African tech startups need to raise capital in order to survive, become sustainable and grow, but there are many ways for these companies to raise funds.
Depending on which stage of its growth and development a startup is in, it may have a few options to consider.
An early stage startup could apply for a startup competition or incubator program, while a more established firm looking for funding may decide to seek a private equity partner.
There are also other options that may apply to certain companies and not others, such as a government grant for a socially-conscience business or an initial coin offering for a blockchain-based startup.
Here are 10 ways in which African tech startups are raising capital.
For some African startups such as Agrocenta, their big funding moment came when they won the 2018 Seedstars World competition in Lausanne, Switzerland, earning them a $500,000 investment from Seedstars as a result, according to Techmoran. Being given the opportunity to pitch their idea may lead to seed or future funding, but often the boost from the prize money involved in a startup competition sets a new business on its way.
While this is certainly not the norm, as many African entrepreneurs come from working class backgrounds where a friends and family round is simply not possible, there are techpreneurs who have been able to get their startup off the ground thanks to initial capital from their family and friends.
Once some initial interest has been attracted by a startup, the company is able to apply to accelerator or incubator programs such as the Meltwater School of Entrepreneurship (MEST). If successful, the startup takes part in the accelerator or incubator and may either have the opportunity to pitch to potential investors or gain investment as part of the program itself.
In cases where a startup idea or business could have a positive social impact, there may be grants or innovation funds in place to support the establishment and growth of such a startup. An example of this is a recent announcement by the Ghanaian government that 1000 young entrepreneurs in the country will receive access to a combined $21 million in grant funding to support their entrepreneurial ambitions and counter youth unemployment, according to VenturesAfrica.
Crowdfunding may seem like an unconventional way for a startup to raise funds, but it can be a great way to build a market or capitalize from your current customers while raising funds. There are local platforms dedicated to crowdfunding for startups, such as Start Me in South Africa. A startup success story that used crowdfunding was Tanzanian human resources matching engine for service industry businesses, Nikweli. The company struggled to raise funds before using Kickstarter to raise around $5,000 from 40 backers, according to Infodev.
While many funding opportunities focus on the business itself, some options are more interested in the individual entrepreneur. Some entrepreneurship initiatives offer training and prize-money for young businessmen and women. The Tony Elumelu Entrepreneurship Program, for example, offers $100 million in funding for young African entrepreneurs, according to the Africanleadershipacademy.
Once a startup has built a track record and has reached a certain level of maturity, equity financing through a venture capital firm becomes a possible means of raising capital. An African tech startup that recently pursued this path is Lidya, a Nigerian fintech platform that offers small business loans. The startup raised $6.9 million in Series A funding in May. The funding round was led by Omidyar Network, the Silicon Valley impact investment firm established by Pierre Omidyar, the founder of eBay, according to Ventureburn.
There is a growing angel investment scene in the African continent, with angel investors willing to back startups that impress them in return for equity. The African Business Angel Network (ABAN), which comprises a large number of local investor groups across the continent, is an example of an investment fund focused on African startup opportunities. The Lagos Angels Network (LAN) is another.
Another way to raise funds that was simply not an option a few years ago is through an initial coin offering (ICO). An ICO is when a creator of a digital currency makes coins available for public purchase to raise money for a project.. Earlier this year Nigerian blockchain startup SureRemit raised $7 million in the biggest African initial coin offering to date. The fintech firm, which uses blockchain to cut the cost of and increase access to digital payments in Africa, made a utility token available that was designed on the Stellar Network, according to BitcoinAfrica.
While this would certainly not be a typical objective for startups looking to increase their funding, it has been a successful method, though unintentional, for some African startups, with legends in the world of tech such as Mark Zuckerberg, Bill Gates and Steve Case having invested in the region’s tech startups. In 2016 Andela, a Nigerian startup that trains and outsources African coders to work for global firms, attracted $24 million in funding from Mark Zuckerberg, BusinessInsider reported.
