Investments in African tech startups are on the rise, especially from overseas firms and individuals.
African tech startups received a total amount of funding in excess of US$185.7 million in 2015, according to data compiled by Disrupt Africa, and there is every reason to expect this will grow in 2016.
But why the surge in interest? Here are some reasons why African tech startup funding is on the rise, and will continue to increase.
High level of innovation
Visit the tech ecosystems of Lagos, Nairobi and Cape Town, or even further afield, and you cannot fail to see high levels of disruptive innovation. From the likes of Rwanda’s SafeMotos, which marries vehicle telematics with an on-demand motorcycle taxi platform, to South Africa’s Custos Media Technologies, which is using the blockchain to tackle digital piracy, innovation is all around. And investors like innovation.
Great social impact
Around 80 per cent of Africa’s population – approximately 330 million adults – lacks access to formal financial services. As many as 620 million people on the continent lack access to power. These two statistics alone demonstrate the potential impact technological solutions addressing these issues can have, and speak to the high level of interest from impact investors in fintech and solar startups especially.
Sizeable return opportunities
There may be a great deal of social good to be done by investing in African startups, but that does not mean funding businesses on the continent is a charitable act. If startups can find effective ways of, say, providing millions of people with access to mobile insurance products, or rolling out pay-as-you-go solar products across whole regions, serious returns on investment can be made. Which probably speaks to the continuing willingness to pump cash into the likes of Nomanini and M-KOPA Solar.
You’re in good company
We know investors are like lemmings, investors have told us so. They like to see other people taking the plunge; they like strength in numbers. And with major international VC funds like Amadeus and EchoVC, as well as high profile individuals such as Bill Gates, Steve Case, Tim Draper and even Mark Zuckerberg, investing in African tech startups, there is clear evidence that those that should know consider the space to be a worthwhile investment.
Skills are improving
There have been concerns in the past about the level of entrepreneurial talent in Africa, as well as the technological skills of young African developers. But this is abating as success stories continue to roll out of the continent, while the likes of Andela and codeX are making great strides in training the next generation of coders, while even Google has got in on the act. Old fears that skills levels in Africa were just not high enough are declining.
The support ecosystem is there
Africa’s tech hubs have been much discussed, and sometimes their role has been overplayed, but there is no denying that the large number and high quality of these hubs has contributed to the development of the ecosystem and assisted a great number of startups. From Zambia’s BongoHive to Cameroon’s ActivSpaces, tech hubs are ensuring African startups develop as planned and are investment-ready.
The rising middle class
Defining the exact scope of Africa’s middle class is tough, as estimates vary wildly, but it is undeniable that it is growing. And as the middle class grows, so to does spending power, and demand for services such as on-demand home cleaning services and virtual personal assistants. This process will continue, and investors would be advised to get ahead of the game.
Governments are backing it
Governments have long been accused of neglecting the growing tech startup ecosystems in Africa, but that is no longer the case. Governments as diverse in outlook as South Africa, Kenya, Rwanda and Madagascar are, to different extents, playing a greater part in supporting the space, with the Egyptian government even launching its own fund. This friendly environment will only attract investment.
It’s the final frontier
Whereas in the developed world, the vast majority of people have mobile phones, are online, make use of on-demand services, and consume all sorts of tech, that is not the case yet in Africa. With one billion people on the continent, and the majority of them still not connected to the internet, or banked, or even having power in their homes, Africa is a land of great opportunity for growth. Global tech giants like Microsoft and Google have realised this, and investors have too.