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Right around the time Omidyar Network released its Accelerating Entrepreneurship in Africa report, we had an opportunity to talk to Malik Fal, managing director of Omidyar Network Africa.
Fal has a finger on the pulse of entrepreneurship in Africa. He leads Omidyar Network’s investment strategy and operations on the continent, and for the last 15 years has been involved with social entrepreneurship, business, and development, primarily in the African context.
In this monster one hour interview Fal tells us why he is naturally skeptical about co-creation as a model for innovation in Africa, which country is most likely to become Africa’s tech hub in the next five years, the truth about multinational interest in African startups, bootstrapping and misconceptions about fundraising, Africa’s me-too mentality, the biggest challenges African entrepreneurs and its incubators face, and why Africa will lag in overcoming them.
Should African startups prioritise sound business models over innovation?
I think the answer is: it depends. Entrepreneurs operate in different environments. Some operate in environments where basic business considerations take precedence. Other entrepreneurs operate in environments where innovation is a real possibility. The environment for an entrepreneur in Sea Point Cape Town differs to one in Maiduguri, Nigeria, for example. It’s really a matter of pragmatism.
In places like Cape Town and to an extent, Nairobi you have an ecosystem that is conducive to innovation and thinking outside of the box. Technology entrepreneurs in Kenya have access to iHub, they have access to M-Pesa — so startups can for example, think about creating innovative new systems that take advantage of that type of payment system. In other parts of the continent, those elements do not exist.
It’s up to entrepreneurs to look around and develop business models that fit the space. Something which particularly startups in the tech community have to guard against, is the syndrome of: “first invented here.” It’s not about an ego trip, it’s about building sound businesses.
Is entrepreneurship in Africa inherently doomed to follow the US or are African entrepreneurs solving real world problems?
To me an entrepreneur is someone who sees a gap, who sees a need in their immediate community or a border community, that they feel they are uniquely positioned to solve or fill. And, an entrepreneur takes into account the realities of the environment in which they operate. Does an entrepreneur’s business have global potential, African potential, or for example, South African potential?
You have to be careful about the people you speak to, to really debunk the silver bullet approach. What type of industry do entrepreneurs find themselves in? Who are they serving? The answers to these questions determine the propensity of the business.
Unfortunately, entrepreneurs in Africa very often don’t have business training. Their learning happens on an ad-hoc basis through talking to people or attending conferences. There’s no formal training to evaluate the potential market, understanding positioning in the market, understanding what kind of skills and resources are required and what segment of the market makes the most sense to serve. Entrepreneurs in Africa don’t have the systematic tools to evaluate those things, so they look for a silver bullet.
So you’re saying, because African entrepreneurs face unique challenges, they often end up solving immediate problems, but if they have their sights set on global problems from the start, entrepreneurs often end up emigrating to where those problems are most prevalent, because of local constraints.
Vinny Lingham of Yola is a perfect example of that. He developed Yola, a product with universal appeal. It filled a need consumers had all over the world. He found himself very quickly constrained in South Africa, where the percentage of the population who were tech savvy enough to have their own personal website was quite limited, the ability to pay electronically was limited — which are things Vinny needed to scale. And then, in terms of finding the technical talent, it made sense for him to establish a presence in California.
Integr8, for example, is an IT infrastructure business which operates between Cape Town and Johannesburg that’s doing very well. It’s a far more traditional IT business that goes to the business and corporate community and sets up IT infrastructure. For someone like Integr8 CEO Robert Sussman, it makes no sense to invest resources in the US or Europe where there are hundreds of similar companies with a market advantage. Sussman’s captive market is more likely the rest of Africa — so that’s where Integr8 is headed.
Are African entrepreneurs thinking in unique ways or are they heavily influenced by Western culture being ex-colonies — is there a definite African culture that has developed since decolonisation that defines business?
It’s one of the major problems — across the world by the way — we have a me-too mentality. Someone has been successful in England, Australia or Japan and we want to do exactly the same thing, without considering the dynamics, market and conditions.
