Catalysing African Early Stage Investment

Tomi Davies
Aug 24, 2018 · 6 min read
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As DEMO Africa gears up for the final stage of this year’s competition, Africa will once again come on the radar of many early stage investors’. Taking place in Casablanca, Morocco this October, the launchpad event will as in previous years select five winning ventures from the 30 shortlisted to join the Lions@frica Innovation Tour of Silicon Valley as DEMO Ambassadors early in 2019.

Africa has a vibrant Entrepreneurial Ecosystem with potential!

Considering Africa is already the 3rd biggest market worldwide, I often ponder why some still question its potential as an investment destination. Not only is Africa home to a budding market of 1.2 Billion people, more than 50% of the population is under 20 years old. The communications infrastructure is quickly coming together as over 150 million smartphones are in use across the continent which growing by 20% in 2018 has the world’s fastest rise in internet penetration. Add to this picture an inherently huge appetite for entrepreneurship that only needs the right type of capital investment to get off the ground and you start to understand why I am bullish on the continents chances of economic prosperity.

So, while I agree that given our continents colonial and recent history some of the doubts about the African potential are well founded, in my opinion, the growing early stage investment community combined with an increasing innovation hub infrastructure serving a vibrant entrepreneurial ecosystem will give Africa a winning combination that can significantly contribute to its economic development in the years to come.

There are real Challenges with Entrepreneurship in Africa!

I like the way my friend and colleague tech entrepreneur angel investor and co-founder of ABAN Rebecca Enonchong puts the challenges with African entrepreneurship. She says “I think that the primary challenge is the environment. It’s not an environment that’s conducive to supporting entrepreneurs. It’s a very risk averse environment. It’s highly bureaucratic and hierarchical, all the things that are opposed to the success of an entrepreneur.”

This is particularly visible with non-traditional startups that focus on new, disruptive technologies. African Governments are typically slow, or even unable to offer support, to early stage ventures. Sourcing the right talent for disruptive ventures is not helped by the paucity of commercial grade research and lack of development capacity in most African Universities. Hurdles like inordinately high transaction costs, inconsistent regulations across jurisdictions and in some cases outright hostile local governments are all deterrents to would be early stage entrepreneurs and their investors. On top of this, the prevailing culture where successful prominent African entrepreneurs find it hard to back newcomers because there aren’t any support networks in place makes for a challenging business development environment.

However, these are challenges we can overcome and I firmly believe that continuing to foster a mentoring led early stage local investment culture will have tremendously positive impact on the continent. In fact, all the studies I have been privy to so far show that startup entrepreneurs that are mentored by successful entrepreneurs do 3 times better than those that don’t get such a privilege.

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Africa’s Business Angel Investment capacity is growing!

The challenges African local early stage investors face is one of the key reasons why, in 2015 ABAN was founded by a consortium of angel networks and partners, to support early stage investors in creating angel networks, educating angel investors and engaging policymakers on angel investment as a development asset class. In the 3 years since then I am proud to see that angel investment in Africa has come alive and is starting to fill one of the critical gaps in the continents entrepreneurial ecosystem. As Rebecca says, “I think that one of [the most exciting things] is the angel and seed investing coming from local sources. That’s one big development: to encourage more investment in Africans by Africans because most investment will always be local.”

Africa’s angel investment capacity is being driven by a startup ecosystem that might not look like what we are accustomed to seeing in Silicon Valley and other early stage ecosystems, but one that’s on the move and as I recently explained in a Twitter Q&A, could be the next frontier for globalization, with technology-enabled services holding the key to its future. However, I also understand Africa has a lot to gain from international early stage investors’ experience. Western and Asian countries have mature investment environments that lend themselves to business model experimentation and research, which we do not yet have on the continent. It would be foolish to think we can go it alone at this stage, when we are just starting.

Innovation Hubs can propel African Entrepreneurship!

Africa’s over 400 active innovation hubs which include incubators, tech hubs and accelerators also have the potential to add significant economic value to the entrepreneurial ecosystem. These hubs continue to steadily grow in countries like Egypt, Nigeria, Senegal, Ghana, and Côte d’Ivoire with 130 of them opening in the last 2 years and many in countries such as Zimbabwe and Uganda that were historically starved of venture funding. Their dynamic environments provide African early stage entrepreneurs with affordable office space, fast internet connectivity and reliable electricity, things that the continent is still struggling with.

However, the accepted wisdom is that for hubs to live up to their full economic potential, they need to provide more than just office infrastructure, and measure their success beyond funding. While a few countries are developing enabling digital and business policies, most African governments appear uncertain about how to boost local entrepreneurial ecosystems.

African Early Stage Ventures are increasingly attracting investment!

In spite of these challenges, the African entrepreneurial ecosystem continues to grow as does the appetite for investment in African startups which raised more than $195 M in 2017, a more than 50% increase over 2016. Halfway through 2018, startup funding on the continent has already reached $168.6 million and showing no signs of slowing down.

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DEMO Africa is a great example of the increasing number of platforms that showcase this growing opportunity across the African continent for early stage investors to invest in fast growing startup ventures. With a 25-year track record of selecting, promoting and commercializing game-changing ventures, DEMO has already made its impact on the international investor landscape. Over the last 6 years, its pan-African launchpad event has helped connect more than 3,000 local startups to a global network, created 2,000 high paying jobs, and mentored 250 startup teams across the continent.

Now is the time to invest in Africa!

While it is still early days, I believe the momentum of the African early stage ecosystem should be an inspiration for all early stage investors with their eyes set on the continent. Personally, I’m advocating an Angel Network-Hub-Corporate collaboration model that curates early stage ventures for economic development in partnership with government as the way forward. Thanks to an increasingly robust pool of resources and strengthening local investor community, it shouldn’t be hard for international investors to leverage this huge potential of an exciting and vibrant emerging market frontier. The time to invest in Africa is NOW!

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