The Rise of Funding in Africa
The Rise of Funding in Africa
For the longest time we have been conditioned to see a single side of the story of Africa; one highlighted by poverty, civil wars, insecurity, and famine. Reinforced by images on international media of people waiting to receive international aid, animal carcasses littering parched grounds, and people packed into tiny boats trying to get to Europe, the narrative we carry about ourselves is that our countries are poor and self-defeated and the best way to make it as an African is to get out of the continent.
But then the waves of negative perception started to turn. And this turn could be tracked by the increased interest in attention that African countries have been getting through foreign investments and exposure to international events. As mentioned in the previous article, Building Startups from the Ground Up, funding into African startups significantly went up during the first quarter of 2018 when compared to 2017 with the sectors receiving the most money being Fintech, Agritech, Healthtech, Ecommerce and SaaS.
This upwards trend in interest had been going on for a while. According to EY’s Africa attractiveness program 2016, the year-on-year Foreign Direct Investment (FDI) project numbers for Kenya grew by over 50 % . In 2015, Barack Obama and President jointly hosted the Global Entrepenership Summit in Nairobi . In June 2016, Mark Zuckerberg’s foundation — the Chan Zuckerberg Initiative — made a multi-million dollar investment in Andela, a startup that trains African software developers and gives them full-time roles at international companies. Other international companies such as Google and IBM opened offices here and people like Jack Ma jetted in with 38 Chinese billionaires.
Mark Zuckerberg was quoted to have said, “There’s so much energy and so much potential here. I just want to walk around and meet folks.”
So with increased attention towards the African continent, what do investors really look for in startups?
As mentioned in Building Startups from the Ground Up, execution and business readiness is key. Investors invest to grow their money so they need to see potential for a positive return on their investments. That means, if you’re a startup entrepreneur, you’ll need to show you have an idea with a good customer-market fit as well as an effective business model. Simply said, solve real problems that real people have and show that you’re going to make money out of it.
The best way to show execution and business readiness is through actual numbers. As an entrepreneur you need to understand your numbers inside out. Know your intended market, financial projects, details on sales channels and back up your growth projections using hard data.
Besides the numbers, investors look for certain character traits in the team executing the idea. For example, Parul Singh, principal at Founder Collective, a VC firm based in Cambridge, Massachusetts, mentioned in this article that while self-confidence is required to launch a business, arrogance is a key red flag because it may hinder someone from taking constructive feedback from the market.
As part of their due diligence, some investors would also look into the background of the founders. For example, Isaac Ho, the founder of VentureCraft Group spoke about how he found out that integrity was a common problem among founders as they tend to hide the real situation of the company from stakeholders. They also face management problems such as not knowing how to delegate tasks or hire the right people for the right job.
So if the investors are going to dig deep into founders’ backgrounds, it makes one wonder what they would think when they see entrepreneurs proudly talk about the amount of time they spend travelling to present at awards instead of running their companies? It also makes one wonder if they would continue to invest if they contribute to a startup but there’s nothing to show for it after many years of execution?
As a final note, as we continue to reap the benefits of international attention, can we stop trying to get away with mediocre quality of work?
Co-written with Amina Islam