With the lack of funding, should African startups concentrate on bootstrapping?
Bootstrapping will only get you so far. In tech industries you need to move fast. Innovation has limited shelf life. If an idea is worth spending time and effort on, you can be sure four or five of teams of developers around the world are working on the same problem.
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You need to have funding to hire the talent, scale your product and distribute it quickly. If you’re bootstrapping it makes you move much slower than other teams around the world that have the cash to move fast.
Where startups decline to take funding when they can, there are issues surrounding control. It’s a problem, because sometimes there are unrealistic views — an entrepreneur says I want your money, but I don’t want you to take a part of my business, that’s not feasible. Entrepreneurs must share the potential for profit with the people who take a risk on them at an early stage.
It’s about having the competence and being savvy in negotiating what kind of financing you need, what terms are you prepared to live with, who should you work with — it’s a marriage, these people are going to be involved in your business for a while.
It speaks to the sophistication of entrepreneurs in being able to raise financing. If they don’t have that background, then they need to seek assistance from people who can guide them through the process. It’s another thing which a Silicon Valley entrepreneur has available to them readily, but not necessarily one in Cape Town.
Do you think big multinationals could do more to work with startups in the countries they go into? For example, SAP sourced innovation from Africa, recently.
There are different dimensions to this question. First, which market is the multinational serving? You have multinationals who are serving markets outside of Africa. For example, your mining companies, your energy companies, come into Nigeria, pump out the oil and take it out of the country — the main market is outside of Africa, these are resource driven companies that needs something for the rest of the world.
Other multinationals come to Africa with the goal of serving the African market — think of Coca Cola and Walmart.
These two types of companies have a different outlook towards supporting local business.
If you’re a multinational that is looking to take something from Africa and export it elsewhere, your interest is to protect your supply chain. These companies are interested in local businesses that make their own supply chain effective — the railway system which they use to transport their goods, the wellbeing of the labour pool in the local community — so there is no disruption to the logistics that export goods as quickly and as cheaply as possible out of the continent.
If you’re looking to serve the local market you have different outlook. You want to inject wealth and prosperity into the community you’re serving, because that’s your market. In these instances, multinationals are far more interested to procure locally and to help businesses in the local community so that the community prospers.
There’s a culture of not revealing funding round amounts, why is that and should there be a push to make them public?
It think it goes back to the culture of trust we were talking about earlier. Dominating players don’t want to disclose what’s going on inside their companies. It’s a cultural thing too, I think. The US is much more open. Startups are proud of having raised X amount of capital and are happy to share it.
The Omidyar report lists challenges and suggested solutions. What’s a plausible timeframe for Africa to overcome these challenges?
It depends on the willpower of the decision makers in the communities. A colleague of mine at Monitor was talking about how at the Cape provincial level the reception was warm and engaging, but at the national level and with other provinces it was not the same.
Government and the private sector, as is mentioned in the report, have a lot to do to implement the solutions. Where the public structure is not as interested or engaged as it should be, it takes much longer.
Monitor did the study in China and Singapore as well. First of all, the leaders commissioned the study, they were ready to push the button as soon as the results came through — it’s a completely different mindset. In South Africa you have so many agencies involved in entrepreneurship, but the right hand doesn’t know what the left hand is doing, there are ego flair-ups between different departments.
Implementing the solutions require cooperation with the private sector, but it’s not properly organised, there’s not one voice.
There are a lot of underlying factors in the ecosystem that needs to be there for the community to be ready to implement the solutions. It depends on how ready the community is to execute on the solutions.
We’ve read the report, but according to you what are some of the key challenges Africa faces when it comes to technology entrepreneurship?
The first serious issue is the narrow spectrum of financing available. The second issue is around the preparedness of entrepreneurs to tap into sources of financing when they are available.
South Africa is a case in point. It has a full spectrum of funding available, but entrepreneurs in South Africa, by and large, don’t have the training, don’t have the preparedness to access the capital — they don’t know how to make a pitch properly, they don’t know what investors are looking for, the don’t know how to articulate a business plan.
It means that the capital providers have to be much more creative in developing products that are appropriate for their own market.
You almost have a cultural problem between the providers of capital and the demanders of capital.
The third biggest piece for me, is around the support organisations and incubators. Because African entrepreneurs are operating in such a complex environment, and they often don’t have the business training to scale their businesses, you need a way to connect professionals — accountants, cash flow mentors, lawyers — with entrepreneurs. The connection is not happening. Also, government programmes that support entrepreneurs don’t work, all over the world, not just in Africa.
The fourth problem has to do with culture. The results have shown that usually across Africa, the acceptance of entrepreneurship as a desirable career choice is improving. That’s a positive. On the negative side on the culture side, people’s acceptance of entrepreneurship is more on the shallow and glamour side of things. What they don’t appreciate is the journey. When those guys were struggling in the beginning, when the banks closed the doors in their faces, when they struggled to make payroll, when they missed out on a couple of contracts because they nicked the first one, all of these issues are swept under the rug.
We like the glamour and the fruits of success, but we need to celebrate the journey as well.
Which African startups should the world take note of?
I think you can give the credit to M-Pesa, they’re one of the most celebrated stories.
With the emergence of 4G LTE and the prominence of the mobile device across the continent — Africa is one of the fastest growing mobile markets in the world — we’re going to see some amazing innovation that leverage both the mobile device and LTE technology. Africa is really at the bleeding edge of that. There are a number of companies across the continent that are developing on that. It’s really a space to watch and I think Africa is going to lead the way.
