneurs who want to know how to launch a successful company and navigate the legal and business environment of African markets.
In the article African startups are brutal but that’s part of the game, Daniel Mwesigwa articulates the challenges and prospects of many African busineses. “Every day, thousands of startups wither, entrepreneurs flounder, relationships stall, and families get broken. But that’s life. For entrepreneurs and innovators, uncertainty reigns day in day out. In Africa, such occurrences are common but happen at a quiet. The silence is so deafening that you could hear a pin drop a mile away. A mile of shattered dreams. But well, starting up is starting up. The single move that could earn you millions is the same that could send you straight to the pack of statistics; yet another warning for others to play it safe. The numbing truth is that the majority of startups don’t make it past their first birthdays. There are no guarantees of success regardless of entrepreneurs giving it their whole. In simple terms, it’s fucking brutal,” Mwesigwa wrote.
He believes African startup scene is experiencing a nirvana- that moment when servers are melting because of traffic surges and future never looks more bullish than that.
His article vividly narrates the story of Ugandan-born Ivan Mworozi, a frontliner in developer ratings whose SMSFree Android app, that allowed anyone with an internet connection to send unlimited free texts to any telecom network in Uganda, died a natural death, although ‘the potential was enormous but the harsh realities of cash flow came back to haunt him.’
Mwesigwa wrote that developers should build functional apps not only those celebrated on social media. He adds they need to be patient and avoid short-cuts if they craved honing their craft and building products that will endure, as those who defy the norm and emerge from the ash as a new phoenix and turn problems and voids into market opportunities, are the odds-in favourite to become startup successes.
Bright prospects for Tech Startups
MORE big investments funneled into Africa in 2015. Hotels.ng (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 per cent 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 Fu citing SuperFluid, a Kenyan startup Nest that 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).
Amidst the hype and hustle of African tech startups many investors are asking: “Is the hype warranted?”
According to VC4Africa, investments through the platform more than doubled in 2014, rising from $12 million to $26.9 million, while the average investment grew from $130,000 to more than $200,000. Their research shows that 49 per cent of ventures start generating revenue in their first year and that 44 per cent are successful in securing external investment. More than 75 per cent of these are in the technology sector, with agriculture, health, finance and energy startups also represented. Further along the growth path, a smaller number of startups have recently netted over $300 million from a very diverse set of investors, according to CBInsights.