Earlier this year, we saw the first IPO of an African start-up – called Jumia – on the New York Stock Exchange. The success of Jumia, which has been described as the Amazon of Africa, represents the incredible potential African tech businesses hold.
This was the word from AfricArena CEO Christophe Viarnaud, speaking during the Cape Town leg of the AfricArena Tour yesterday.
Viarnaud noted that in the last 18 months, there has been a great evolution in terms of how African tech businesses are perceived around the globe.
“But if Africa is set to be the next big thing and the next space for growth in the tech space, it can’t continue to be a mere drop in the ocean when it comes to global investments in tech,” he explained. “The best way to support Africa businesses is to invest in African entrepreneurs.”
At the AfricArena Tour event, 12 start-ups were given just two minutes to pitch their ideas to a panel of judges. The aim of the pitches is to provide these ventures with the platform they need to showcase their business models, access valuable networks and attain funding.
The AfricArena Tour has been moving across the African continent since the end of April, with the final leg of the competition set to take place in Johannesburg next week.
As part of his opening remarks, Viarnaud cautioned that South Africa – and Cape Town – is under threat when it comes to investment opportunities.
According to Viarnaud, last year, for the first time, Nigeria and Kenya overtook SA in terms of tech start-up investment from international players. “But competition is a good thing because it forces local businesses and the local government to take a look at what they’re doing and figure out how to improve.”
Investing in local tech ecosystem
As part of the event, the organisers hosted a panel discussion to unpack the current state of the South African start-up space.
While there has been massive growth in the local start-up space, Danai Musandu, investment associate at Goodwill Investments, cautioned that the Cape Town ecosystem shouldn’t be seen as the breadbasket of the continent.
Musandu noted that many of these businesses coming out of Cape Town aren’t actually developing solutions to solve local issues; they’re working on initiatives to meet the needs of the top 1% in the world.
“Looking across the continent, there are various more interesting solutions out there that are speaking directly to people on the ground.”
But Karabo Nkoana, associate principal at SA SME Fund, quickly rebutted this, noting she hasn’t seen a great deal of investment happening outside of Cape Town.
Speaking to the ever-important funding question, Nkoana highlighted there are gaps that must be filled. She believes there is a need for renewed government support and participation in the start-up ecosystem.
“I’m not saying there isn’t government participation but I think they need to plant the seeds and then step back and allow the private sector to do the rest.”
In line with this, Musandu asserted that investors must change their approach to funding. She noted investors will make an initial investment when the business starts out but then they don’t follow through. “At times, investors fail to understand that it’s a journey and that this journey can’t be a once-off situation and needs to move through all the early stages of business development.”
As head of a business that has worked through the funding process, Abraham Cambridge, founder and CEO of The Sun Exchange, somewhat controversially advised start-ups to avoid asking anyone for funding at all.
Start-ups should hold out for as long as they possibly can. Once the business has traction, it will be better equipped to show it can execute and has potential for growth, and then it can seek out the funding it needs, he continued.
Guillaume De Smedt, VP of community at Startup Grind, shared this sentiment. “If your business is not sustainable, getting VC funding is not going to make your business a success. Sure, these funds will help you scale and access networks but money is not a magic wand.”
So, what do start-ups need? For De Smedt, the answer is mentorship from those that have experience in this space and can help a start-up execute its ideas more effectively.
A lot of start-ups don’t think about what happens after growth, said Nkoana. But they need to. “So you’re so focused on getting your funding that you don’t actually think about what it takes to run a business and create a team that can support you to do so successfully.”
But we can’t just recycle the funding and business models used in other countries, she concluded. “And why should we. I think we need to start to do things differently and trying out different models.”
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