Pros and cons of public and private models for incubators in Africa

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Yann Le Beux, catalyst at Senegalese incubator CTIC Dakar, takes us through the advantages and disadvantages of different incubator models in Africa, based on his experience of running an active technology hub.

On a daily basis at CTIC Dakar, we are questioned about our model, how we get funded, who is the “boss”, why incubated companies have to pay us, how did we started, etc?

To answer few of these questions, I would like, in this article, to discuss the pros and cons of the various forms of governance  for technology incubators and accelerators in Africa, using the lense of CTIC Dakar, which is a public-private partnership and non-for-profit organisation, aiming at being financially sustainable after five years (two years left, damn!).

Type of support provided

First of all, it is very, very important to distinguish the various form of support provided to the entrepreneurs and set what I mean by “incubator” or “accelerator”. What you aim to do has a strong influence on your overall budget and thus on the ideal governance model for your tech hub. For me, an incubator or accelerator is an organisation, non-profit or for-profit, which provides a physical place and intense, hands-on support to entrepreneurs in order to foster their growth. Their first and often only mission is to create sustainable fast growth companies. The quality of the support provided is highly dependent on the quality of the team members and thus this type of organisation requires important operating/human resources costs. They generally employ five to 10 people plus occasional mentors and consultants and their building has to be large enough to ideally provide individual office spaces to at least seven to 10 small companies.

On the other side, other tech hubs like fablabs and co-working spaces have a primary mission to create and animate tech communities and thus their cost structure is mostly made of community management and event organisation. You can start with a small or medium-size open space and one full time employee along with the hub manager.

Market size and deal flow

Secondly, you have to ask yourself: what is the size of your market as an incubator? I believe that in most Sub-Saharan countries except South Africa you don’t have enough high growth companies to sustain a fully private funded model for incubators, no matter what revenue model you use (equity, revenue sharing, etc) except maybe if you only do space rental (no added HR costs).

Moreover, since there is not enough fast growing SMEs at the moment, at least in Senegal, I think that we have to build a pipeline of promising startups by investing a lot of time and resources at very early stages, including at university and school level. We do this a lot at CTIC through various workshops and events, including TEKKI48, a two-day startup accelerator we launch in various cities in Senegal every four months.

Doing this we hope that one out of 20 of the projects we support and identify will finally become an interesting startup and enter our programmes. We had two beautiful example this year with TongTong.sn, a group buying platform and Genius Family, a company developing financial management software and apps for illiterate shop owners. Both companies started from scratch at CTIC in 2013, got grant funding through one of our public partners, and are now profitable and able to pay around 10 salaries each at the end of the month. The first has more than 100 recurrent customers and the second around 60.

In a nutshell, if you don’t have enough mature SMEs in your country or market, you will for sure need some government or international donor’s money at some point unless you have very strong private investors behind you (in the case of the amazing MEST in Ghana). The idea here is to do like we do at CTIC, use this money to trigger the engine, grow the pipeline and then generate revenue from your own client companies.

Governance, decision making and innovation

This is obviously the largest drawback of public incubators. If you support entrepreneurs, you absolutely don’t want government people managing the entire thing. However, if you want those people to give you money, they will want to be involved in some way. It is a tricky, very delicate power balance you have to deal with. The way we handle it at CTIC is to have the most relevant of them in the incubator’s management board but to make sure the latter remains headed by the private sector (IT Business association). Other private partners are also strongly represented (the telco Orange, for instance). It is also important to note that none of our international donor partners (World Bank, GIZ, EU) is involved in the management board. So far, we have been able to manage the ambitions of our public and international partners, driving them towards the realisation of our own vision and model, but we feel that the pressure is increasing as we gain good results, recognition and TV appearances!

Access to market and finance

Let’s be realistic: in a lot of African countries, governments are relatively powerful compared to the private sector.

Thus, the best advantage of having local public and/or private partners involved in a close relationship with your hub is the opening of doors. Indeed, once they believe in your mission and understand the concrete value you provide to help them fulfil their own objectives – which most of the time they have no idea how to reach – they can help you and your startups a lot by involving them in public projects or by providing seed funding for startups.

For instance, last year, we secured around US$150,000 from the Senegal telecommunications regulator, directly granted to eight startups. This type of public or grant funding can be harmful for your startup business model – as it has been largely discuss recently – but I believe that if you couple this money with business-oriented support by an incubator, it works.

Team management and retention

Finally, I believe that the largest drawback of not-having a fully private model is that at some point, if your management team and business developers are entrepreneurial enough – which is what you want in the first place – they will leave after three to five years to do their own thing. Whereas, if you have a private model, it is either your own baby or you can hope to get some equity in it or at the very least drive it wherever you want. As far CTIC Dakar is concerned, our first director Omar Cissé left after three years – as he always announced – and we were lucky enough to have him succeeded by our very own former business developer Regina Mbodj, who helped us accomplish a very smooth transition.

In summary, there is obviously no one-size-fits-all model for technology incubators. I believe that the markets for purely private funded – and sustainable – incubators is not here yet for most sub-Saharan countries and we have to grasp the opportunities which lie in involving public and international development partners. But again, in the field of technology entrepreneurship in Africa, it is only a matter of leadership and balance of influence.

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Key players from Africa's startup and investment ecosystem post on issues close to their heart for Disrupt Africa.

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