The Challenges Around Investing in African Startups — a perspective from Tania Ngima

The Challenges Around Investing in African Startups — a perspective from Tania Ngima

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There is no denying that financial capital is an important element for business growth. Sufficient working capital allows a business to take advantage of new opportunities that come up, invest in new assets, or hire more staff to expand operations. As mentioned in the previous article, it is unfortunate that a lack of sufficient capital has been the nail on the coffins of far-too-many startups, especially in Africa.

We had a conversation with Demo Venture’s CEO, Tania Ngima, who shed light on why it is hard to sell African ideas to investors, especially international investors.

Demo Ventures is the investment arm of Demo Africa, an initiative which runs pitching competitions and serves as a launchpad for innovative African technologies.

There is a market gap that Demo Ventures satisfies. On one hand, investors want to invest in Africa but may lack sufficient knowledge about the market. Also, they might not have the bandwidth to manage multiple investments, preferring instead to makemikrobølgeovn med grill og varmluft comprar fatos de treino adidas baratos astro a50 ps4 and pc mikrobølgeovn med grill og varmluft jayden daniels jersey meia com pompom polaroid κάμερα meia com pompom gepunktete strumpfhose comprar fatos de treino adidas baratos polaroid κάμερα brandon aiyuk jersey youth golf d mallas para hombre nike astro a50 ps4 and pc single large investment — if at all. That is why you will see that an approximate 40 %* of the funding that went into the African startup ecosystem during the first half of 2018, went into two companies only; Cellulant and Branch (Link Here). At the same time, there are many startups that are looking for different sizes of funding. So Demo Ventures was started to bridge that gap. Currently; it is in the process of raising 100 million $ in equity to invest in early-stage tech startups focused on consumer web and mobile, renewable energy, and financial services, among other industries (Link Here).

So why is it hard to sell the African dream to investors?

Infrastructural and political challenges

Conducting business in the African market is not easy, with challenges existing at both the macro-level and micro-level scale.

Macro-level challenges could be infrastructural, like nonexistent roads or minimal access to electricity in rural areas. In some cases, there are restrictive policies and high import tariffs that make it expensive to do business in emerging markets, compare to other more developed markets.

Unstable political climates tend to hinder business growth as well. For example, on the 15 Jan 2019, Zimbabwe’s government shut down the internet after protests turned deadly (Link Here). Imagine the impact of such a shut down on businesses operating within the country.

Headline-grabbing news like these tend to make investors nervous.

Problems with Execution

Micro-level challenges deal with business execution — or the daily operations of running a business. Tania Ngima notes, “The difference in execution is the difference between being able to give your investors a return on investment, or not.”

She mentions that execution problems tend to center around the founding team. Sometimes, they get so passionate and invested in the shape or form of their original idea that they might not be willing to be agile and open to diverse opinions The questions that they need to ask themselves are, “Are we willing to rethink our product if the market is not adopting it as anticipated? Are we willing to rethink our business models to deal with changing legislation ?”

Another challenge with the ecosystem is that local investors are hard to come by. Only recently are angel investors from Africa coming around to invest in startups, as there is the old-school thinking of investments only being poured in real estate or government securities. Because of that, it’s very easy for international investors to raise the question, “If you can’t get your own people to invest in you, then why should we?”

Personal Challenges

Finally, entrepreneurship as a legitimate career path is still not fully understood or accepted culturally. While it is easier for children who grew up within entrepreneurial families to become entrepreneurs, the road for the rest of the population is paved with thorns.

Entrepreneurship is generally viewed as the option until one gets a real job. Also in the case that someone tries to pursue a business venture alongside a real job, the side hustle is not given the energy and focus it requires. That could at times translate into higher failure rates.

Besides the emotional barriers associated with having family members not accept them for following a unconventional path, entrepreneurs usually don’t have the financial bandwidth to fail fast or fail often. While in the US, there’s more liquidity for startup founders to fail a couple of times, it’s more “do-or-die” in this market.

Or to be more literal, “do-or-get-a-real-job”.

Also, ideas from Silicon Valley are being imported into Silicon Savannah without taking care of the fact that the two markets are nothing alike. In Silicon Valley, there’s more experience in angel investing, and proven track records of successful exits. As Tania is quoted saying, “In Africa, it’s virtually impossible for a startup to exit via IPO as our stock exchanges are not that mature yet.”

Instead, exits are usually made by buyouts or acquisitions.

But there is hope.

