The Rise of a Startup Culture in Africa [Video Presentation]

Technology + Entrepreneurs + A vision = Startups in Africa in need of Venture Capital.

This is a one line summary of the presentation I recently gave at the 1% Event in Amsterdam, the Netherlands. In the presentation I talk about the rise of the techprenuer in Africa and the cheetah Generation that is now empowered with the knowledge and tools they need to change the world. This presentation builds on a lot of the ethnographic research I did in Kampala, Uganda and my experiences working on the ICT Entrepreneurship program at Hivos. I also talk about AfriLabs as a network organization connecting technology incubators in Africa and VC4Africa (Venture Capital for Africa) as a platform for crowdsourcing network, information and capital via the web.

VC4Africa pitches for the Accenture Innovation Award

hehe, nice photo:)

Accenture published the nominations for their annual Innovation Awards. I think its great our community was selected out of hundreds of applications to continue to the final round. Now the winner will be decided by the public and this means you!

The project that collects the most votes will win the coveted Blue Tulip. I encourage everyone to review our video pitch and to show your support for the community by adding your email address on the top right corner. Once you have voted you will receive an e-mail notification and will need to confirm your vote by clicking on the confirmation link. Every vote counts….

If you can, please share this news with friends and colleagues as we build support for our concept on a global stage. We are using the following link to promote our application [http://shar.es/bb0nB].

Vote now!

Pitfalls for the African startup, why do they fail?

Building a successful business is one of the hardest things to do. For many entrepreneurs building companies in different parts of Africa assumes extra challenges. But from all of the different reasons that might cause an African based startup to fail respondents to a recent poll selected poor execution as the leading cause. This point was followed by lack of finance and an unwillingness to adapt to changing market conditions.

So despite often times a challenging business climate i.e. lack of infrastructure, difficulty attracting qualified staff, poor legislation, unfavorable tax climate, etc…. respondents suggested the failure of most startups rested solely on the shoulders of the entrepreneur and their poor performance. This result reflects the findings of a recent study published by the Startup Genome project. Their recently published report found that 90 percent of startups failed primarily because of ‘self-destruction rather than competition.’ The study looked at 3,200 high-growth technology startups and pinpointed ‘premature scaling’ as a key trend. Specifically this idea that the entrepreneur is getting ahead of the game before they actually have the necessary foundations in place first. This ‘skipping’ of steps might give the impression the startup is finding success early, but lacking key pieces in the business model creates much bigger problems later in the business lifecycle. And given these are fundamental building blocks the startup is too often unable to recuperate and is forced to fold the business completely.

There are many ways this occurs i.e. possibly spending money on unnecessary things like an expensive office, hiring too many employees too early, not spending time on proper market research, running expensive customer acquisition or launching the product before it is ready. According to the Startup Genome report bout 74 percent of Internet startups fail because of premature scaling, while those who scale properly typically see growth that’s 20 times faster. Those companies that scale properly end up attracting more capital and servicing more customers. They are also the businesses that end up hiring more employees. But in how far can we compare this study focused on startups in Silicon Valley with the startups in Africa? Growing too fast was also an option in this weeks survey but surprisingly the option only received a single vote. The results of this week’s poll seem to place more emphasis on the inadequate abilities of the entrepreneur (poor implementation) than on their efforts to grow the business too fast.

Marieme Jamme, the founder of Africa Gathering, raised the point that entrepreneurs behind failed startups too often lack a long term vision. Jitesh Naidoo, currently researching the subject for an upcoming book, added, ‘Many of the start ups have very little managment skills that would allow them to run a business and grow it on a sustainable basis. They have the initial drive, but become shipwrecked when they encounter problems that require specific skills to overcome. Skills also allow a person to separate personal from financial matters.’ He goes on to explain that entrepreneurs behind failed startups lack essential business acumen and forward thinking. He expands, ‘Very often those at the helm of startups lack the business foresight to make decisions that are business based.’ This hints to the second point highlighted in the survey suggesting that many entrepreneurs behind unsuccessful attempts fail to adapt or change their plans needed to meet a dynamic and changing marketplace. Possibly the point also hints to the need for better market research, deeper customer understanding, more prototyping and rapid iterations needed to better close this gap.

Brian Maphosa an entrepreneur currently running a startup countered Jitesh, ‘Is this exclusive to the African continent? Do we have a statistical analysis to back this argument? I am saying this based on my own personal experience running a start up and the issues I see as potential sources for business failure. It takes discipline, personal character, the integrity, the controls/systems, funding, work ethic of those involved, etc… to pull a business through. As far as I am concerned these are universal issues that any startup would grapple with.’ John Priddy concludes the point, ‘Failure is the inherent nature of start ups. It’s about risk-taking and the creative destruction impulse that drives innovation and growth.’

