What tech entrepreneurs in Africa really need
Tech entrepreneurs in Africa are working hard to digitise, aggregate and organise inefficient markets and industries and build sustainable businesses in some of the toughest environments in the world; and they need all the help they can get. You may wonder whether they need more support than entrepreneurs in more traditional industries or more developed economies and again, the simple answer is yes. The reason for this lies in the pressure to scale quickly in an environment with high growth potential but significant infrastructure and economic challenges.
Given the size of the addressable market that mobile phone ownership provides, mobile-enabled tech companies are expected to have customers — whether consumers or businesses clients — that number in the thousands or millions to be relevant. This is far from the norm in emerging or frontier markets; and there are quite honestly very few role models or templates that can be followed to achieve this.
Since we started investing in African tech almost ten years ago at TLcom, we have spoken to literally hundreds of startup founders, and we share their excitement about their vision. We know their frustrations when they are unable to find the right talent and their irritation when they spend more time chasing fundraising than actually running their businesses. It is with this in mind that we have developed a view on the support that tech entrepreneurs in Africa need to build businesses that can scale and deliver value.
At the recently concluded Social Media Week in Lagos, Tomi Davies, President of the Africa Business Angel Network, stated “Entrepreneurs should spend as much effort looking for mentors as they do looking for capital”, emphasising the importance of mentorship to an entrepreneur. A mentor is a trusted guide and counsellor who can help founders achieve their goals. In more formal organisations, they are often thought of as senior executives that guide high potential employees to career success but in the world of entrepreneurship, mentors come in different shapes and forms.
There are those that can help you think through business strategy and regulation, those that can provide you with access to vital people and markets for your business, and even those that are not afraid to give the tough love and the dose of reality that some entrepreneurs need. These individuals traditionally come in the form of seasoned entrepreneurs or industry experts, but there is also a need for peer to peer mentoring.
The journey for a founder can be very lonely at times, but being able to interact with people on the same journey, albeit taking different paths, can be very powerful as a source of inspiration, sanity and sometimes, solutions. Unfortunately, in emerging markets, there is a dearth of places where founders can come together in a neutral and trusted context. But over the last few years, we’ve held a number of ecosystem events to change this. What we’ve found is the entrepreneurs are not only the real beneficiaries of these events, but they are more interested in each other than us.
Topics are varied, conversations are loud but ultimately, this is a powerful way for entrepreneurs to re-energise and they need to have more opportunities to do this.
While it may appear that tech start-ups operate under the radar of industry regulators, nothing could be further from the truth. There is no greater dose of reality for tech start-ups than when they realise that the at times clunky and overbearing regulations that we see in many African markets also apply to them. From the now almost over-regulated fintech space to the companies that require innumerable permits and licenses to operate, (one company told us that they need 15 formal and informal permits/licences to implement their business model), dealing with regulators can be daunting for most founders.
They are bureaucratic, require inordinate amounts of patience and most times have little understanding of tech. What tech entrepreneurs in Africa and indeed the entire tech ecosystem really needs, are regulators that are willing to spend time understanding how tech businesses are built and the subtle differences between tech and traditional business — case in point being the propensity to scale. For example, Tunisia’s Startup Act is a great display of how policy makers and regulators in government can support the tech ecosystem. It’s these type of regulations that don’t necessarily provide a competitive advantage but allow companies to continue to innovate and scale.
In a continent whereby information is not readily available and can become a source of competitive advantage, the power distance culture in Africa is high. In many instances business is still done on the basis of who you know — meaning a network of influential contacts can be a critical success factor rather than a bonus.
Networks can provide you with a variety of benefits including advance information on regulation changes, greater visibility, access to talent and even mentors. Again, while networks are important to all founders regardless of location, the asymmetry of information availability makes it even more critical for entrepreneurs in Africa.
Accessing or creating relevant networks can be difficult for entrepreneurs, but mentors, investors, advisors and board members can be a great starting point. It is also important to note that a relevant network could be one from a peer. So entrepreneurs shouldn’t always look ‘upwards’ to access networks; a sideways look to peers could also get you the help that you need, and supporting a fellow entrepreneur can only be beneficial to the ecosystem.
Last but certainly not least, this would appear to be the most obvious need for an entrepreneur. But an entrepreneur awash with cash that doesn’t have some or all of the above, has the chance of a snowball in hell of building and scaling a good company.
Though widely disparate, the available data tells us that venture capital funds in Africa are on an upward trend — and they are. There is more money available and more Africa focussed VC funds than before. But still, seemingly good companies spend disproportionate amounts of time raising capital. So what’s the problem?
Although venture capital is growing, early-stage capital (series A, B) is still scarce and entrepreneurs are pitching to whoever has money — regardless of investment thesis and antecedents. Tech entrepreneurs in Africa need more visible ‘signposting’ of who has what kind of capital, where they’ve invested in the past, where they are likely to invest in the future and how they make these decisions. These signposts will reduce the time entrepreneurs spend looking for capital that could be better-spent building their businesses.
TLcom has contributed to signposting capital through its own open database that includes the contact details of venture capital investors with an Africa focus.
In Africa, tech entrepreneurship is still very much in the nascent stages but the opportunities are there and the available capital is trending upward. With this being said, there is still a responsibility for entrepreneurs to not only pick investors who offer significant capital at attractive terms, but those who can also provide indispensable non-financial support. As the ecosystem works together in this way, this will surely smoothen the path towards scaling unicorns that can solve gigantic, unique challenges in Africa. This will require the ecosystem to work together to reduce the bottlenecks and smooth the path to scale.