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The Hype and Hustle of African Tech Startups

Maja Andjelkovic's picture



This article was originally published in
SXSWorld Magazine
 
Hardly a day goes by without an African tech startup being featured in the mainstream media. CNN regularly updates its special report on the topic; The Guardian covers local debates surrounding emerging ecosystems; The Financial Times tracks Africa’s mobile revolution; Forbes has extended its “Top 10” series to include African female tech founders; Vanity Fair pins its hopes of “continental lift” on entrepreneurs. Blogs, opinion pieces and social media cover the sector in even more granular detail. Judging by VC4Africa’s 2015 report on venture finance, perspectives on African incubation and funding models, and the entrepreneurship program announced by Nigeria’s investor and philanthropist Toni Elumelu, it would seem that the African tech sector is among today's most dynamic industries.

Amid the buzz, many investors are asking: “Is the hype warranted?”

According to VC4Africa, an online community of very-early-stage startups and investors, 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 percent of ventures start generating revenue in their first year and that 44 percent are successful in securing external investment. More than 75 percent 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. 



Recent Investments in African Tech Startups
Adapted from: https://www.cbinsights.com/blog/african-tech-startups
 
At least eight companies have acquired growth capital in Kenya in 2014, along others in Nigeria, Egypt, Ghana, Tanzania and South Africa and elsewhere

New early-stage funds and angel networks in or focused on Africa are also on the rise. Among others, three models stand out: London-based NewGenAngels a collaboration between African and European networks (GAIN, EBAN and AAN); Kenya’s Savannah Fund, a partnership between Erik Hersman (iHub, Ushahidi and BRCK founder), i/o Ventures, 500startups and Draper Associates L.P.; and RENEW, linking American and African investors and startups.
 
Many early stage investors are still learning from their own experiences and adjusting their strategies accordingly. For instance, while most are bullish on Kenya’s tech scene, 88mph, an African seed fund has put further investments in Kenya on hold, while pursuing opportunities in Nigeria’s booming tech sector.
 
African entrepreneurship ecosystems have also benefited from a large number of technology incubators, accelerators and coworking spaces, connected through networks such as AfriLabs and backed by private sources, such as MEST in Ghana, and public-interest projects, such as infoDev’s mLabs and mHubs.
 
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.
 
All of these instigate a positive change beyond investment returns; they set in motion a chain of opportunities in emerging and frontier economies. As Stella Kariuki, founder of Zege Technologies, once told me: “I want to be the change I want to see. [. . .] We build solutions that could be global but also solve African challenges practically.” Many of the startups serve consumers at the Base of the Pyramid -- the three billion people globally who live on less than US$2.50 per day, a market that is still largely underserved when it comes to basic services such as energy, education, health and banking.
 
It seems clear that investors and startups in Africa are getting to know each other better and are making more and better matches possible. This is an important step in reducing "the missing middle”: the absence of financing beyond the earliest stages of a company’s growth. As enterprises enter national or regional markets, their capital requirements increase exponentially. Without private and public sources of investment, these requirements stifle all but the independently wealthy entrepreneurs and those with established business networks. A diverse resource base for early-stage firms democratizes the opportunity for growth-oriented entrepreneurs and increases the overall potential of the local creative class.
 
So is now a good time to invest in African technology startups? The answer is yes, as long as investment decisions are made with care, patience, and in partnership with local investment communities.
 
Maja Andjelkovic co-leads the Digital Entrepreneurship Program at infoDev, a global program in the World Bank Group that supports growth-oriented entrepreneurship in emerging and frontier markets in the tech, climate and agribusiness sectors. Maja is interested in the potential of entrepreneurship to contribute to economic, environmental and social development. She has spent over 13 years connecting these fields, including as product manager in a web startup. She is a PhD student at The University of Oxford’s Internet Institute.
 
infoDev / the World Bank Group is organizing two sessions at Startup Village at SXSW Interactive 2015; one on the dilemmas and questions surrounding investing in tech startups in emerging markets, and the other on scaling up and accelerating technology innovation in Africa.
 
Angel investors interested in forming or growing their own local networks can benefit from practical advice and templates in a guide for angel investor groups published by the World Bank’s infoDev program and the Kauffman Foundation.
 
Sean Ding, Angela Bekkers and Jeremy Bauman contributed to the article.

