Are Funding Options For African Tech Startups Increasing?

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Written by Tom Jackson

Money has always been an issue for African tech startups.

Yes, the odd extraordinary funding round for the likes of Jumia or M-Kopa Solar makes the news, but it is widely agreed there is a huge chasm between the amount of early-stage capital required by African startup businesses and what is available.

This is, however, changing. The arrival of venture capital (VC) firms from abroad generally makes the headlines, whether it is the likes of 88mph or Startupbootcamp arriving on African shores, and the end of 2014 and the start of 2015 saw enough funding rounds to suggest causes for optimism.

But early-stage money is increasingly available from African sources too.

Large African companies, notably mobile operators, have undergone a major review of their strategies towards smaller businesses.

Whereas in recent years these companies zealously protected themselves from perceived competition from smaller business, either hoovering them up or stealing their ideas, now they are willing to invest.

Millicom began it all by launching its US$10 million foundation, while Kenyan operator Safaricom then raised the bar with its US$1 million Spark Venture Fund. Airtel Nigeria this month made its first investments in seven startups, while Orange has also launched an investment vehicle.

Pan-African payments company Interswitch got in on the action this week as well, announcing a US$10 million fund and making its first investment in e-commerce logistics company ACE.

Startups seeking funding can also look to the wealth of accelerator programmes springing up across the continent, as well as the biggest daddy of them all, the US$100 million Tony Elumelu Foundation Entrepreneurship Programme (TEEP), which aims to create 10,000 businesses, provide one million new jobs and contribute at least US$10 billion per year to the continent’s economy.

Getting in on the action

We shouldn’t get carried away by thinking this signals a new dawn of altruism from these major firms, however hard they may try to convince us.

Safaricom director of strategy and innovation Joe Ogutu reckons his company sees its investment vehicle as a “much needed catalyst that will help actualise our aspiration to nurture a vibrant ICT economy in Kenya”, while Millicom chief executive officer (CEO) Hans-Holger Albrecht said his company’s foundation was part of its commitment to “create a digital lifestyle for everyone”.

It is also, let us not forget, a potential money spinner for investing corporates such as Safaricom and Interswitch. For the operators, it offers a direct route to services through the startups they invest in.

In a world where infrastructure sharing has become more common, and the huge growth in mobile and internet penetration means the customer acquisition phase will soon be over, customers will increasingly be won by what services an operator can provide to people using its network.

For Interswitch, the investment vehicle offers a chance to diversify its already very profitable business. The company has spotted huge opportunities in e-commerce, and through investments such as the one in ACE it is preparing to make the most of them.

Ulterior motives aside, however, the new willingness of major African corporates to invest in and offer support to startups is a huge boost for the industry.

Starved of funding for so long, the signs are that small businesses can finally look to major players as potential investors and partners. Never before have there been so many avenues through which to fund your startup.

Tom Jackson is a tech and business journalist in Africa, and co-founder of startups news portal Disrupt Africa. He splits his time between various African cities covering the latest development in the continent’s exciting economic story.