The African tech startup scene is quiet, but is on the verge of developing vibrant startup ecosystems. According to Venture Capital For Africa’s (VC4A) 2015 Venture Report, total investment in African startups last year increased by more than 100% to almost $27 million. Very-early-stages of startups and investors’ investments in startups listed on the platform more than doubled in 2014, increasing from $12 million to $26.9 million, while the average amount of investment grew from $130,000 to more than $200,000. With Africa’s startup funding scenes generating over 70% of all ventures, opportunities are vast all over the region.
VC4A’s research also demonstrates that 49% of ventures started generating revenue in their first year at a success rate of 44% in securing outside investment. More than 75% of VC deals are in the tech sector, with agriculture, health, finance and energy startups also represented.
Furthermore, the increase of capital is driven by three key trends: growing interest in startups from the African region, the rise of local angel investors, and an increase in cross-border investments. The continent also contains 15% of the world’s population—a sizable consumer base that would attract some VC investors to capture. VCs are mostly attracted to startups in eCommerce, clean technology, e-health and financial services, with Kenya, South Africa, Nigeria, and Uganda as top destinations to invest.
The prominent youth population in Africa will be a catalyzing change for technology since the average age in the continent is 18. Africa is also slowly adopting higher speed networks and getting access to cheaper smartphones. The move to get the latest smartphones to use a wholly mobile Internet and as a result, South Africa and Kenya are among the fastest-growing smartphone markets in the world and mobile penetration is expected to reach to 518 million by 2020.
It will take time for booming startup scenes to compete globally as the main priority is their domestic market. The startups rising in places such as Kenya are not focused on the future or the next big trends in the global tech market. Instead, they are focused on providing solutions to existing challenges such as poor infrastructure and sanitation, conflict, lack of medical care, and a lack of banks and financial resources. However, Africa is getting a better sense of what works in their domestic market which allows for continual growth in their economies and allowing for a bustling tech scene to occur.
|Company (Name)||City||Founded||# of Employees||VC Raised (M)||Market|
|Hepstar||Cape Town||2013||11 – 50||$2.0||InfoTech|
|DealDey||Ilupeju||2011||251 – 500||$5.0||eCommerce|
|BitPesa||Nairobi||2013||11 – 50||$1.1||FinTech|
|BRCK||Nairobi||2013||1 – 10||$4.2||Hardware, Software|
|Beam||Accra||2014||1 – 10||$5.0||Bitcoin, Fintech|
|M-KOPA||Nairobi||2011||1 – 10||$41.45||Mobile, Energy|
|Nomanini||Cape Town||2010||1 – 10||$1.05||Curated Web|
|Jumia||Lagos||2012||101 – 250||$211.0||eCommerce|
|Konga||Lagos||2012||501 – 1k||$78.5||eCommerce|
|Kopo Kopo||Nairobi||2010||11 – 50||$5.86||FinTech|
|Parcelninja||Gauteng||2013||11 – 50||$1.7||eCommerce|
|iROKOtv||Lagos||2010||101 – 250||$35.0||Video Streaming|
|Takealot||Cape Town||2010||251 – 500||$100.0||eCommerce|
Analysis of the 15 startups previously mentioned indicated several trends:
- Nigeria is dominating the eCommerce market, which is Africa’s biggest valued at $13 billion and growing by 25% annually. eCommerce startups such as online retailers Jumia and Konga have successfully raised tens of millions of dollars to expand and had to overcome infrastructure problems and logistical challenges in their to convince more than 180 million Nigerians to shop online.
- Ericsson predicts that global data use through the consumption of video is set to increase by around 55% per year until the end of 2019, with Africa video being the fastest-growing internet activity. A report by Sandvine also reports that the growth of video was expected to be faster in Africa than any other region, with the African market unique globally as most users are connecting to the internet for the first time through mobile devices rather than fixed networks. Video on demand (VOD) streaming services will offer easier access to content at a much more affordable rate than traditional pay-for-TV platforms. Startups such as iROKOtv are taking advantage of the increasing internet access and demand for content to lay out the beginning infrastructure of the video streaming sphere.
- Fintech startups were among the most popular amongst investors in 2015 along with the increasing emergences of fintech-focused accelerator programmes. Banks are also partnering up with FinTech startups, such as Barclays Africa opening an accelerator called Rise along with partnering up with innovative identity authentication platform Consent, payment solution startup Peach Payments and Invoice Exchange. However, the biggest challenges presented to Africa FinTech startups is complex regulations that vary by country, the tech to handle people’s money requires bank-grade security, and hiring talent that is highly specialized and expensive.
- According to a Gartner report, worldwide mobile payment transactions is forecasted to become a market worth $617 billion with 448 million users by 2016. Africa will become of the largest markets for mobile payments, where it is increasingly prevalent and far more preferable to use NFC transactions over the phone. Also, the ability to easily and cheaply transfer money in a P2P system for all kinds of transactions at scale is a major advantage for mobile payment startups to capture. M-Pesa is a great proof-of-concept, since over 75% of Kenya’s population uses the app and makes it one of the most successful mobile phone-based financial service in the developing world.
- Bitcoin will have a successful push in the Fintech industry in Africa. Africans have already proven they are able and willing to adopt alternative means of using currency such as using mobile payment systems. Using crypto-currency as an alternate form of payment is preferred because credit card penetration in Africa below 3% and only one-third of Africans have access to a bank account. When the majority of Africans is lacking in banking services, solutions based on Bitcoin technology has a huge potential in the region. The opportunity to streamline eCommerce and lower remittance costs, especially in underserved markets, is why mobile payment startups such as BitPesa and Beam are going to dominate Fintech market share.
African startups still have a long way to go before they can prove themselves as globally competitive. Venture capitalists are still relatively scarce compared to the number of entrepreneurs looking for funding. Fundraising is currently a slow, frustrating process since tech startups are a relatively young field for Africa. Without fierce fundraising competition and investor opportunities, Africa’s tech growth will still remain slow and stagnant. Another concern is that most cities in Africa simply does not have the infrastructure required to build a viable business case. Regardless of these reasons, Africa will focus on develop on its own domestically before it can further attract the interests of international firms.
African governments are starting to come around with launching accelerators and incentives to beget new startups and entrepreneurs. Rwanda has created a special visa for technology entrepreneurs and recently announced a $100 million venture fund for local tech entrepreneurs. Kenya has launched Enterprise Kenya, through which the government plans to back tech startups itself. The Nigerian government, a strong supporter of DEMO Africa, has launched a publicly funded incubator in Lagos along with setting aside $1 billion to develop ICT innovation hubs.
While it will take time for startup ecosystems in Africa to develop, they will follow in the same vein as other developing nations with emerging startups, entrepreneurs, and stabilized businesses. Increased mobile penetration, internet connectivity, and a large youth population will further drive the middle class growth. And as the middle class grows and business environments become increasingly wealthy and stable, entrepreneurs will emerge in Africa’s nascent tech startup scene.