Why mobile operators should consider startup funding in Africa

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Paul Graham, Founder of the Y Combinator incubation hub once spoke of the ingredients required to create Silicon Valley. He summed it up as a combination of:

Rich people (angel or VC investors) + Nerds (talent)

The world has caught onto the startup bug with governments as far afield as Chile offering as much as $40 000 per Startup founder that relocates to the country. Besides Startup Chile you’ve probably also heard of Startup America and others. On the corporate side there are now so many sources of venture funding for startups that talk of a bubble has been floating around. Amidst one of the worst recessions in modern history, deals are still being struck and the next great tech platforms built.

This buccaneer approach to startups began in Silicon Valley and is quickly spreading to every worthy country. The reason for this as with many matters of capitalism is that the potential gains far outweigh costs. Very few sectors can match the potential returns promising tech platforms can bestow on risk prone investors and startup teams.

In Africa, as has become customary cliché in articles such as this, the rise of Silicon Savannah (Kenya) has inspired many startups and ICT platforms across the rest of the continent. Who could ever ignore Ushahidi, Virtual City, M-PESA, iHub and many others… Kenya is a nation in transition that has showed people in similar situations across Africa that we too can do it. Kudos to them! With a number of venture capital operations beginning to set up shop in Nairobi and an international reputation for producing mobile startups, they are well on their way to solving the funding bit of the aforementioned equation.

Africa’s status as the least developed continent in the world might point out to endless opportunities for entrepreneurial minds, however it also means that there is no prolific funding cycle for startups. Such startups cannot qualify for traditional funding as they mostly don’t possess any collateral but rather intellectual capital. Their high risk, high return nature requires the involvement of:

  • The 3 Fs (Friends, Fools and Family): Because they’ll always have your back
  • Angel Investors: Normally wealthy people that treat startup investing as both a social and commercial endeavor (Informal)
  • Venture Capitalists: Big money, big risks for big returns (Formal)

These once again might not be present or are difficult to come by across Africa’s frontier markets.

A fourth dimension of funding has begun emerging and can have revolutionary impact on the continent. The world today is witnessing the increased participation of TMT (Technology Media & Telecoms) companies in startup funding and incubation hubs. MXit of South Africa was part funded by Naspers, Africa’s Media giant that has also setup Kalahari.com, Mocality and has interests in Groupon, Facebook and others. This well known media company has kept ahead of the evolutionary lifecycle by investing in technology. So too has Nation Media Group of Kenya and eConcepts Advertising of Nigeria.

In the last decade, 6 of the fastest growing economies in the world were African. Sectors that directly benefitted from this boom time were infrastructure and consumer related. Among these the telecommunications sector has become a poster boy of Africa’s economic potential. As MTN, Vodafone, Econet Wireless and many others will tell you, there is money in Africa! Beyond donating money to charity the time has arrived for these operators to make sustainable investments into the continent’s startup ecosystems. The no brainer is that doing so will offer more than a potential return as a successful app or platform will directly contribute towards their bottom lines as a result of increased consumption.

Elsewhere around the world:

  • Singtel Group of Singapore has a Venture funding arm known as Innov8
  • Telefonica recently launched an incubation hub for Latin America, Spain and the UK known as Wayra
  • Orange, Publicis Advertising Group and Capital Management recently rolled out a $200 million fund known as OP Fund
  • Indonesia based Bakrie Telecom has a venture capital arm known as Nusantara Ventures

The good news is that operators like MTN have been moving in the right direction with initiatives like their mobile apps challenge. Orange has a VC linked news and content portal known as Star Africa and in Zimbabwe ZOL (an ISP now part of the Econet mafia) funded a startup challenge. Hopefully this is just the beginning. Telecoms can play a very significant role in filling the startup funding gap in Africa, just as it has successfully done so in enabling the continent to leapfrog the fixed line era.



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10 Comments

  1. Chiko Mukwenha

    Clinton, this is such a well written article. I totally agree with your observations and suggestions.

    Donations are nice and have often been seen as primary way to show we
    “give back” to the community for most corporates. However, more often
    that not, they don’t fit the context we live in, what we need at this
    stage and
    what you have highlighted, is grass roots development. The best way to
    feed a man is teach him to fend for himself.

    Where we used to rule in having an agro-centric economy, things have evolved as
    natural resources are not entirely within human control but investing in
    emerging economies such as finance, information technology, we set a
    good base to swing the wealth pendulum in our favor.

    Many thanks for writing such a brilliant article!

    Reply
    1. Prosper Chikomo

      Donations may work depending on how you structure everything. The company ought to benefit financially more than it gives.

      Recently Meikles Africa started an oputgrower scheme whereby youths within and around Harare will be provided with market gardening inputs and training as part of the compliance package of indigenization.

      Meikles will benefit financially. No Zimbabwean company just donates these days. ask cancer patients etc.

      In fact, i would dare say they get letters soliciting for donations everyday and all of them offer the company nothing in return.

      Reply
  2. D Esq

    Its funny how I was thinking the same thing. If I had an Idea and I needed servers to develop and host my application, then a company, with resources like Econet should provide me these and let me have a go at it. 

    They have nothing to lose really, but stand to gain should my idea become successful. It would be useful to have a place where there is free fast internet that people can use. something much like http://www.ihub.co.ke/

    Only for Zimbabwe

    Reply
  3. Chanyani

    Lets lobby our GNU. They have spent so much on agriculture (which is business). They need to spend on tech. Attempts in that area are pitiful (i.e. there is technopark at nust which has nothing to offer). Let the gov put the severs and UPS there and make the facility available to coders. And lsts not restric development to mobiles. Let it just be software with potetial. As long as someone can put up a local and regional business case it should fly

    Reply
    1. Prosper Chikomo

       

      there is Technopark at nust</blockquote.

      There is no Technopark at Nust. If you have gone there in the past, like 5 years, you will be aware of this. They even still use Pentium 2 computers and many of them dont work.

      The so-called Technopark, if it had existed at all would now be about 12 years old.

      Even internet at Nust is scarce. I pass through there now and again.

      Let the gov put the severs and UPS there and make the facility available to coders.

      Nust, in my view is a waste of time if you are thinking of Stanford a la Silicon valley. The entire leadership from chancellor right down would have to be changed, preferably replaced with expat Zimbabweans with real coding and start-up skills, best if they also have VC connections.

      The government since 1980 has failed in everything it has put its dirty hands in, the economy and education sector included.

      But sentiments and feelings are different at local government levels, not national government.

      Last year i suggested to a Bulawayo City Council executive that they offer incentives for internet-related technology investments in the city as a way of cutting down youth unemployment and generating the economic activity in the city since many companies are closing. I gave him an example of Am,azon which started in a garage but today makes US$34 billion a year, which is more money than Zimbabwe. I told him how it is extremely cheaper to start a internet business than a brick and mortar business…..(i dont want to write an essay now)

      I imagined that reliable internet and internet access throughout the city, and not just the CBD would help netpreneurs easily start their own companies.

      Funny that this year i would read on Techzim that at Stellenbossch they are doing just that.

      My contention was that with Nust in the city, it would be easy to get trainers IT/Programming trainers for anyone interested in the city.

      Reply
  4. Prosper Chikomo

     

    Singtel Group of Singapore has a Venture funding arm known as Innov8

    Does Milton Kamwendo of nInnov8 know about this?

    Orange has a VC linked news and content portal known as Star Africa and in Zimbabwe ZOL …

    And i bet Star Africa Corporation listed on the ZSE does not know about this “Star Africa” you talk about.

    Funny. :-)

    Reply

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