Is There Enough Funding For Startups In Africa?

Written by Kevin Mwanza

Jun 20, 2014

Written by Tom Jackson | From Humanipo

Money. For startups in Africa and across the world, it all comes down to money. The reason for starting a business is usually – with some honorable exceptions – to make money. However, conversely, usually it takes – or at least most people think it takes – a reasonable amount of money to get a startup off the ground in the first place. But is there enough of that about?

When a company gets funding, it is generally big news. Just look at Takealot, Kopo Kopoand M-KOPA Solar in the last few months. But are these types of investments par for the course, or rather happy exceptions? Can companies really expect to raise funding rounds like this? And, more specifically, what of smaller, leaner companies that are still far behind the likes of Takealot on their startup journey?

It is no surprise to find many entrepreneurs feel there is a lack of seed funding in Africa. Fabian Kast, co-founder at Pocketplan, believes fundraising is a “big problem”, with South Africa in particular lacking a strong angel network with a risk friendly mindset, as well as access to foreign capital. Ruark Ferreira of Ekaya says any funding that does exist mostly goes to “projects with US-centric exit plans”, while “local-focused startups struggle to find space”. Rahul Jain, co-founder of Peach Payments, said even if there was enough money “there are definitely not the right valuations”.

There are those that believe the funding shortage only exists at a lower level. Gakim Solomons, chief executive officer (CEO) of South African firm ApexPeak, says there is “a huge Series A funding gap”, while Mark Kaigwa, founder of Nendo, said there was a still a “chasm” in raising, as minimum investments can be as high as US$250,000 or US$500,000.

“So there’s the challenge for startups that can’t bridge that and pull together US$100,000 or so to dig deeper or do more. To be clear it’s less than it was in 2010, but it wouldn’t be prudent to not acknowledge it’s still around,” he said.

The opposite view is that there is plenty of money available, but African startups simply have not done enough to get it. Nikolai Barnwell, 88mph programme manager in Nairobi, Kenya, says there is “a lot” of money available for tech startups in Africa, but generally African entrepreneurs have not yet proved they deserve it.