Why DraperDarkFlow is wary of ICOs in Africa

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Initial coin offerings (ICOs) – through which companies create and issue their own digital tokens in order to raise funding, are all the rage globally.

The ICO effect has already hit Africa, with the recent success of SureRemit following hot on the heels of smaller raises by Wala and ProsperiProp.

How big a contribution can ICOs really have in terms of African tech startups fundraising, however? Lack of capital is still a major issue, in spite of 2017 being a record-breaking year, and many companies are attracted to using digital currencies to crowdfund as opposed to going through the motions with more traditional investors.

However, investors themselves are wary. Speaking at last week’s Africa Tech Summit Kigali on a panel that discussed the opportunities and possible outcomes for blockchain and digital currencies in Africa, Toro Orero, managing partner for VC firm DraperDarkFlow in Africa, said his company was aware of the potential of blockchain in generally but was currently wary of investing through an ICO.

“It is well known blockchain has the power to disrupt any industry. We believe in the power of blockchain to decentralise and make industries more efficient,” Orero said.

“ICOs present a new way to raise capital. However, I see a faux approach rather than an economic approach. We have not done an ICO investment so far, we will be holding off to see how it goes.”

DraperDarkFlow is, however, in the process of doing an investment utilising a smart contract.

“With a smart contract everything can be automated. That is the beauty of the blockchain,” Orero said.

When it comes to blockchain tech and digital currencies, the flagship African startup is BitPesa, which raised two funding rounds last year to take its total secured investment to around the US$10 million mark. The company launched in Kenya in 2013 and also operates in Nigeria, Tanzania, Uganda, the DRC, the UK and Senegal.

BitPesa announced earlier this month it had acquired Spain-based online money transfer platform TransferZero in a bid to further accelerate its growth across the world.

Charlene Chen, chief operating officer (COO) of BitPesa, was speaking on the same panel as Orero at the African Tech Summit Kigali, and said the startup was proud of the acquisition and looking forward to broadening its activity across the world.

“BitPesa has proven to be a pan-African business. Our core identity is as an African business. Even before acquiring TransferZero we had a European presence. We are very excited about the acquisition. An African company acquiring a European company, and not the other way around. We are very proud of that,” she said.

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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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