5 conditions for growing the African tech startup space
There is a massive opportunity for African tech start-ups to use technology to leapfrog innovation in sectors like healthcare, education, food security, transportation and more.
Africa’s population is growing exponentially. Almost a third of the world’s people are expected to live on the continent by the end of the century – and population growth between now and the year 2100 is expected to be 85-90%. Is this a massive problem from an infrastructure perspective? Or a massive opportunity to use technology to leapfrog innovation in sectors like healthcare, education, food security, transportation, logistics, financial inclusion, and more? Zack George, co-founder and Chief Investment Officer of Startupbootcamp Africa, explains why he believes in the latter.
What are the key cities in Africa that present themselves as hotbeds for innovation?
As many people in the space are aware, Nairobi, Lagos, and Cape Town tend to be the three largest tech cities in Africa. But what makes these cities special? If the particular city or geography that you’re initially based in does not provide at least three or possibly four of the following five attributes, consider looking at other neighbouring ecosystems where you can get components of these to help you scale:
- Smart, talented, and tech-savvy entrepreneurs. You need designers, digital marketers, and people from top-tier technical and business schools who opt to pursue an entrepreneurial path by working with startup founders, rather than limiting themselves to academic and consulting roles. We see a lot of this in Silicon Valley, Bangalore, and Beijing. It’s about time we start seeing it in African cities as well.
- Risk capital. The common thread and reason why Nairobi, Lagos, and Cape Town rank consistently in the top three in Africa is risk capital. Note that I use the term “risk capital” and not just capital. There’s a growing pool of risk capital from high net worth individuals, families, and venture capital funds that look at alternative asset classes [compared] to traditional asset classes like property, listed equities, etc.
- Collaboration between large corporates and startups. What I mean here is corporates looking beyond traditional internal innovation and product development programmes by venturing into partnerships with startups. We’ve seen that work exceptionally well in Europe and in Asia. And we’re seeing it filtered down into Africa when corporates – especially telcos, retailers, banks, and insurance companies – have a sort of monopoly in terms of distribution and customer access.
- Accelerators. How you facilitate relationships between large corporates and startups is where incubators, accelerators, and entrepreneurial support organisations provide this channel. They act as a safe “sandbox” where corporates can work with startups.
- Government support. You can’t ignore the role of government, at the national, provincial, and, in certain cases, at the municipal level as well. The role of government is not to interfere with founders and their ventures but to help provide things like research and development grants, tax subsidies, and incentives to small and medium businesses as well as to investors in these enterprises. You see the State government of California doing that a lot, as well as the governments of Tunisia, for example, and Rwanda. We’re slowly seeing it in in other African countries too.
It’s not how long you’ve been in business or how much funding you’ve raised. I’ve seen a lot of businesses that have been around for ages and are still worth the paper they’re written on, or businesses that have raised a lot of money but aren’t worth much. And I’ve seen the opposite: businesses that have not raised a lot of money but are still worth a lot. The only true determinant of your valuation is validation. In other words, do you have a product/market fit or do you have a problem/solution fit that makes your business worth looking at? These are some of the key things that we look for as venture capital investors and some of the key trends in the market in Africa.
We set out to discover which African businesses are best prepared for the future, and what those businesses are doing differently to the rest. In our report we explain what ‘future ready’ businesses look like – how they’re approaching emerging challenges in the business world and how they fared during the COVID-19 crisis.