Opinion: The Environment For African Startups In 2014
While 2013 saw some startups begin to receive serious funding – a major feat in Africa – in exchange for equity or partnerships, expect crowdfunding to play a growing role in financing African startups, according to VenturesAfrica.
There’s lots of talk in Africa regarding support for small business and
start-ups, writes Elton Plaatjies, author of this opinion piece. But governments and related institutions, not to mention commercial banks across Africa, play minimal roles in helping small businesses during their toughest business cycle — the first 18 months of operation.
Nigeria saw a surge in start-ups in 2013, followed by Ghana, Mali, Tanzania, Kenya, Ethiopia.
Access to financing
The scarcity and costliness of financing impedes not only market entry (start-up), but also success, said Plaatjies, a development economist. Banks in Ghana can charge up to 28 percent interest for a business loan. Recently, Plaatjies said he completed a business plan for a client seeking financing from a development finance institution charging 18 percent in South Africa.
International companies like Intel Capital, JPMorgan, Summit Partners and Rocket Internet occasionally finance African tech firms but business leaders say the sector needs much broader sources of finance.
In Silicon Valley, U.S.A., start-ups can receive up to $2 million from a broad range of funders including venture capital firms, angel investors and private equity houses. Africa does not have such a fertile financial ecosystem.
Crowdfunders are seeing opportunity in the market have have dived headfirst into getting concepts financed and operational.
Crowdfunding has four major advantages for Africa, Plaatjies said.
First, innovators and future entrepreneurs get to test their ideas before going to market, enabling them to crowdsource their projects to a certain extent, and help them meet international crowders.
Second, crowdfunding also allows entrepreneurs to build fan-base/customers/followers before launch.
Third, successful projects get to secure funding without giving up equity or taking any loans, and that’s a really competitive advantage, Plaatjies said.
Fourth, crowd-funding takes the politics out of getting funded.
What’s 2014 going to look like? What should it look like?
Africa still suffers from start-up fatigue or lack of start-up confidence, Plaatjies said. Despite the lack of assistance, entrepreneurs in Africa many times have great ideas that could be translated into highly profitable business ventures.
Many times aspiring entrepreneurs check all the boxes for passion, perseverance, hard work, charisma and focus. When it comes to actual implementation, they fade. Many are even afraid to then implement their business ideas.
Africa 2014 needs the right support mechanisms in place for entrepreneurs. Governments and institutions need to reduce rates.
African startups in 2014 need to be prepared and get their idea and strategy ducks in a row.