Why mobile operators should consider startup funding in Africa

   

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.

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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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