The annual Africa Startup Summit took place in Kigali last week, with six of the continent’s most prolific investors taking to the stage for the keynote panel discussion around creating a generation of funded African startups.
Here are seven things we learned from the star-studded panel.
There are still funding gaps at all stages
The panel felt there is no single funding gap plaguing startups at a certain stage, rather, there are gaps across all stages of the startup lifecycle; particularly so for those companies not yet boasting profitability.
“Given the nascent stage of the market, there’s a gap across all the stages […] It’s encouraging to see capital flows, but there’s still a lack of early and later stage funding,” said Mike Mompi, chief executive officer (CEO) of Enza Capital.
Ido Sum, partner at TLcom Capital, added: “It depends on what you call seed, and what you call A, but in general until you’re profitable there’s a big gap in funding.”
Funds feel pressure too
The whole ecosystem expects more from VCs, and watches them for more and bigger investments. But as the early investors in the ecosystem, they feel the heat to perform too.
“What we need is some good stories, some exits […] As funds we feel pressure from the ecosystem,” said Anton Van Vlaanderen, partner at 4Di Capital.
More money needs to go to accelerators
There is money available for startups from Series A onwards, because from that point investments are relatively “de-risked”. But there is a gap in support and funding for those taking new ventures and turning them into investable businesses.
“One thing we’ve realised is you have to put money into accelerators,” said Ketso Gordhan, CEO of the SA SME Fund; noting the fund has put US$1 million – US$2 million into accelerators in the hope that they will provide some dealflow.
African startups need to be better
The African ecosystem is young, and as a result the bar is set higher for local startups looking to raise funding, and secure partnerships and backing.
“African startups have to be better than their global peers […] Because it’s such an unknown market, and there’s a bias, you do have to outperform,” said Monica Brand Engel, partner at Quona Capital.
Startups from small markets need to scale quicker
Looking at how to attract more money to alternative African markets, the investors said startups from smaller markets will need to perform better than those in major continental markets, as they will need to scale to more customers more quickly.
“It’s not about the passport of the founder, it’s what market he wants to serve […] If he wants to serve a very small market, it can be unexciting,” said Sum.
Nnena Nkongho, principal at DiGAME Investment Company added: “It’s not that people are wired to say no. There’s a reluctance that’s based on realities.”
African startups may need to operate in multiple verticals
Even where a startup has a defined business idea, often the realities on the ground are that they will need to address adjacent pain points to be able to unlock the value of their solution. This is not as commonly the case in more developed ecosystems.
“For many of the verticals where startups start off with a clear idea, as time passes they realise they need to take up other aspects of the value chain,” said Sum. As an aside, he noted, very often this involves applying some sort of fintech.
Diverse teams for the win
All of us are guilty of unconscious bias, and as such diversity with both investor and startup teams are of paramount importance to success.
Investors should strive for diversity within their teams, and preferably work towards implementing internal diversity policies.
For startups, diverse backgrounds and experiences within the team will yield the best results. “The best teams tend to have a mix of local and global experiences,” said Mompi.
