African Tech Scene: Impact Financing and Their Challenges

Within the exponential growth of African tech scene, countless startups have also emerged—fueled by healthy competitiveness to attain innovation and sustainability in the process. Alongside the advancement of technologies implemented by such companies, millions of jobs have also been generated to ardently encourage youths to boost their respective technical talents. Furthermore, entrepreneurs and large-scale companies have also started to invest, incubate, and accelerate the referred companies as an embodiment of goodwill; supporting them to grow further than their relative comfort zones.

Yet most people—including the investors themselves—mainly funds individual startups, which in return would only boost the startups individually. Sure, it helps with the microeconomy of the companies in question. But in reality, Africa’s tech scene is still lagging at a staggering rate in overcoming structural challenges. The bigger picture is the ecosystem as a whole; impact investing with goals to generate a measurable, beneficial social or environmental significance would potentially be a breath of fresh air in addressing these issues. Albeit this gesture of goodwill is often considered more than substantial, most investors only pay attention to financially-beneficial tech solutions aiming to grant a monetary return.

Mainstream venue capitalists implement these notions. The foundations laid by proper ecosystem intermediaries such as universities, research institutions, and tech hubs are often overlooked and ignored due to this issue.

Development Channel Creates 5,100 IT Based Jobs Across 54 African Countries via malawivoice.com

Believe me, I have personally talked to and heard firsthand experiences from various CEOs, CFOs, and executives of numerous tech companies in Africa (refer to our Meet the Founders podcast releases)—and very rarely I hear that investors aren’t a modest scarcity even in the heart of rapidly-growing centralized tech markets.

So, what are the challenges?

  • Like I had stressed earlier, the funding of individual startups slowly creates a pattern of competitiveness between those who are lucky and those who aren’t. This unsurmountable gap is left for them to overcome, yet not every single startup aims for the same objectives. Picture it like this: Ten men with innumerable potentials of their own are all pitched in to fill a room with only five seats. These ‘five seats’ are hindering their notions to collaborate and/or conduct structural alliance—as they would prefer profit over infrastructure investment in the ecosystem, or even to share knowledge. Thus, a potential for imminent uncollaborative exercise will grow; damaging the ecosystem as a whole.
  • Local governments seldom support notions that signify public funding, infrastructure financing, and ecosystem development. This, in return, would lead to seed-stage startups to seek foreign support, external funders, and private organizations (which mainly only aims for profit and individual monetary benefit).
  • During the first stages of idea validation of companies, funding is scarce and short.
  • I know it’s 2019, but there’s still a bias towards entrepreneurs with urban, male, internationally educated, or expatriate backgrounds—leaving the young local talents lesser room to express themselves. Both public and private investors unfortunately still regard talents of Africa to be unsuitable towards their respective backgrounds, so they would turn their heads towards people with greater chances to bring success as a contribution towards the companies. I’m not saying that leaving the ‘big businesses’ to expatriates are wrong, but it’s more than a palpable suggestion to let the local talents grow instead.

To address the problems stated above, impact-oriented investors should pay more attention to hubs and tech intermediaries—especially ones that are regarded as large-scale, as it can be of significance and promote a larger area of effect. A single hub supported by impactive context, whilst nurturing hundreds of startups would potentially grant a constant, continuous growth not just for individual startups, but also the ecosystem.

African tech entrepreneurs via businessamlive.com

Where does impact finance come in?

Okay—good question. Impact finance, as long as it’s to be manifested as a definitive prowess to address such issues, can build local development as everlasting as it’s purely intended.

Foster Collaboration

Because funding is a modest scarcity among the general populace of startups and seed-stage companies, it poses as a steep barrier—hindering their collaborative strengths. Collaboration can embody itself in the form of meetings, conferences and knowledge sharing platforms; while it may not lead to immediate results, it sure can decrease the toxicity in the overall competitive sector of the region (and contributing to the ecosystem health in general).

Investors, along with developers and executives, must not overlook the importance of collaboration—and as mundane as it may seem, the long-term effect of being in a healthy competitive environment would grant strength and nourishment for its occupants.

Funding Local, Diverse Teams

In addressing the problems of the local population, local startups are best suited to be targets of active development of impact financing. First, they had experienced their communities’ problems firsthand—and more than often such problems become the framework on why the startups were created in the first place. Second, because they’re driven to solve the problem that originates from their respective communities, most likely they’ll reinvest their resources into local economies and drive further growth.

iHub, an innovation and hackerspace of Nairobi via ihub.co.ke

Cooperating with Local Governments

It’s clear that local governments must go hand-in-hand with system intermediaries in strengthening the trust and cooperative factors. For example, the government can invest in public development labs, larger office and/or coworking spaces, or even connectivity promoting seamless networking. Funding for local infrastructure, networks, and capacities can mitigate the risk of structural dependence across Sub-Saharan Africa tech sectors.

All in all, there’s more than meets the eye regarding the African tech scene. While it is blossoming at an unprecedented rate, it’s also staggering to breathe with all the issues stated above. Driving sustainable growth should be the main focus of private and public sectors in this context—rather than merely aiming for financial benefits.

Source: ssir.org

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