Donor-up
If your country does not have an established tech ecosystem, most likely it has an established development aid ecosystem, and you should donor-up.
TLDR: Why you should use donor money to fund your start-up, and how the world will be a better place because of it.
A donor-up is a start-up that uses donor funded ICT4D projects to develop a technology stack that can be used, replicated or adapted to become donor independent, privately held, and a profitable, socially responsible service or business.
Context
ICT4D (Information and Communication Technologies for Development) has been around since the mid-1950’s and back then it meant introducing IT to government and private sector organisations, in what was then called the underdeveloped world. By the late 1990’s, with the spread of the internet, a C for Communications was introduced and the countries were now called the developing world, while the goal shifted to increasing connectivity infrastructure. Fast forward to the late 2000’s and the rise of what is now called ICT4D 2.0, or the use of mobile technologies to empower the poor as producers and innovators in countries that are still endlessly developing. Today ICT4D projects are implemented by various international NGOs in partnership with technical partners (some local, others international) who are often private businesses, while being funded by development agencies and other donors. Numerous challenges are issued every year for solutions to topics like “climate resilience”, “financial inclusion”, and other development goals in vogue.
It’s in this environment that local companies and services can sprout throughout emerging markets, using a clever combination of funding, expertise and support. Sadly, this does not happen very often, as most IT companies that specifically service ICT4D projects specialise in delivering solutions that are merely tested and seldom last beyond the grant period. This practice led to a condition that was coined “pilot-itis”, after in Uganda alone there were more than 30 mobile health projects being piloted simultaneously, until the Ministry of Health finally called a moratorium.
Motivation
When you ask any young, tech-savvy African entrepreneur what do they need to make their idea a success, 9/10 will say “money”. If you ask a wealthy African businessman or politician if they would invest in a local up-and-coming start-up they will say “I would rather invest in land or buy a house”. This disconnect can be seen in Africa’s more than 300 incubators and tech hubs, who are struggling to turn a profit and become viable. They appear through a combination of donor, public, and private funding, but a business model centred around rent-a-desk or rent-a-space for hackathons or pitch competitions does not provide the profit needed for sustainability and investment, and young Africans who were touted the entrepreneurial dream are increasingly frustrated because the success stories are far fewer than the number of incubators and hubs.
It was in this environment that we decided to test something new, using donor funded projects as a stepping stone for launching social businesses. We wanted to bootstrap our first project, emprego.co.mz, a job portal in Mozambique that wanted to democratize access to work opportunities in a country where there are less than 750.000 jobs available for a work force of 14.000.000 people. To do so, we started doing technical consultancies for donor projects by taking advantage of a policy called local content, where development projects prioritise hiring a local company in lieu of a foreign one. We would take the profits generated from offering these services and re-invest into our own projects, but then something interesting happened, some of these projects had a huge potential to become start-ups on their own, and we started calling them our donor-ups.
At this point, it’s useful to understand the lifecycle of an ICT4D project. A donor recognises the potential that a digital solution has to improve or solve a development problem. They write the Terms of Reference (ToR) and publish a Request for Proposals (RfP), which serves as a basis for a Non-governmental Organisation (NGO), Civil Society Organisation (CSO), Private Business, or a consortium of 2 or more of these entities to submit a project proposal for consideration. These proposals need to be extremely detailed, must provide technical and financial descriptions, timelines, and always include a wealth of acronyms, just like in this paragraph, to demonstrate the applicant’s expertise in this exclusive sector of development. The cost of producing this work is always beared by the applicant in the off chance of winning the proposal, and this is perhaps the greatest barrier to entry for outsiders.
Once a proposal is selected the funds get disbursed, the implementation starts, and the project is financed for X number of years. In the end a detailed report is compiled and the project is heralded a success or deemed a failure that provides lessons learned, which, more often than not, are not shared with other implementers.
Example
We discovered a third outcome for ICT4D projects, taking ownership of the product created, developing a business plan around it, and launching a donor-up. For us, the RfP is akin to seed stage funding, and following up on this logic, we developed and piloted MOPA, our waste management platform, using a $60k World Bank innovation grant for smart cities. After we delivered on the ToRs and there was no more funding available from them, we applied to Making All Voices Count Global Innovation Competition 2016, one of the many competitions in Africa that reward ICT4D projects. We won, got $120k of a “scaling grant”, called it our series A, and moved ahead with launching the platform in partnership with the Maputo Municipality (Mozambique’s Capital), who now pay us a monthly fee for maintenance and support. After a year of successfully operating this service, we were selected a “Most Significant Change” project for MAVC, are currently a case study for the UNESCO-Pearson Initiative for Digital Literacy, have participated in USAID’s Global Innovation Week 2017, and are now looking for big aid or an impact investor to help us scale to other African cities. If this happens, we are considering calling it our first IDO (Initial Donor Offering).
Impact
Puns aside, there is some merit in comparing how start-ups and donor-ups are created, even if the latter is an unintended consequence of development aid, rather than a direct product of it. In their differences is where we see the biggest potential to spawn social businesses that cater for a triple bottom line, financial, social, and environmental impact. Whereas a start-up is solely concerned with generating wealth for it’s investors, a donor-up must be focused on both social and environmental impact in order to support it’s donor investors’ agenda, and at the same time generate revenue because sustainability is an important criteria for selecting grant recipients. This model could provide the right incentives to create more responsible companies with products that empower the poor and generate jobs.
A friend that worked at Google for many years once told us something that summarises this difference anecdotally. He said “start-ups in Silicon Valley develop services for what your mother used to do: she used to drive you around, now there’s Uber; she used to give you birthday gifts, now there’s Amazon; she used to wash your clothes, on AngelList there is a Laundry category with 126 companies in it.” In the developing world, start-ups do services that our governments should have done but never delivered. Transport, health, and education are some of the sectors being targeted by local start-ups in every pitch competition throughout Africa, and this is where donors could have tremendous impact, by aligning their goals to develop products that are inclusive and sustainable.
Aside from funding, donors bring expertise in the form of consultants, and equally important, the clout needed for a nascent donor-up to provide services to Government or Big Business. We knew nothing about waste management when we developed MOPA, but with the support of World Bank experts we managed to build a platform that makes public service delivery more transparent, accountable, efficient, and cheap. If we had approached the Maputo Municipality ourselves they would have kicked us out of there in a heartbeat, but going as implementers of a World Bank project, they rolled out the red carpet and co-designed the platform with us. This is something a venture capitalist could hardly do.
Going beyond individual donor-ups, this model could provide the lifeline that African incubators desperately need to become sustainable. All the start-ups in these hubs are producing valuable tech stacks that could be repurposed and licensed to ICT4D projects, generating revenue they can use to bootstrap, and providing the experience needed to work in structured projects with support from project managers and expert technical consultants.