This is a guest post
by Mbwana
Alliy, founder and managing partner of Savannah Fund,
an Africa-focused technology venture capital fund.
Tech
entrepreneurs
in Africa often wrestle with developing
applications on basic feature phones for too long or jump to work on
smartphones too early, but underlying platform bets are potentially costlier
mistakes of not properly segmenting the fast changing African market, courting
the wrong type of early stage financing and not focusing enough on channel
partnerships to reach their target African customers.
The most refreshing pitches at the inaugural DEMOAfrica in Nairobi, Kenya last
week were the ones that proclaimed “We are here seeking partners that can
help us grow.” Whilst at the 3rd annual Tech4Africa in Johannesburg, South Africa, startups actually
appreciated Venture Capitalists as potential partners to help them improve
their pitches vs simply asking for money. In part, this is a reflection of the
maturity level of the different markets.
Social
tech enterprises to Save Humanity
Low tech
solutions for the bottom of the pyramid attempting to solve the most
challenging problems in humanity are the classic imagined startups. Simple apps
relying on SMS and related GSM technologies that work with the most basic
mobile phone where the killer apps are cheap communications and innovative ways
to move money. Access to finance solutions, particularly pre-paid and rent to
own models, get overwhelming attention from entrepreneurs in this segment
include improving access to clean energy, health, education and access to
markets or providing a voice for the voiceless.
However, many
entrepreneurs developing solutions for this segment quickly realize they need
strong partnerships with mobile operators to grow viable businesses at scale.
The potential social value is enough to challenge outdated international
development models and inspire social entrepreneurial talent and corresponding
impact investors to flock to Africa. Impact investors will often scrutinize partnership
plans for scalability early and may appear to take less risk.
See
Africa Differently for the Booming Middle Class
Mobile
Internet
infrastructure in African cities is on par with western markets and counters
the notion that Africans only use SMS and voice on “dumb” phones. Sub $100
unsubsidized entry smartphones are selling well to an emerging middle class. 3G
is reliable and affordable in these urban markets, where the middle class is
concentrated. In Dar es Salaam, you can get 400MB of prepaid data from
Airtel for less than $2.
Cheap data is
increasingly fueling local apps in media consumption. Take the range of African streaming music and even video services. African Mobile Operators
are starting to recognize the potential and have begun to promote App Store
competitions. Many of these services are now able to scale across multiple
markets, even global, making them more interesting to technology investors. We
are starting to see the early stages of e-commerce ventures from South Africa,
Nigeria to East Africa attracting global players such as Rocket Internet via a mobile operator partnership approach.
Partnering
Africa’s Enterprise
Market
Often overlooked
is the less glamorous enterprise market that might be more lucrative from a
payoff and scale tradeoff, but also ripe for partnership opportunities. Local
startups trying to sell solutions to large businesses face an uphill battle and
often find themselves uncompetitive with the increasing presence of
multinationals, more so when dealing with Governments that characterize some of
the largest enterprise IT spending in less developed subsaharan countries. But
African mid-enterprises in areas such as fast moving consumer goods
increasingly need solutions tailored to the market and in most cases the right
combination of low and high tech may be the right product fit- like a Human
Resource systems that pays suppliers or staff in mobile money and sends SMS
alerts. A local startup that understands these needs might be do better to
partner with multinationals to deliver robust solutions that enterprises trust,
particularly when it comes to reliable server and cloud infrastructure.
Funding
will follows Global Teams with clear Messaging & Purpose
Local
entrepreneurs, particularly in East Africa raising seed financing are often
baffled by Venture Capitalists and look upon them with a skeptical view rather
than potential business partners. Local investors who might best relate to local
entrepreneurs are too busy investing in real estate or other booming parts of
the local economy to understand the risk reward trade-off in technology. The
growing Technology Hubs serve a vital role in educating all sides. More
recently, conversations that started from Kenya’s iHub have observers starting to ask the right questions and set correct expectations
as to whether every member of a workspace can actually be an
entrepreneur.
The Startup team
composition is ever more important beyond just functional and experience- Startups that have a balance of
local and foreign talent are at a distinct advantage in addressing fundraising
challenges whilst having a firmer foothold on their business, Diaspora talent
with experience abroad are even more bankable. Experienced foreign talent are
able to raise smarter money faster, whilst locals, with less of a cushion
and more urgency often struggle to understand the importance of corporate
governance, and often find it easier to get grants or competition funding.
But Impact
investors would probably never invest in an African mobile gaming company and a
VC firm would probably never invest in a social enterprise targeting the bottom
of the pyramid and more time is wasted on both sides figuring each other out as
some ventures increasingly blur the lines (sometimes on purpose- like a
mosquito bashing game that educates players about malaria after every level completed. Crisper messaging
and positioning from both entrepreneurs and investors would go a long way into
improving funding outcomes.
Mbwana Alliy is
the founder and managing partner of Savannah Fund, an Africa-focused technology
venture capital fund. He is passionate about product development and
launching new ventures in technology. Follow him on Twitter @mbwana
Forbes