Clearly the African startup process shares many similarities with other parts of the world. In the end, building a successful company is simply one of the most difficult things to do wherever you are located. But for many entrepreneurs in Africa the context does seem more complicated (albeit many times the business is complimented with greater potential). Given the density of Silicon Valley’s startup culture it is reasonable to think entrepreneurs there have an easier time following a beaten path. There is arguably more entrepreneurial infrastructure in place. Can we then say that in the context of Nairobi or Lagos there are simply less success stories and examples to follow? This forces many entrepreneurs to figure it out on their own and that means many entrepreneurs are facing certain odds unprepared. Taking that into consideration respondents to this poll do seem to be asking entrepreneurs to step up their game if they are going to compete on an international level. They are asking for better/smarter implementation and more flexibility/adaptiveness to the changing business climate around them.

So the million dollar question remains. How do we better support entrepreneurs and the development of their startup DNA? What are your thoughts on the subject?

Join the 2nd VC4Africa Meetup Kampala

The first VC4Africa meetup was organized in Kampala, Uganda @ Katch the Sun. This was already in June of 2008 and it’s exciting to see similar meetups have already been organized in 26 cities around the world. In true VC4Africa fashion, local members have taken it upon themselves to carry the meetup idea forward. Yvonne was one of the entrepreneurs who attended the first event and now she is working with Reinier Battenberg and others to organize a follow up event which I think is great.

This time we will change location to Palms and Crocs (in Nakasero) in the Downtown area. The meetup is on the 26th of October between 6:00 PM and 9:00 PM. As with all meetups, there is no agenda, no fee or speakers. Just good old fashioned networking And remember, Yvonne and Reinier are helping host the event but each member is responsible for paying their own tab.

Want to sign up for this free event?

Making SME finance work in Africa

Last week I presented at the Making Finance Work in Africa conference in Addis Ababa. This was a unique opportunity for the African financial community to come together and discuss ways forward.

Specifically, taking a step back to review what has been achieved the past few years, to outline challenges that remain to be tackled and to identify areas still in need of attention. Also to get a handle on the possible strategies that can be employed in the efforts to address them. If anything, it was made clear that there are no prescriptions and anything but a one size fits all approach. Its about thinking local, taking a careful look at the context and the solutions that might address specific needs.

Thorsten Beck, the author of Financing Africa through the Financial Crisis, put forth the argument that, ‘In the industrialized countries of North America and Western Europe, financial innovation has acquired a bad connotation after the recent crisis, being associated with CDO, CDS and other three-letter abbreviations, which few understand.’ He continued, ‘ However, innovation is more than that and comprises numerous new products, new processes and new organizational forms. Innovation can be an enormously positive force, even in the financial system and especially in Africa. However, in order to reap the benefits of more innovation, a different regulatory approach is needed than currently present in most African countries.’

S. Kal Wajid, the Division Chief of Africa at the IMF, recognized the role of innovation and technology as key components in furthering financial sector development. At the same time he cautioned the attendees to carefully evaluate the risks and to not lost sight of the macro economic agenda. Thorsten agreed but expanded, ‘We can’t lose our focus on the macro economic agenda. At the same time we can look at innovative options for financial sector reform and to consider more activistic approaches.’ He highlighted one opportunity in which banks could share a common payments system that would reduce infrastructure costs, help expedite payments and thereby lower transaction costs. But again, what might serve as a ‘fast gain’ solution for one country could be less relevant for another.

Finding ways to better serve SMEs was also raised as a top priority. Gaiv Tata, the Director of Finance and Private Sector Development at the World Bank, highlighted the issue when he explained that 50% of SMEs in Malawi still rank access to finance as the leading challenge in their ability to realize potential. In Ivory Coast it’s 60% and in Benin the numbers approach 70% of SMEs that identify access to capital as a key constraint. Jason Wendle of Dalberg added, ‘the biggest challenge facing SMEs is collateral. Banks see the SME market as an attractive segment but still have difficulty assessing the risks.’ Leveraging technology, psychoanalytic testing and smart due diligence processes were offered as positive sector developments that combined could start to address this issue.

Still it was clear, Banks don’t necessarily appreciate the business of small scale entrepreneurs. Their products are limited and do not always offer the terms an entrepreneur requires to really grow their business. For example a big order that comes in and the business in need of a fast loan so they can scale production and service the contract. Difficult circumstances arise when the entrepreneur has to still wait months before the financing is organized on often unreasonable terms.

But there is much optimism. SMEs consistently show good returns and finding businesses that can generate a profit is really not the issue. The focus is instead on identifying smart and effective ways that better connect financial services with the entrepreneurs that can really put money to work. It’s connecting the dots that will see more SMEs creating jobs, paying taxes and building the sustainable businesses for the future.

