African Tech Startups: Raking in the Money

“The market in Africa is relatively unique in the sense that there are two major motivations. Investing in a market which globally has the largest growth potential is a huge draw, but so is the opportunity to have a significant positive impact, and accelerate the rate of development in countries which need it the most.”

– Simon Bransfield-Garth, CEO of Azuri

In 2015, African-based tech startups set a new record by amassing over $185 million in investor capital. According to various sources, tech startups in 2016 are on pace to eclipse this amount.

Many international investors are excited about the promise of smart and savvy tech companies on the continent. In fact, technology leaders such as Microsoft founder Bill Gates; Facebook founder and CEO Mark Zuckerberg; and Steve Case, the cofounder of America Online (AOL), are all joining the rush to stake a claim in this sector.

There are numerous reasons why industry giants such as Gates, Zuckerberg, Case, and others are attracted to Africa’s tech startups. This article explains three of these reasons behind this phenomenon and presents two examples of the continent’s thriving tech markets.

  1. Significant return opportunity

businessmanOutside of a small minority of charitable investors and benefactors, people invest in Africa to realize significant returns. To this end, Africa provides numerous profitable investment opportunities.

Many of Africa’s countries (for example, Nigeria and Kenya) are home to the fastest-growing economies in the world. These nations’ current economic expansion is being fueled directly by a proliferating middle class, who have seen their job prospects increase and their disposable incomes rise.

Africa’s large, young, and tech-savvy demographic is also driving its economic expansion. Both Bill Gates and Mark Zuckerberg have cited Africa’s young and educated citizens as a primary motivating force behind their investments.

  1. Social impact

While numerous African countries are privy to their homeland’s fast-evolving economy, a disproportionate number of African citizens must confront daily social ills. Some prominent investors are reportedly investing in the continent to help alleviate these omnipresent problems.

Such investors, including both Zuckerberg and Case, see their investments as not only a keen business decisions, but also potentially life-changing actions. Financial technology and alternative energy solutions are two startup sectors that are highly attractive to investors; this is partially due to the enormous difference that success in these industries can make in the daily lives of many African citizens.

  1. A “final frontier” marketplace

Africa is one of the last remaining places of economic significance that has not yet achieved widespread technology adoption. Consequently, enormous growth potential exists in multiple technology spheres.

Emerging African economies are spearheading a shift in investor attitudes—an observable shift away from the traditional, saturated market playbook of “low-risk, low-return,” to one of higher-risk but much higher return. Furthermore, many African nations have made notable progress in one area very important to investors: business-friendliness. Insiders state that reducing red tape and improving transparency has helped stimulate startup growth.

Startup Case #1: Off-Grid Electricity

solar arrayPerhaps no other economic sphere encompasses the aforementioned market advantages of Africa more aptly than off-grid electricity. With over 600 million of Africa’s citizens lacking a source of power, investing in off-grid electricity startups can lead to potentially-massive returns while achieving a massive social impact.

African innovations, including “pay-as-you-go” electrical services, have enticed many foreign investors into committing significant amounts of startup capital. This investment capital is being dispersed to various energy startups using a number of different technologies.

Solar startups are the recipients of more than one-third of all energy startup capital. One former startup that has witnessed remarkable success is M-KOPA Solar, a solar energy firm based in Kenya that many credit with popularizing pay-as-you-go electricity throughout the nation. Founded in 2011, the company has since expanded the sales of its home solar systems beyond Kenya to Tanzania and Uganda. According to the company’s website, M-KOPA has connected over 400,000 households.

Startup Case #2: Financial Technology

Second in total investment funds only to off-grid electricity, financial technology, or “fintech,” startups offer a compelling case for investment because they provide sizeable potential returns and create a positive social impact. Another trend inviting additional startup capital is mobile phone adoption. In Sub-Saharan Africa in particular, “mobile money accounts” are quickly gaining popularity, thereby allowing many Africans to access financial services for the first time.

Citing Africa as an example in the organization’s 2014 Global Findex database, World Bank Group President Jim Yong Kim stated: “Access to financial services can serve as a bridge out of poverty. We have set a hugely ambitious goal . . . But we can do it, and the payoff will be millions of people lifted out of poverty.”

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