Field Stories

Investments surge for African startups in 2014

Image from social learning platform Obami

Image from social learning platform Obami

A recent report made by VC4Africa, the leading peer-to-peer network that enables African entrepreneurs and investors to find each other online, has revealed that 2014 saw a significant growth in startup ventures in Africa.

By Jessamine Brown

The total capital invested in African startups in 2014 was $26.9 million, more than double the year before when only $12 million was secured. The average amount invested per venture also increased from $130,000 in 2013 to $200,000 in 2014. Leading the way in garnering funding for startup ventures is Nigeria with Kenya, South Africa and Ghana also proving to be attractive prospects to investors.

Though still in their infancy, it does seem that Africa’s startups are seeing unprecedented growth, a positive thing for the continent as many of the projects have the potential to solve basic problems in areas such as education and health, as well as contributing to Africa’s continued economic development.

But what has led to this growth in the startup world? Why are investors increasingly looking towards Africa? And who are the real success stories of the past year?

One factor that is undoubtedly a driving force in entrepreneurial activity in Africa is the sense of optimism and ‘can-do’ attitude that abounds in Africa at the moment; something that has been confirmed by Mike Herrington, Executive Director of Global Entrepreneurship Monitor and a professor at the University of Cape Townv who told CNN: “The entrepreneurial landscape in sub-Saharan Africa is absolutely excellent. It’s on the increase because Africa, at last, has been emerging and the economies are booming – several countries are starting to really increase entrepreneurial activity and move to opportunity entrepreneurship, rather than necessity entrepreneurship[…] opportunities abound and a positive spirit is emerging amongst the population of these countries.”

This optimistic attitude coupled with the increasing number of tech hubs and incubators has seen entrepreneurial activity rise considerably.  Nicknames such as ‘Silicon Savannah’ have been coined with South Africa in particular seeing a large number of top tech companies beginning life there; a likely consequence of the high number of technical universities based in the country together with its employee base being the most well-educated in Africa.

As the number of startups increases so does the interest from investors, as the acceleration in economic growth of Africa is undoubtedly one factor that attracts venture capitalists. Africa is currently home to five of the world’s top 12 fastest-growing economies with Nigeria, Africa’s largest economy, being a recent addition to the ‘MINT’ group of emerging economic powerhouses.

From a more holistic perspective, Africa’s GDP has grown by five percent in the last 10 years and, according to the World Bank, will grow faster than that of any other continent over the next few years. So, despite patchy infrastructure and widespread connectivity issues, it does seem that Africa’s growth is grinding forward, making it an enticing prospect for savvy investors. As venture capitalist firms typically like to make returns two to three times their investment in less than five years, Africa’s tech startup boom is an opportunity not to be missed.

So who are the investors that are seeing new and potentially prosperous opportunities in Africa? In recent years, it has been the massive tech conglomerates such as Google, IBM and Microsoft who have all turned their attention to the continent. Last year, Microsoft gave a total of $100,000 to five ventures in Kenya, Uganda and Nigeria as part of its 4Afrika programme, whilst IBM launched innovation centres in Lagos and Casablanca.

As Solomon Assefa, an IBM researcher and vice president of Science and Technology explained to Techcrunch: “In the last decade we’ve seen a lot of transformation [in Africa]. There’s increased stability and a lot of bandwidth that’s come online, tremendous economic growth, plus a lot of infrastructure being built and a lot of foreign investment […] We believe Africa is vital and we think IBM is going to be very essential for productive growth and development.”

It’s not just the huge corporate tech companies that are ploughing money into African ventures, local angel investors and Africans in the diaspora are also seeing the benefits of investing in their home continent.

In the last year, there have been several notable startup success stories. BRCK is one such venture having closed a $1.2 million seed funding round after raising an initial $172,000 via Kickstarter. The piece of hardware was designed and prototyped in Kenya – it is a self-powered wifi device that seeks out an Internet connection by hopping from network to network whilst also being capable of surviving harsh environments. As Internet connectivity is still a huge challenge in Africa, with only one in five Africans having access, BRCK is helping tackle the problem by bringing wifi to even the most remote of areas.

Healthcare is another area that several tech startups are targeting, in particular mPedigree, an initiative started in Ghana that tackles the problem of counterfeit medicine. The company works with over 20 telecoms providers to help establish whether a medicine is genuine or not.

“As ICT providers, we have come up with an ecosystem for supply chain transparency which is having a massive impact on health,” mPedigree President Bright Simons said in his eLearning Africa 2014 keynote presentation.

Zoona is a mobile money platform based in South Africa, Zambia and Malawi, that allows entrepreneurs the opportunity to provide money transfer and other payment services to low-income consumers, while earning commissions and employment. The platform promises to help businesses grow and promotes financial inclusion in Africa, which in turn aids economic development.

Finally, Obami, which operates out of Cape Town, is a social learning platform that connects teachers, students and parents. It marries the concept of social networking with eLearning, with the aim being that schools and academic organisations in Africa can share resources and keep up with education trends.

Tech startups such as these highlight the real innovation currently coming out of Africa, and the valuable contribution they can make to advancing the continent’s social and economic development.

With investment and growth in startups having rocketed in 2014, it will be hugely interesting to see what 2015 brings.

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