To be fair, in some instances there is validity to being a me-too business. For example, in South Africa you have a huge community of franchise entrepreneurs — brands that are successful overseas that people think might be successful in South Africa — that’s fine, in the food business, but when we talk about innovation, you can’t always copy and paste from the US or Europe.
Is co-creation a viable model for innovation in Africa?
It depends on how you look at it. If you go to Silicon Valley there is a culture of “coopetition.” Instead reinventing the wheel, a startup would work with another firm, potentially a competitor, to identify technology that they can plug into their own ecosystem. It’s an accepted practice in environments with high trust.
Emerging market environments such as India, Africa and Latin America are not high trust environments. They are also not environments where you can protect your IP as you can in the US or Europe where the rules are enforced, there’s a track record of justice in the space and you have competent IP lawyers.
Co-creation sounds great from a theoretical standpoint, but from a practical standpoint, it’s a really difficult thing to do in Africa. It puts a lot of African entrepreneurs at a disadvantage — they almost have to re-invent the wheel in instances.
It’s a question I don’t know the answer to, but for the reasons I just mentioned, I’m just naturally skeptical about that model for Africa.
Which country will become Africa’s tech hub in the next 5 years or do you see it being more region based — if so which regions?
I think it’s a race now between Kenya, particularly Nairobi and Cape Town.
What about Nigeria?
I don’t think Nigeria has the depth of IT talent that Kenya and Cape Town have. The ecosystem is still a little bit too chaotic in my view. The country is so big, its people work still too much in isolation. We just invested in a group called the Co-Creation Hub, which is similar to iHub in Nairobi, but I think Nigeria is still a long way away from Kenya and Cape Town.
Which are some strengths and weaknesses of prominent tech hubs in Africa?
One of the things that make tech hubs thrive, is the involvement of the corporate at some level. For example, one of the reasons for iHub’s success is that many of the phone OEMs are highly involved, being cosponsors.
In iHub there’s a laboratory where companies like Nokia, BlackBerry and other manufacturers basically make phones available for free for developers to test applications and to tear things apart. They make their technicians available to app developers to help with the deployment of new apps.
There’s an active engagement between the IT-poor community and the more established, corporate hardware manufacturers, which is key.
In South Africa I don’t see that engagement being as fluid as it is in Kenya. Companies in Kenya are more open to testing new ideas, while South African corporates are more risk averse.
There’s a perception that funding is fragmented in Africa. Do you think collaborative efforts between VCs and Angels could work?
Africa needs a far more dynamic funding community. Included in the report is a financial composite index which looks at the breadth of financial instruments available to African entrepreneurs. It goes from early stage type of financing sources like Angel or VC to more advanced sources like traditional bank loans, then moving to private equity and listing on stock exchanges.
The country in Africa that has the widest offering is clearly South Africa. If you look at the index, South Africa has a rating of 2.8, the rest of Africa is sitting at 2.5 and the global peers — countries in Latin America and other parts of the world — have a composite rating of 2.7. South Africa is ahead of the curve of even many emerging markets outside of Africa. It has a very sophisticated financial community, but it is a bit light at the Angel stage, there are less Angels and VCs than you have in the more established parts of the financial community, but it’s there.
In the rest of Africa, the sources of funding are skewed much more toward the middle — I would put in that bracket the Nigerias, the Kenyas, the Tanzanias, the Ghanas and so on — you’ve got, as in South Africa, very little at the early stage sources of financing, so Angel and VC, and you’ve also got very little — although it’s growing — at the end of the spectrum, here we’re talking about private equity groups and stock exchanges. So what we have is mostly financing around the middle — the traditional financing coming from banks.
We need to reinforce the relationships between VCs and Angels, which are adjacent sources of financing in the spectrum. It could be a case of incentivising VCs to place their funding in earlier stages with the right capital guarantees and so forth. It’s also about incentivising high net worth individuals, or just individuals with savings that want to invest, to make angel investments. The type of incentives could be tax related or guarantees — for example if you have a R100 000, you have an opportunity in case things go bust to claim R80 000 back.