"When a company gets funding, it is generally big news. Just
look at Takealot, Kopo Kopo and M-KOPA Solar in the last few months. But
are these types of investments par for the course, or rather happy
exceptions?
Can companies really expect to raise funding
rounds like this? And more specifically, what of smaller, leaner
companies that are still far behind the likes of Takealot on their
startup journey?
Lack of seed funding
It is
no surprise to find many entrepreneurs feel there is a lack of seed
funding in Africa. Fabian Kast, co-founder at Pocketplan, believes
fundraising is a “big problem”, with South Africa in particular lacking a
strong angel network with a risk friendly mindset, as well as access to
foreign capital.
Ruark Ferreira of Ekaya says any funding that does
exist mostly goes to “projects with US-centric exit plans”, while
“local-focused startups struggle to find space”. Rahul Jain, co-founder
of Peach Payments, said even if there was enough money “there are
definitely not the right valuations”.
There are those that believe
the funding shortage only exists at a lower level. Gakim Solomons,
chief executive officer (CEO) of South African firm ApexPeak, says there
is “a huge Series A funding gap”, while Mark Kaigwa, founder of Nendo,
said there was a still a “chasm” in raising, as minimum investments can
be as high as US$250,000 or US$500,000.
“So
there’s the challenge for startups that can’t bridge that and pull
together US$100,000 or so to dig deeper or do more. To be clear it’s
less than it was in 2010, but it wouldn’t be prudent to not acknowledge
it’s still around,” he said.
Showing opportunities
The
opposite view is that there is plenty of money available, but African
startups simply have not done enough to get it. Nikolai Barnwell, 88mph
programme manager in Nairobi, Kenya, says there is “a lot” of money
available for tech startups in Africa, but generally African
entrepreneurs have not yet proved they deserve it.
“The startups
here haven’t been good enough at showing investors that it’s truly worth
their time and money. And investors aren’t just throwing money out
there to see what happens,” he said.
“They might take crazy punts
with big tickets, but they do that in markets they are comfortable with
and understand, not in emerging markets. So the first step is to
convince investors that the opportunity does in fact exist. That is
done. The attention is on. The next is to show them some real
opportunities to make money and this is where we still have some work to
do.”
Start small
Other African
entrepreneurs agree startups must do more to earn investment. Jess
Green, who founded UbuntuDeal and Perk, says there is “always” enough
money out there, but the problem is “people not knowing how startups
work”.
“Not knowing that they should test their idea cheaply and
quickly,” he said. “Instead, they’re all trying to build this big thing
and “launch”, while “searching for funding”.”
Carl Wallace, chief
executive officer (CEO) of Cape Town-based startup ViGO, who has been
selected by the World Economic Forum (WEF) to be a Global Shaper, said:
“There are more than enough funds available to the right startups with
the right products, scalability and proper mentorship.”
Risk aversion
Steve
Ellis of mydoorhandle said African startups had to dispel the rumour
that Africa was a risky place to invest for most investors by achieving
more on smaller budgets.
“Investors are too risk averse here
because there have not been enough tech success stories to buoy their
confidence,” Ellis said.
Mdundo’s Martin Nielsen agrees with Ellis
that African startups need to do more to impress investors in order to
make the continent seem less risky.
“The African startup scene is
most definitely booming and we are experiencing increasing interest from
local and global investors,” he said. “That said the majority of the
tech investors in the world are sitting outside of Africa and due to
their lack of expertise and knowledge about the market here they are a
bit more risk averse. I’m therefore confident that it’s harder to
impress investors with African startups compared to startups from other
places in the world. Funds will come if you can prove the value.”
Picky investors
Knife
Capital partner Andrea Bohmert agrees with this interpretation, but
only to an extent, suggesting “great” companies in South Africa get
funding, but “good” firms do not, whereas they would be much more likely
to in, say, Silicon Valley.
“I think there should be more money
to make the investor environment more competitive. But to make it clear,
I strongly believe that great companies do get funding in South Africa,
the problem comes when you are “only” good,” she said.
So what
can be done about this situation, both in terms of building up the
quality of African startups and making investors less risk averse when
it comes to funding “good” companies as well as “great” ones?
Improvement from both sides
Sean
Obedih, who runs The Founders Hive and is also starting investment
club NewGenAngels, said
an ecosystem needed to be developed that allows
startups to get funded at various stages and find strategic acquisition
partners because exiting through an initial public offering (IPO) is not
a viable one across the continent. In his opinion, both startups and
investors need to improve in order to generate more funding.
“There
is a need to push African startups to think bigger and dare to produce
products that will be useful beyond their local borders. Think globally
and act local,” he said, while also calling for a more organised
approach to early stage investing.
Though Obedih said the angel investment space is “very nascent” in Africa, this was starting to change.
“Foreign
money is widely available through VCs and PE for the right companies.
The problem still lies with the lower end of the spectrum, but platforms
such as VC4Africa and AVCA are helping to alleviate some of that pain.”
Investments increasingly paying off
Jeremy
Hodara, co-chief executive officer (co-CEO) at Africa Internet Holding
(AIH), said investments in Africa were increasingly paying off as a
strong ecosystem is built which supports growth and boosts
entrepreneurship.
“There’s definitely a perception of risk when it
comes to investing in Africa, and we are striving to reduce this and to
help local investors to recognise the value of investing in the
internet in their countries,” he said...."
