Written by Ronald Klingebiel Christian Stadler | From Harvard Business Review

Africa is already home to a vigorous entrepreneurship scene. Strong growth and the lack of local technology incumbents have generated the world’s highest start-up rate.

Many are essentially greenfield investments. Successful start-ups will have a first-mover advantage and the potential to dominate their market. As African consumer societies continue to grow, this holds out the promise of substantial returns. Savvy investors are paying attention, and learning how their approach needs to adapt to African realities.

Perhaps Africa’s best-known opportunity for tech investors is in mobile — so it’s not surprising that a lot of would-be investors make identifying mobile opportunities their first strategy. The weakness of conventional forms of infrastructure in Africa has put a premium on all things mobile and created an infusion of high-tech solutions into low-income markets.

Take M-Kopa, a Kenyan venture to provide small-scale solar-power systems to households without electricity. Most customers have difficulty managing the upfront cost, so M-Kopa incorporates SIM cards for payment by regular installments through M-Pesa, the Kenyan mobile-payment system. Building on such ingenuity, M-Kopa has expanded into Uganda and Tanzania.

Then there’s mPedigree, a Ghanaian venture that has expanded to three other countries, including India, offers an app to let consumers verify the origins of sensitive products such as medication.

And yet even appealing ideas like these pose a number of potential obstacles for investors. For one thing, it can be hard to estimate the commercial potential of such ventures, because there aren’t comparable business models elsewhere. And stories of heart-wrenching failures are all too numerous. Many investors are familiar with the story of Adesemi Communications, the wireless virtual phone network that succumbed to local political headwinds in the late 1990s.

So a second strategy for early investors is to modify the typical venture-capital principles by spreading their bets more than usual. That’s easier than it looks, because most of these asset-light start-ups require only modest initial outlays.

The recent Demo Africa, the continent’s largest innovation conference, planted the seed of a pan-African business angel network, which complements an increasing number of incubator facilities and venture-funding vehicles. Demo also saw intense interest from big Western companies, with the likes of Microsoft trying to get a foothold in terrain unknown to many outsiders.

Read more at Harvard Business Review