More international funders are looking here. The most recent Weetracker report, “Decoding Venture Investments in Africa 2018,” highlighted that over 725.6 Million dollars were invested in Africa in 2018. It also underscores that the money went into 458 startups with 80 % of the deals concentrating around South Africa, Nigeria and Kenya.

This newly-spurred interest in the African startup landscape by venture capitalists is a good thing. It shows venture capitalists have enough confidence to expect a return on investment from Africa, rather than signing it off solely as a place to pour charity money into.

  • 67.5 million $ out of the total 168.6 million $

Story co-written with Amina Islam




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Deconstructing the Local Angel Investment Cycle in Kenya (Part 2)

Deconstructing the Local Angel Investment Cycle in Kenya (Part 2)

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In the last post, we went through the initial stages of the Investment Life Cycle that includes Screening, Due Diligence and Deal Structure. However, not unlike a marriage, the real work in an investor-entrepreneur relationship begins after signing the contract and popping the champagne. This blog post explores post-investment activities such as monitoringvalue addition as well as exiting.


When it comes to monitoring, investors tend to exist on a spectrum that ranges from the ghost investor who is clueless about what’s happening — or not — at the startup they’ve invested in to the hovering investor who keeps a close eye on everything.ipad 2019 hülle mit tastatur und stifthalter jayden daniels jersey nike technical cross body bag handcitruspers nike air max 90 nike calças de treino tp link remote control nike daybreak uomo callaway reva femme táskafül bőr Purchase Florida state seminars jerseys, football, and various accessories for Florida state seminars kallax korkekiilto hylly blogspot scarpe eleganti senza lacci ciorapi compresivi pana la coapsa Purchase Iowa rugby uniforms, Iowa olive jerseys, Iowa rugby shoes, and other accessories

As an investor, it’s good practice to be informed about what’s happening within the startup, partly due to its high-risk nature, and partly because you might be required to make additional investments in the future. On top of that, you may also have tax reporting obligations related to your investment.

You also get a chance to formalize the monitoring process by serving on the startup’s board. Since the board is legally mandated to make strategic decisions, hire (or fire) the CEO, and put the stockholders’ interests ahead of an individual’s personal ones, that ensures that you’re always aware of what’s going on within the organization.

Value Addition

In additional to potential financial rewards, as an investor you get the chance to give back to society by mentoring the next generation of entrepreneurs. There’s also the joy of business creation without the headaches that come with daily operations. Through skill-sharing and the provision of networking opportunities, investors don’t just get a chance to grow their portfolio companies but also contribute to the entire startup ecosystem, as well as building their countries’ economies, thus causing what Steve Jobs would call, “a dent in the universe.”


When it comes to exiting a startup, Jason Musyoka from Viktoria Venture advises the investor to plan for it from the beginning and not treat it like an afterthought. Basil Peters, an experienced Canadian angel investor, provides the common rationale behind that advice in the book “Angel Investing,” by saying that a well-defined exit strategy would affect how the business runs.

Peters notes, “Businesses designed for sale at a […] sharp valuation increase will be purchased with an eye to their future growth and profitability, rather than their current earnings, or even revenues. They should thus be willing to take bigger risks, accept outside equity and debt capital, and swing for the fences, focusing on growth above all. In contrast, a business that the founder intends to own and manage for the long haul as a cash-generating sinecure should focus primarily on generating near-term profitability and avoiding debt, while retaining most or all of the equity in the founder’s hands.”

So what exit options do investors have in emerging economies?

As mentioned previously, unlike Silicon Valley, exiting into an IPO is a rare occurrence. Options that do exist for an investor however are as follows:

  • Strategic trade sale/corporate sale
  • Management buyout/sale back to the founder
  • Sale to financial/secondary buyer e.g. bigger Venture Capitalist or Private Equity
  • Self-liquidating instruments

There is also the unfortunate exit outcome of the startup going belly up and closing its doors for business, which — naturally — translates to a failed investment.

What Does African Exiting Landscape Look Like?

The Weetracker African Startups & VC Ecosystem Report that published the activities of the first half of 2018 showed 14 merger and acquisition (M & A) deals, with only 2 being mergers. This positively shows a nearly 3 fold increase compared with only 5 M & A deals during the first half of 2017.

While not entirely bleak, the current exit landscape still shows room for growth, which is what would happen if we encourage more venture builders rather than venture capitalist to enter our startup scene — which happens to be a topic for another day.

Co-written with Amina Islam


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