Mutually beneficial partnerships between corporates and startups are becoming more common in Africa, even to the point of becoming a key aspect of many events and accelerator programmes.
The AfricArena event in Cape Town last November saw 11 startups secure corporate deals, while encouraging collaboration is also at the heart of the Africa Startup Summit, set for Rwanda next month.
Accelerators and incubators are also getting in on the act. In Nigeria, Passion Incubator has launched an online platform that helps corporates secure startup partners for projects, while startups taking part in the second edition of the Startupbootcamp AfriTech accelerator in Cape Town signed a total of 20 corporate deals.
The basic reasons why these partnerships are becoming more common are well-established. Corporates are not innovative beings, they can not develop exciting, impactful solutions quickly. Startups have that in their DNA, but lack the distribution abilities and access to market a corporate has. Together, they are a match made in heaven.
Startupbootcamp AfriTech co-founder Zachariah George says African tech startups face major challenges when it comes to scaling compared to their counterparts in Silicon Valley and elsewhere.
“This has nothing to do with the quality of products or services, but rather with the inherent difficulty of direct-to-consumer business models in Africa. The cost of acquiring customers is typically quite high in emerging markets, and one of the best ways to circumvent this without the need for raising large amounts of seed capital is to work with large corporations to leverage off of their customer networks and distribution channels,” he said.
Corporate partnerships, then, are an excellent alternative to fundraising, indeed often preferable as no equity is given away. Keith Jones, co-founder of the Johannesburg-based Sw7 incubator, which helps startups secure corporate deals, says there are also many benefits on the corporate side.
“Our markets are changing quickly, Africa is digitising faster than any other region globally. Digitisation is leading to shifting business and consumer behaviours. The corporates get strong insights into these market shift and the thinking process behind them,” he said.
George says revenue sharing models, licensing agreements, pilots, and white label solutions are all ways by which startups can provide tangible benefits to corporations, helping them provide more innovative solutions internally or to their clients, in exchange for access to valuable distribution channels.
“In short, it is a win-win for both parties,” he said.
It has taken some time, but this is finally something corporates have realised. George said corporates in Africa are becoming increasingly aware of the fact that creating new products or services internally is prohibitively expensive in terms of money and time.
“Secondly, large corporations – unlike startups – cannot afford to fail fast or fail often, due to brand reputation concerns and stakeholder interests. Therefore, the alternative approach of working with tech startups as partners through pilots, proof of concepts and light, lean experiments provides the quickest, cheapest and least risky approach for a corporate to test out a new product, service or platform solution in a safe ‘sandbox’ type environment,” he said.
However, there is still work to be done, and more corporates need to adjust to the new way of doing things.
“The innovation markets are not new, they are just faster than they were before. What is new is that the rate and pace of change has accelerated beyond the ability of the corporates to keep up and remain relevant. Internal politics, short term agendas, internal projects, silo business structures and risk mitigating approval process mean the corporates can’t adapt fast enough to embrace the change,” Jones said.
“To remain relevant to their customers, corporates are going to have to learn how to partner more effectively to keep pace with the markets. Corporates perceive the innovation markets as high risk, they are, by definition, risk averse, but the statistics show that 70 per cent of internal projects fail or never get to market. This is an acceptable risk profile for the innovation markets.”