Technology Entrepreneurs Champion a Digital Future for Ethiopia

The VC4Africa team just returned from an amazing trip to Ethiopia where we presented at the Making Finance Work in Africa conference, hosted a VC4Africa meetup and ran a workshop on business modeling at ICE Ethiopia, the country’s first real technology incubator. See a video on a similar trip we made recently to Cameroon and the work we did there with ActivSpaces. We also did video pitches with the entrepreneurs and many said it was the first time this was ever done in the country. Can you imagine that? The country is just incredibly inspiring. 85 million people and by 2050 the population could double. The market potential for mobile/web services is immense and waiting to be unlocked.

To some dismay, France Telecom runs the only telco. Ironic when you buy a simcard and receive the message, ‘welcome and thank you for choosing our service.’ The Seacom cable has been connected and prices have dropped 80% in the past three months, yet the real impact seems yet to come. Connecting with TEAMS could further increase access, but without a terrestial backbone in place access remains limited. Although only 400.000 people might have access to internet the enthusiasm for social networking is confirmed when 75% of these users can be found on Facebook. The country counts no more than maybe 20 bloggers although these numbers are sure to change fast.

Local techpreneurs know they want to be early and are looking at numerous ways to build services for the market. Advanced mobile services are not yet relevant given low smartphone penetration. Mobile banking and SMS information based services were the most talked about. Setting up locally is quite difficult and often entrepreneurs are connecting with Diaspora in the US. Often the businesses register in the US, get funding from the US and/or share in development. Also a VC network from Germany are looking at Ethiopia as a potential market to engage early and building on the significant German presence in Addis.

The barcamp starting today (after a party last night) will follow last year’s success. And where the first barcamp saw some 300 participants this year’s event will possibly see 700 people come together. There is clearly a growing enthusiasm for a digital future in Ethiopia.

Right management team makes the difference in African business

It is not easy finding good investments and almost every team, idea or business has a number of weaknesses that need to be carefully considered. No business is perfect. For example an entrepreneur might have a powerful idea but struggle to build traction for the concept. Or the entrepreneur is really far along in the business but lacks the management skills needed to carry the project through. Or maybe the idea is great but the team has decided on the wrong business model and they now risk losing incredible amounts of time and energy. There is always something that could be better from an investor perspective. Certain weaknesses can be compensated, but what are the ‘deal breakers’ so to speak? What are the essential qualities that have to be there no matter what the circumstances? What are the key elements that make a business plan worth reading and potentially viable for an investment?

This was the question for the third VC4Africa poll. What is the most important factor in assessing a potential business. Is it having the right management team, paying clients or a proven business model? Is the difference made in the professional presentation or clear market positioning and USPs? Granted all of these points, and others, are of great importance, but clearly a few stand out when compared to the rest. Respondents to the poll identified having the right management team as the single most important factor in determining whether or not to invest in a new business.

This point was followed by building on a proven business model and having ‘skin’ in the game as other essential factors. Investors also want to know the entrepreneur has identified a unique solution when compared to the market alternatives and rated having a good idea as another essential factor in their analysis. It is important to know the entrepreneur has identified a real need and offers a solution better than what’s currently available. At the same time, it is important to see a proven business model at work. Especially when targeting a new market or introducing a new solution. Finally, if the team is really serious about getting the business off the ground than the investor will want to see they have already made the commitment and invested whatever resources (time, energy, network and money) they have into the project. An entrepreneur investing their own resources shows they are convinced, committed financially and wont give up easily.

Ken Chanda from the University of Zambia says, ‘Yes those are some of the key factors to deal with when presenting an investment plan to your investors!’ Another respondent expanded, ‘I would not submit without having all of those points addressed. The project also needs to be dynamic and the business model should match the nature of the beast being presented.’ Offering some additional advice one respondent points out, ‘My biggest note of what is missing is the utter importance of 1st page presentation. People with $ don’t want to wade through heaps of paper unless their interest is piqued.’ Another respondent continues, ‘Well all of these points are key in building a successful business and unless the business has REAL potential NO investor will put their money in.’

Mainza Nama, a Marketing Executive at Zambia International Trade and Investment Center, closes, ‘As the investment market for Africa is still relatively small we do see there are an increasing number of people looking to invest in the continent. The above checklist is intended to help improve Africa’s image for investments and attract more legitimate investors to Africa. These qualities are key to a “realistic, risk-cognizant” approach to higher returns on investment.’

What do you feel are the key qualities that make a business plan ready for investment?

Here is an overview of the respondents and their location:

Cameroon’s leading techpreneurs [video]

I am pleased to share this video from my recent trip to Cameroon and the time spent with the team at the African Center for Technology, Innovations and Ventures (ActivSpaces). It was great to spend time with so many promising entrepreneurs and meet VC4Africa members in the country. I especially want to thank Valery, Fua, Al, Ebot, Benyella, Fritz and Mohamed for all of their insights and constant inspiration.

