What Does The Future Hold For Afrikan Startups?

What does the future hold for African startups? While this might appear simple, there are a lot of layers involved in discussing the continent, considering that there are 54 countries with varying levels of integration, and their economies are also operating at vastly different levels.

This was the subject of the panel discussion at Seedstars Nairobi, powered by Omidyar Network, and iAfrikan as the official media partner.

I hosted the panel as the iAfrikan Editor-at-large, and the panelists were Clara Odero, who writes about Startups for Africapedia, Marcello Schermer, the Africa Region Manager for Seedstars, and Trevor Kimenye, co-founder and CEO of Ongair.

The opening premise was a simple question. 'What is the future of African startups?' Clara was quick to point out that the answer was in the question itself, that startups with operations in Africa and being run by Africans were indeed 'the future', and the very fact that they were in operation spoke to the fact that African startups are making it in their own countries and spreading across the continent. By doing this, they stop being 'a Kenyan startup' or 'a Nigerian startup', but instead they cross the threshold and become pan-African.

The process may be difficult, because each country has its own unique operating environment, but there are those startups making a niche for themselves.

Trevor added that African startups have the potential to have an impact anywhere in the world, drawing from his experience at Ongair. African startups, he added, should be solving African problems, because we are the ones living through these challenges every day.

Marcello further added that African startups should be country-neutral, meaning that wherever they start, African startups should be able to build something that has global relevance while also being relevant locally - where you start doesn't really limit or determine where you end up, and that is how many startups that started out within small ecosystems have gone on to have a global impact.

On the question of why Ongair did not have a 'presence' in Nigeria despite having an office in Hong Kong, Trevor asked what it actually means to have a global presence, or having operations in another country.

Ongair has clients in 55 countries, as well as offices in Hong Kong and Nairobi, so the issue of 'physical presence' in African countries is not really an issue. This is replicated by other startups such as Flutterwave and Kuhustle, which have partnerships across the continent, but they only have a physical space in Nigeria at the moment.

As is the case anywhere in the world, startups in Africa tend to be very lean, and Trevor's Ongair is not an exception. Just because a market has a certain attractiveness, as is the case with Nigeria's huge population, there are the challenges that come with it, so they often start small, venturing into the market through strategic deals and partnerships, and leveraging on these to build a presence.

Technology startups, Marcello added, can build a product and spread it all over the world without the need to open an office in the countries their clients are based in. Companies can grow from a base in any of the major technology centers in the world without necessarily having to send people out to man offices, or deploying 'boots on the ground'.

The major startup stories - financing, expansion and raising - tend to come from Nigeria and South Africa, and despite Kenya's prominence in the continent's tech scene, we don't usually hear much about the country's startups in the news. Clara attributes this to the size of the market, and the focus of the startups.

Nigerian startups, for example, tend to be more focused on the business side, while Kenyan startups are more keen on the product. Kenya's social enterprise space is more prominent than the other countries, and that is where she sees most of the attention going. South Africa on the other hand, is a more matured ecosystem compared to other African countries. There's a lot more going on in the startup scene in SA because there is a lot more money going around. There are more investors in South Africa putting money into funds than in other African countries, which greatly contributes to the ecosystem's growth.

Seedstars' focus is on startups in the seed stage, and Marcello attributes it to the large number of 'diamonds in the rough' when it comes to startups at this stage. For an impact perspective, he believes that the best place to invest in for maximum impact is in the seed stage. Many startups in this stage have gotten to where they are through contributions from friends, family and personal savings. While this initial money may be fairly easy to get while starting up, it gets more difficult further on when the startups are looking to expand. From an investment perspective, he adds, the seed stage is often lacking. For Seedstars, therefore, getting involved in this stage comes with the promise of bigger returns down the road.

For Trevor, however, raising funds at the seed stage was a challenge. He points out that the investment landscape has changed, where there was a lot more money available to startups in the recent past, but the priorities have changed so that now investors are more conscious of what they're investing in, and they are demanding better returns from their investments. Investors are also more wary of seed rounds, as Trevor explains, only coming in when the seed amount is huge. That is where Seedstars are likely to get involved, because the amounts involved are significant, but the returns are not immediately assured. Ongair, as Trevor explains further, is in the post-seed stage after raising US$100,000 in their seed round, and they are planning raise their series A round next year.

One thing that startups tend to do, as Marcello explains, is where there is a focus on closing rounds, and these are celebrated as achievements, even though a majority of companies do not need to raise money. Startups come in with different goals and different valuations as well, and the rounds represent raising as a means for growing the business rather than raising just for the sake of raising.

As for the sectors likely to produce the next African unicorns, Clara pointed out the potential in agriculture, energy, technology and logistics, where significant gaps exist that tech could potentially solve. Additionally, these are the spaces receiving most attention from external investors and multilateral institutions, meaning that local players are also likely to benefit and grow in.

Government support, which is a critical factor for the success of any startup, is often lacking in Kenya, Trevor adds. There is a lot of red tape, taxes, regulations and generally unhelpful interference that comes in between him and his work, and as a result it's hard for startups to make breakthroughs. The resulting effect trickles down to how the startups do their jobs. If the education system does not produce qualified graduates, the startups then lack skilled people to employ. By adding extra hurdles and cannibalizing startups in this way, the ecosystem is left unable to stand on its own.

A lot of the startups that are founded by Africans, Trevor has pointed out, are not incorporated on the continent, but are only maintaining a base of operations on the continent. Startups are also likely to base their operations in jurisdictions with favorable legislation, such as Mauritius which has a much lower tax rate than other African countries. As a result, there are significant discrepancies across the continent, which make operating a startup that much more difficult. Despite the challenges, Ongair still has a presence in Africa because a significant amount of their revenue comes from Africa, and their costs are significantly lower than if they were based elsewhere.

As for advice on what the pitching startups can do going forward, all the panelists advised the pitching startups to measure everything, keep track of their customers' needs, and work with the endgame in mind, be it an IPO or an acquisition had much to say. Trevor urged people to use each other's products and give each other feedback, that way they can help each other advance and build better software. He also advised them to emphasise on traction, the people on their team and the problem they are trying to solve.

Clara advised the startups to be as lean as possible, to learn fast, and to keep data on everything that they do. Marcello advised them to think big from the start, but with caution so that they wouldn't overstretch themselves. For African startups especially, he added that they should not limit themselves to their locality, but instead try to spread out across the continent, and to think of themselves as global businesses based in their countries of origin.

Ultimately, the panel concluded that the future of African startups is bright, with numerous opportunities for growth. Despite the numerous hurdles they face, they are making a mark in the countries they operate in, and as they start to venture out to the rest of the continent, they are changing how we live, work and do business for the better.