There has been a lot of noise around the up and coming startups of Africa and how they are changing the game. The reality is that they truly have all of the possibility of going big, but in fact don’t do as much as they could due to the reality that many entrepreneurs face in Africa when trying to follow their dreams. The startup ecosystems are not up to par, or practically non-existent, to the thrive behind the brilliant and hard-working entrepreneurs.
When analyzing and comparing different locations around the world where a group of entrepreneurs and like-minded individuals unite to start to develop their ideas, you can’t do this by discussing cities or countries. This is mainly true because even in the same city or country you could find two completely different ecosystems sharing a zip code, but not the basic characteristics of what make them tick. Due to this, usually startup ecosystems steal the attention.
What is a startup ecosystem?
A startup ecosystem is a group of people, companies and market conditions that interact with each other to a system that motivate and help new startups emerge. These ecosystems could be physical or virtual, but either way their end result is the same. The elements of a startup ecosystem are the intellectual work of the entrepreneurs, startup at their different stages, along with their members, entrepreneurs, Angel investors, startup mentors and advisors and basically everyone and anyone interested in startup activities or with some experience in entrepreneurship. As participants, each one takes on a role and does their part, all with the same objective in mind: to help new startups make it. Many organizations take part in this ecosystem for instance universities, funding organizations, incubators, accelerators, research organizations, service providers like legal or financial services companies, and large corporations.
Challenges in the African startup ecosystems
Africa, besides being this mecca for startups in the past few months in the news, is a place that unfortunately is still lacking in some aspects like basic financial aid, available mentoring and government support. Understanding the context that Africa lives in is essential to knowing that there are basic needs that were not met and are still behind due to a series of conflicts and wars the continent has lived. The needs that affect directly the startup ecosystem range from education quality and level in Africa to lack of funding opportunities. Businesses in Africa are constantly in search of ways to make it big but here are some of the common reason why they don’t get off the ground.
- Lack of integrated entrepreneur community
Many competing entrepreneurs have been known to be jealous or overly protective when it comes to sharing thoughts with other influential thinkers in their ecosystems. Unfortunately, for a startup ecosystem to work there has to be an active mentoring program, so that everyone has the opportunity to learn and grow.
- Hard work that doesn’t necessarily pay off
While analyzing many of the startup initiatives and business ideas, it becomes evident that many of them would take off immediately if set up in a different ecosystem in the United States or the UK. So, it comes down to African entrepreneurs having to work twice as hard to simply make a monthly income.
- No risk capital, more like private equity
In Africa it is becoming common to see investment firms interested in a project if and only if there is a high profit margin or if there is some kind of collateral property that can be used. The reality is that most situations compare more to private equity then risk or venture capital. This obviously slows down the growth of startups in Africa significantly.
- Doesn’t have a viable consumer market
Even though there is a big growth in the tech industry of entrepreneurs, companies and startups hitting the scene, if you analyze carefully there is not quite enough people to sell to. In countries like Kenya, 45 percent of the population live below the poverty line, which puts buying or investing in tech gadgets last on their list. So, that brings the question, who will they be selling to if these are the conditions in their ecosystems. Therefore, it is important to recognize which is the opportunity for tech business ideas, which should spill over into real life to see real effects.
- Unemployment rates
In some countries in Africa, there is a new wave of educated, but unemployed entrepreneurs in search of a break. In the meantime, the unemployment rates continue to grow and business looking for talent are still not finding what they need. Hopefully one of the many initiatives like iHub, Nailab, among others will help to assure these entrepreneurs find what and who they need.
- Government corruption and lack of regulations
In general, many countries in Africa are still struggling against government corruption that leads to too many consequences to mention here, but in regards to startups and entrepreneurship it is holding many people back who are eager to find a path in their ecosystems.