On Investing in African Tech Start-ups

You may have noticed that there’s been a lot of buzz around tech and startups in Africa in recent years and this has only increased with the recent listing of the first Africa-focused startup on the New York Stock Exchange (more on that in another post).

With the buzz, comes a lot of debate around the best way to grow the region’s burgeoning tech ecosystem. Key questions that people grapple with include:

• Where do African tech start-ups go to find investors and is there enough funding available?
• Why isn’t there more local investment in African tech ventures?
• Why are so many African tech start-ups not bankable?
• What can African start-ups do better to secure investment?
• How can investors adjust typical due diligence procedures to better suit African tech deals?
• How do accelerators like Techstars and Meltwater provide a route to funding for start-ups?

One of the more provocative and recurring themes is ‘How can Africa tech investors improve upon the usual ‘Silicon Valley’ approach to account for the unique characteristics of different countries, cities and markets across the continent?

Here are some of the key observations that have stood out to me in my own work in the tech and start-up ecosystem and my conversations with investors and entrepreneurs alike:

Reconsider your idea of a ‘good’ management team

Unconscious bias. Investors often feel more assured by people of similar backgrounds that look, think and communicate in the same way. This means that a lot of funding for Africa-focused tech ventures goes to start-ups run by people that either live or were educated in the US (Harvard) and Europe (Oxbridge) as opposed to ‘home-grown’ entrepreneurs. Promising investments are overlooked as a result.

Expats and repats can add the benefits of international exposure and world-class standards to a team but they may lack the detailed local knowledge that the business requires. A team that has both ‘international’ experience and home-grown talent achieves the best of both worlds.[efn_note] 15 start-up accelerators dedicated to Africa’s local talent [/efn_note]

Invest in local knowledge

Not ‘Africa’ knowledge, local knowledge. Entrepreneurs that have grown up in Windhoek, Addis, Harare or Accra know what makes these places tick and understand what it takes to achieve product/market fit, identify hidden risks and navigate the idiosyncrasies of the operating environment. This is important in any market but is invaluable in a region that can be unpredictable and difficult to research.[efn_note]Top 10 failures expat entrepreneurs make in East Africa [/efn_note]

Be prepared to provide both strategic guidance and operational support

A seat on the board is great but investors may need to go further than occassional guidance and get into the weeds a little bit more than usual to help the entrepreneur get things done. While a number of African countries have gone to great lengths to improve the ease of doing business, parts of the region still suffer from poor infrastructure[efn_note]Related article here[/efn_note] which affects electricity, water, transport infrastructure and telecommunications including mobile and internet. This makes it difficult for entrepreneurs in some locations to deliver consistently or to scale when demand for their products and services increases. Investors may need to help entrepreneurs overcome some of these logistical difficulties by building infrastructure or introducing them to larger companies or organisations that might be able to help.[efn_note] Winning supply chain strategies for African markets[/efn_note]

(Really) understand the local environment

To be able to provide this guidance and support you will need to have a good understanding of the local environment and the challenges that the external environment poses for the business. This includes separating fact from fiction, as many still overestimate certain risks or treat the continent as a cohesive block. If you understand the key regulatory, operational, political and practical considerations that the entrepreneur is navigating and how these vary across their different target markets, you will have a better chance at helping them to remove obstacles or pivot where necessary.

For verticals like retail and consumer goods, this means escaping Ivory Towers in New York and Toronto (and for that matter Cape Town, Nairobi and Lagos!) and experiencing the transport routes and supply chains leading to more remote locations where products are sold.

Conclusion

All in all, we agree that a lot can be learned from the VC and angel communities in global tech hubs. But in order to successfully take advantage of the exciting opportunities in Africa tech, investors need to be less Silicon and more Savannah.[efn_note] Recommended reading: Silicon Valley: Invest in Africa, but do it differently [/efn_note]

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