I look forward to going back soon and can’t wait for my next plate of Ekwang 🙂

VC4Africa launches a crowdsourced knowledge base for doing business in Africa

About VC4A Questions:


VC4Africa seeks to connect entrepreneurs with the network, capital and knowledge they need to build promising businesses on the continent. We have members from 156 countries that network via our online platforms and offline via our VC4Africa Meetups. Our matchmaking site VC4Africa.biz is a tool for entrepreneurs to publish their venture and connect with possible business partners and investors. Our matchmaking program further supports entrepreneurs in their business planning and support entrepreneurs seeking venture finance. So how do we support the community with knowledge? 

Building a business is hard and having access to the right knowledge and information is critical. Unfortunately, in the African space information is too often lacking. What do the changes in local tax code mean for the tech sector? What are the import duties for heavy machinery? What are the key points investors look for when reviewing a cash flow prognosis? What are the legal issues I need to consider when expanding across borders?

VC4A Questions is a  collection of questions and answers created, edited, and organized by the VC4A community. Together we are building a community generated database of knowledge. A few points that make VC4Africa Questions & Answers unique:
 

A Growing Knowledge Base

People use VC4A questions to document their African business adventures. Over time, the database of knowledge should grow and grow until almost everything that anyone wants to know about doing business in Africa is available in the system. The information is organized, the history of the questions is archived and the information is freely accessible for anyone with the same question today or tomorrow.

Community Managed

Each question makes use of tags that make them easier to find across multiple search queries. This also helps members link new questions with existing discussions and further centralizes the conversation. Members can find similar questions they can borrow from when outlining additional context. Each question and answer is also rated and sorted by the users. This ensures that only the most pertinent questions rise to the top of the landing page and search results. It helps push prominent issues into the forefront and crowds out any unwanted messages or noise.

Follow Discussions

Members can follow topics they are interested in. Any updates are automatically forwarded per e-mail and this helps maintain an active dialogue. Members, the VC4Africa team and officers can also ‘recommend experts’ with certain questions and encourage them to share their expertise and input. This further serves to mobilize an active network and adds to the growing knowledge base.

VC4A Reputations

VC4A Questions is linked directly to member profiles. The system tracks who posted a question, who responded, how many responses were recorded and whether or not the questions and answers were valued by the VC4A community. This feedback is part of a reputation the user builds via the system. This helps other users appreciate the quality and level of a user’s contributions and serves to recognize the members who contribute the most and are otherwise experts on certain subjects or specific fields of interest.

Visit VC4A Questions

Please visit the new section of the website http://vc4africa.biz/questions/. We encourage you to take a look and play around with this new tool. Please add your own questions or share feedback with the community. We look forward to building this resource together and for the benefit of the entrepreneurs and investors working to build promising businesses on the continent.

Fast forward your network with VC4Africa.biz

I am happy to realize we have actually outgrown our group on Linkedin and now Ning (VC4Africa.com). As many of you know, VC4Africa is busy building our new home at VC4Africa.biz.

With this new platform we seek to expand our social networking tools and are working hard to introduce new functionality that will improve your networking experience. The site is more secure and members have better tools to flag unwanted behavior, only receive messages from members they have approved and new member screening processes and spam controls that help crowd out any noise. At the end of the day, VC4Africa.biz puts you into contact with the members you choose to know and works to give you the dedicated content in the way that you want it.

In addition to the popular forum, blogs, incubators and events we also offer the VC4A VentureDex. This new section is a place for entrepreneurs to post their businesses and makes it easier for investors to find possible investments that meet their criteria. Already businesses have secured funding and others have established strategic partnerships.

On the new website you will also find featured content. Here is just a summary of some of what is now on offer and we invite you to join the new VC4Africa and help us grow this platform together!

Articles:

Access to finance is the biggest challenge to entrepreneurs in Africa

What can entrepreneurs do to secure venture finance for their African startup?

The Role of Entrepreneurship and Opportunity in Sub-Saharan Africa

Rise of the African Entrepreneur

How to prepare your perfect elevator pitch

Venture Profiles:

Interview: Leslie Tita, the co-founder and brains behind Pulse.cm

Venture profile BelCash: “We consider ourselves as the Visa card for the poor”

Interview with Taha Jiwaji of Bongo Live!

Venture profile: Agro-Hub, SMS for a revolution in Agriculture

Venture profile: AfricanBrains, connecting African innovators

Podcasts:

Managing the Risks of Doing Business in Africa

Practical Tips for Managing Investments in Africa

African Firms Expanding Globally Through Partnership

Is Kenya Africa’s Silicon Valley?

Do you have any feedback, thoughts or ideas? Please feel free to contact ben@vc4africa.biz and we will do our part to meet your needs.

Happy networking!
the VC4A Team