Another Record Year For African Tech Startup Funding, But ‘Silicon Valley Model’ Won’t Work Here

Another Record Year For African Tech Startup Funding, But ‘Silicon Valley Model’ Won’t Work Here

November is always a busy time for tech conferences in Cape Town, with a host of events bringing together startups, investors, corporations and policymakers to discuss the growth of the African tech scene.

This year, the events converged to create a “festival of tech” in the Mother City, with the Africa Early Stage Investment Summit, run by the nonprofit African Business Angels Network kicking off the week, followed by the flagship AfricaCom event, and finally AfricArena, run by the City of Cape Town and La French Tech.

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Bad news for journalists like myself, but great news for people converging on Cape Town to catch up with the speed of the continent’s tech development. So just how quickly is it developing?

The answer is not quite as fast as it appears. Progression is evident, with discussions recapping the major deals completed over what was a record year for African tech startup funding. Startups made pitches at all three events showcasing serious innovation in fields as diverse as financial services, agriculture, health, logistics and city planning.

Yet many of the issues holding the tech sector back are the same ones that existed last year, and the year before that. At the early-stage investor summit, investors bemoaned the shortage of female founders raising capital, lack of linkages between early-stage investors and VCs, the lack of investment readiness of many African startups.

A oft-repeated theme was the need to avoid attempts at replicating models established in Silicon Valley, with the economic and social dynamics of African countries rendering many of them meaningless. The ongoing hunt for a Silicon Valley-style “unicorn”, a tech company valued at $1 billion or more, was criticized across all three events, with startups and investors alike urged instead to focus on building sustainable, profitable businesses rather than strive towards creatures that, in Africa at least, remain mythical.

African Tech Startup Funding
African tech startups have raised a record amount in 2018. Photo by rawpixel on Unsplash

At the investor summit, Manuel Koser from Silvertree Internet Holdings said the early stage of the African startup ecosystem and the volatility of markets made unicorn-hunting a misguided pastime, with Wale Ayeni, regional head for Africa of VC investments at the International Finance Corporation (IFC), instead calling on startups to develop African solutions to African problems, which would make their businesses valuable.

This theme continued into the second event of the week, AfricaCom, where speakers urged startups to focus on local problems and solving pain points for customers rather than simply seeking funding when they don’t need it or striving for unicorn status. Eric Osiakwan heads up investment firm Chanzo Capital. Africa, he said, has many huge advantages for a tech startup — a large, young population, growing mobile penetration, and a myriad of problems that need solutions. The continent’s entrepreneurs are sitting on a potential gold mine.

These entrepreneurs need to do more to take advantage of these opportunities, however. Slowly but surely the corporate world is starting to sit up and take notice of the innovation that is going on in the startup space, with banks and telecoms more aware of how startups can solve specific pain points for them.

Zachariah George, who co-founded the corporate-backed Startupbootcamp AfriTech accelerator program, used the stage at AfricaCom to urge startups to figure out what these pain points are and develop solutions for them. B2B rather than B2C business models are what will fire startups to success, he said, calling on entrepreneurs to build solutions for corporates and use partnerships to reach large customer bases rather than building “sexy”, consumer-facing apps that struggle to find a market.

Emilian Popa of DiGAME Investment Company, meanwhile, called on startups to not just develop innovative tech but also focus on building infrastructure and distribution channels around it. Startups that become tech-enabled as opposed to just tech, he said, would be the ones that make it big.

So startups need to do better at positioning themselves within the marketplace, but investors also need to do better when it comes to supporting them. Osiakwan said there is a major shortage of local capital for African tech startups, which hinders development as such investors also come with valuable local knowledge and contacts which can help companies develop faster.

The week ended on a more positive note, with a host of startups from across the continent securing proof of concept agreements with corporates after taking part in challenges at AfricArena, suggesting a move in the right direction when it comes to building linkages between the two. But the overall feeling remains that a lot more needs to be done, more quickly, if the dots are to be joined and the African tech sector is to fulfill its potential.

Tom Jackson is co-founder of Disrupt Africa, a news and research company focused on the African tech startup ecosystem.