Africa Tech Summit

Upping the stakes: Creating a generation of funded African startups

The Africa Start-up Summit hosted in partnership with Disrupt Africa kicked off with the first panel session within the Africa Tech Summit by asking hot questions in the craze of funding African startups – Kitso Rantao.

After a remarkable year in 2019 where African startups raised $1.3 billion in funding, what will 2020 and the near future hold for African founders from small markets and how is this funding directing their scalability in larger markets on the continent and the rest of the world?

How do smaller market startups attract attention and investment from investors?

The first question here is to ask: ‘Where is the investment going?’ -South Africa, Nigeria and Kenya have been the traditional leading markets, with Egypt coming up in the last couple of years. These limited ‘pockets of activity’ from investors that drive the potential preferential trends for investment are slowly changing and in the coming years, we may even see countries like Senegal also raising startup capital investment in the billions.

How do smaller market startups attract attention and investment from investors?

The first question here is to ask: ‘Where is the investment going?’ -South Africa, Nigeria and Kenya have been the traditional leading markets, with Egypt coming up in the last couple of years. These limited ‘pockets of activity’ from investors that drive the potential preferential trends for investment are slowly changing and in the coming years, we may even see countries like Senegal also raising startup capital investment in the billions.

Realistically, the main hubs fueling investment may have a long way to go in closing the investment gaps in the funding ecosystem.  Despite this, creating hubs and accelerators in smaller markets should still be a focus because in the long run, smaller markets also form part of the pipeline of larger markets. “I want to encourage smaller country entreprenuers, I think that opportunistically, investors will look at great businesses run by talented founders that come out of small markets” says, Nnena Nkongho – Principal at DiGAME Investment. The fact that investors will look at talent and the credibility of the business even in small markets, does however come with the pressure to be better than their counterparts such as Nigeria or South Africa in order to attract investment. Although there is an execution risk that comes with small markets, they often have to turn to new markets to achieve actual scale growth. Essentially, this is ‘diving into the deep end’ for founders from overlooked markets and encourages them to scale from an earlier stage.

Realistically, the main hubs fueling investment may have a long way to go in closing the investment gaps in the funding ecosystem.  Despite this, creating hubs and accelerators in smaller markets should still be a focus because in the long run, smaller markets also form part of the pipeline of larger markets. “I want to encourage smaller country entreprenuers, I think that opportunistically, investors will look at great businesses run by talented founders that come out of small markets” says, Nnena Nkongho – Principal at DiGAME Investment. The fact that investors will look at talent and the credibility of the business even in small markets, does however come with the pressure to be better than their counterparts such as Nigeria or South Africa in order to attract investment. Although there is an execution risk that comes with small markets, they often have to turn to new markets to achieve actual scale growth. Essentially, this is ‘diving into the deep end’ for founders from overlooked markets and encourages them to scale from an earlier stage.

Facilitating a global focus and diversifying African Investment

Anton van Vlaanderen, Partner at 4Di Capital, speaks of how the majority of South African startups have a global scale focus from their onset, in contrast with Kenya, where many startups have a local focus. As a result, there is a developing pattern where start-ups start expanding into each other’s markets to find greater market opportunities, this is in effect: 1. facilitates more cross border partnerships and 2. helps the startups be more investor friendly through better scalability potential.

“It’s not about the passport of the founder, its about the markets that he is trying to serve’’ adds Ketso Gordhan, CEO at SA SME Fund. This leads to the next question: ‘Is there enough diversity when it comes funding startups? And, given that the large number of non-African male, founders operating in Africa -is this a problem? The answer forms a vital part of ensuring that enough African-founders are the ones raising and receiving capital and that VC firms themselves are also diversifying in order to make diverse investments.

Bringing diversity also extends to better inclusion of women –not just within startups, but throughout the entire ecosystem. “I think that within the VC industry globally – more to women than necessarily minorities, there is a movement to try and understand or try bring more diversity, whether its to the governance or the boardroom or the investment process” says Nnene Kkongho, Principal at DiGAME Investment Company. She adds that in building a process that combats conscious bias, it is important to restrict its impact and suggests skills based evaluation as opposed to traditional ‘biographies’ as that enables teams and investment committees to add more talent based candidates to the work pool.

With a growing network of VC firms localizing in different countries on the continent- the panel identified the need to diversify and ways in which they are actively changing their investment approach outside traditional patterns in the absence or rather, in the development of African funding.

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