The hype and hustle of African tech startups

by MMC
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This article was originally published in SXSWorld Magazine

Hardly a day goes by without an African tech startup being featured in major media. CNN regularly updates its special report on the subject; The Guardian covers local debates the surrounding emerging ecosystems; The Financial Times follows mobile in Africa revolution; Forbes has expanded its “Top 10” series to include African tech founders; Vanity Fair pins its hopes on “continental elevator» about entrepreneurs. Blogs, opinion pieces, and social media cover the industry in even greater detail. Judging by VC4Africa Report 2015 on risk financing, perspectives on Africa incubation And funding models, and entrepreneurship program announced by Nigerian investor and philanthropist Toni Elumeluit seems that the African technology sector is among the most dynamic industries today.

Amid the buzz, many investors are wondering, “Is the hype justified?”

According to VC4Africa, an online community of startups and early-stage investors, investments through the platform more than doubled in 2014, from $12 million to $26.9 million, while the average investment increased from $130,000 to over $200,000. Their research shows that 49 percent of businesses start generating revenue in their first year and 44 percent are successful in securing external investment. More than 75 percent of them are in the technology sector, with agriculture, healthcare, finance and energy startups also represented.

Further along the growth path, a smaller number of startups have recently raised more than $300 million from a widely diverse set of investors, according to CBInsights.

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Recent investments in African tech startups
Adapted from: https://www.cbinsights.com/blog/african-tech-startups

At least eight companies acquired growth capital in Kenya in 2014, with others in Nigeria, Egypt, Ghana, Tanzania, South Africa and elsewhere.

New seed funds and angel networks in Africa or focused on Africa are also on the rise. Among othersthree models stand out: based in London NewGenAngels collaboration between African and European networks (EARN, EBAN And AAN); Kenya Savannah Fund, a partnership between Erik Hersman (founder of iHub, Ushahidi and BRCK), i/o Ventures, 500startups and Draper Associates LP; And RENEWconnecting American and African investors and startups.

Many beginning investors are still learning from their own experiences and adjusting their strategies accordingly. For example, while most are optimistic about the Kenyan tech scene, 88 mphan African seed fund has strengthened investments in Kenya are suspended, while looking for opportunities in Nigeria’s booming tech sector.

African entrepreneurship ecosystems have also benefited from a a large number of technology incubators, accelerators and coworking spacesconnected via networks such as AfriLabs and supported by private sources, such as MEST in Ghana, and public interest projects, such as the InfoDev project mLabs and mHubs.

According to VC4AfricaThe capital increase is driven by three key trends: a growing interest in startups from the African diaspora, the rise of local angel investors and an increase in cross-border investments.

All of these elements drive positive change beyond returns on investment; they have triggered a chain of opportunities in emerging and frontier economies. Like Stella Kariuki, founder of Zege Technologies, once told me: “I want to be the change I want to see. (. . .) We are building solutions that could be global but would also solve African challenges in a practical way. Many startups serve consumers at the base of the pyramid, the three billion people worldwide who live on less than $2.50 a day, a market that is still largely underserved when it comes to basic services like as energy, education, health and education. banking.

It seems clear that investors and startups in Africa are getting to know each other better and making more and better meetings possible. This is an important step in reducing the ‘missing middle’: the lack of funding beyond the early stages of a company’s growth. As companies enter national or regional markets, their capital requirements increase exponentially. Without private and public sources of investment, these needs stifle everyone except wealthy, independent entrepreneurs and those with established business networks. A diverse resource base for start-ups democratizes opportunities for growth-oriented entrepreneurs and increases the overall potential of the local creative class.

So, is now the right time to invest in African tech startups? The answer is yes, provided that 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 which supports growth-oriented entrepreneurship in emerging and frontier markets in the technology, 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 bridging these fields, including as a product manager at a web startup. She is a doctoral student at the University of Oxford Internet Institute.

infoDev / World Bank Group organizes two sessions at Startup Village during SXSW Interactive 2015; one on the dilemmas and questions related to investing in technology startups in emerging markets, and the other on scaling up and accelerating technological innovation in Africa.

Angel investors looking to create or grow their own local networks can benefit from practical advice and templates in a format guide for angel groups published by the World Bank infoDev program and the Kauffman Foundation.

Sean Ding, Angela Bekkers and Jeremy Bauman contributed to the article.

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