Behind the Scenes of 'Startupland': A Documentary that Tells the True Stories of Entrepreneurs

Toni Kristian Eliasz's picture


Try to search for stories that feature the growing pains and gains of growth-oriented technology startups – content that is not only entertaining, but of high quality and most important, educating. It is a surprisingly hard task in today's economy, where entrepreneurship is booming again.

The evolution of startup competitions: The case of Pivot East

Nicolas Friederici's picture


One of the winning 'startup' teams at Pivot East2013 (Credit: PivotEast)

Innovation competitions of all sorts have become prevalent throughout Africa, from hackathons to ideation challenges, demo days, code jams, bootcamps, roadshows, and pitch fests, the list is endless. This development is almost parallel to the rise of tech hubs (BongoHive counts about 100 African hubs) that have sprung up from Dakar to Dar Es Salaam.

While it’s evident that events and competitions are valuable opportunities—especially for young innovators looking to leave their mark—more advanced ecosystems, like Nairobi’s,  have already begun to show signs of competition fatigue and competition hopping.

Calling all mobile industry entrepreneurs

Maja Andjelkovic's picture


infoDev, a team within FPD, is committed to supporting promising entrepreneurs.

At infoDev, we’re fortunate to work with exciting technology startups in emerging and frontier markets every day. One of the questions we ask ourselves frequently is whether a startup team could achieve high-growth if it weren’t for the barriers they face that are specific to their local environments. These could include anything from a lack of experienced role-models and mentors, to inadequate early-stage financing, to challenging regulatory environments and the lack of an interconnected innovation ecosystem.
 

Towards A Business Model For Funding African Startups

Note: This blog post is adapted from a much longer discussion by the author under the same title that was published at Tekedia on January 7, 2013. You can read that blog post here. Small sections of this article are identical to segments of the original article.Africa's entrepreneurs are teeming with ideas for innovative startups. But where can they get the funding?

The problem in brief
Africa is experiencing a boom in entrepreneurship due to proliferating Internet and mobile computing technologies. Simultaneously African startups face the often life-threatening impediment of inadequate access to seed and early stage venture capital. Fortunately, a number of developments in other parts of the world point to the contours of an approach to solving that problem in a manner that necessarily starts out small, but that can eventually be scaled in a meaningful way.

Angel Investors as Startup Enablers in the Developing World

Oltac Unsal's picture

A normative definition that I use as a recovering angel investor myself is that an angel investor actively helps a seed stage startup succeed with both mentorship and capital in exchange for those intangible benefits of mentorship and a return on investment.  In World Bank parlance, then, they automatically provide both investments and technical assistance with no agency costs; a great recipe for solving multiple problems (funding capacity, entrepreneurial capability and access to early stage finance) in a cost effective way. Knowing that 318,480 of them invested $22.5 billion on 66,230 ventures in the US and achieved 27% annual returns forms the basis of our hypothesis that angel investing could work well in the developing world.

Notes from the ‘Capital of Innovation’

Murat Seker's picture

This past summer, I joined my colleagues on a visit to the Global Innovation Summit and study tour in Silicon Valley—which is undoubtedly the world’s capital of innovation and entrepreneurship. Also joining us were representatives from Lebanon and Vietnam, who were clearly interested in enabling inclusive innovation in their respective countries.

Silicon Valley isn't afraid of failing and risking its way to success.  The Global Innovation Summit brought together more than 500 innovation practitioners—including entrepreneurs, financiers, think tanks, NGOs engaged in inclusive innovation, and government officials from emerging markets.  While we were there, we got an inside look at business accelerators, financiers, higher education institutions, and NGOs engaged in inclusive innovation.  It was an important learning opportunity for us, considering the importance of innovation to the development agenda and the World Bank’s role in fostering innovation in our client countries. 

Lessons from a Start-Up Nation

Murat Seker's picture

I recently visited Israel  to learn about various programs andResearchers are helping Israel succeed in the field of innovation. (Credit: Flickr Creative Commons, IsraelMFA) tools used to support Israel’s innovation and entrepreneurship ecosystem. It is well known that innovation and entrepreneurship are two pillars of the Israeli economy and a source of global leadership.

The educational visit was arranged byMATIMOP, the government agency of the Office of the Chief Scientist (OCS) under the Ministry of Industry, Trade and Labor. It included visits to incubators, technology transfer offices, research institutes, universities and the OCS. We had the opportunity to interact with both directors and beneficiaries of various support programs, and to learn about day-to-day operations, programs, management, and the role programs played in beneficiaries’ lives and businesses.