FROM START-UPS TO SCALE-UPS IN AFRICA
Recommendations and Insights from WSA awarded start-ups from Africa
on occasion of the EU-AFRICA High Level Forum in Vienna, Dec 18th 2018
GENERAL CHALLENGES FOR AFRICAN START-UP ECOSYSTEMS
- Education, skills, electricity, affordable Internet
Better education, skills training, electricity and affordable Internet are still the main challenges in order to create an interesting ecosystem for tech-entrepreneurs in most African countries.
470 Million Africans are deprived from 3G access and mobile data packages are not affordable to the majority of Africans.
There are still many people who cannot read or write, and stable electricity is a rare luxury.
As long as these problems are not solved, tech entrepreneurs will find it more challenging than in other markets to succeed.
- Small markets
The market opportunities are still relatively small and there is not enough demand for new solutions. The culture revolves more around trusting traditional models, rather than being excited about new innovative ideas and solutions.
One start-up founder stated “In most countries, there are many businesses – but there is no industry”.
- Payment channels
Convenient payment channels are still a problem and cross-border payment can be a huge challenge for start-ups that want to access other countries.
WHAT WOULD AFRICAN START-UPS NEED FROM INVESTORS AND BUSINESS ANGELS?
- Africa is not a country
The kind of investors needed are those who have a good understanding of the African business ecosystem, and recognise that Africa is made up of 54 distinct countries with different business and economic approach and systems, hence, there is a need to engage each country and their several sectors differently. There are many foreign investors who engage African countries and businesses with the same perspective cross-border. It’s not a one size fits all type of situation. Every market is unique; every sector within these different markets is also unique, and understanding this key fact will go a long way to improve the relationship between investors and start-ups in Africa.
- Slow but steady growth
The continent would need business angels and investors who appreciate the different challenges, who are ready to grow with their start-ups and accept to go a longer time period before looking at profits.
- Silicon Valley standards won´t work
Silicon Valley standards won´t work for most African start-ups. It needs different metrics to judge progress.
- Please don´t do “us” a favour
Foreign investors and governments shouldn´t approach Africa with a "doing you a favour" disposition but treat it as a place with strong market opportunity and great potential.
- Variety of sectors
A lot of investors shy away to invest in new sectors and business models.
- Risky investments?
Investing in African start-ups is still considered risky, due to political situations and slow growth of businesses.
- Hubs & Accelerators
Several start-ups stated that there are too many hubs popping up which get a lot of money from investors, governments or foreign programs, but in the end are not really helping the entrepreneurs. A lot of programs prefer to give the money to the hubs, instead of investing in start-ups. There are fantastic and supportive hubs in many countries, but they are getting too many in numbers and too many that are not serious enough.
CRITICAL PERSPECTIVES FROM AFRICAN START-UPS ABOUT AFRICAN START-UPS
- Lack of management skills
Many African start-ups have relatively bad management skills, which has to do with a lack of funding, being not able to get the right and best team members on board. Therefore a lot of businesses are supported by friends of family members.
- Get your numbers right
There is not enough professionalism when it comes to accounting, and if the numbers of the start-up are not precise, how should an investor makes decisions?
- What to do with investment money?
Many start-ups never learned how to handle money and investments. A lot of prize-money from awards or grants are not tied to clear commitments or deliverables, and are not properly used, but often spent for the family, paying back dept, etc.
Investments and grants should come with a clear structure, obligations, regular reports and measures that avoid that the money is “burned”.
- Intellectual Property Rights
A lot of start-ups are ignorant to copyrights and laws for patent and copyrights are insufficient. In most countries there are no patent rights for software technology which are the basis for many tech start-ups. At the same time there are not enough lawyers who are specialized in this field and can support start-ups.
There are a lot of copy-cats, which are hard to fight in court, if the rights and patents are not in place.
SUCCESS MODELS AND REQUESTS TO SUPPORT ECOSYSTEMS
A successful model could be that governments reserve 3-5% of procurement for start-up solutions. In many cases, start-ups would provide great, innovative and affordable solutions, but compete against multi-national companies that are more trusted and fit the criteria better.
- Strategic investment by corporate partners
Corporate companies already invest strategically in African start-ups, as they also need to constantly innovate their business. Telcos like MTN or Vodafone bring on board their vast infrastructure and marketing experience to scale locally relevant content leveraging from start-ups.
- Plug into supply chains
Instead of financial investments, many start-ups would benefit from being plugged into the right supply chain, building capacity and sustainable revenue streams.
- Technical partnerships and skills training
More technical partnerships and sharing of skills would be needed.
European countries could share their success models and support to build the right structures for African countries, without copying them, but adapting them culturally and according to the local environment.
With contributions from: