Investors need to rethink funding in Africa [T4A]

“In Africa if someone gives you US$100 000, you have to succeed,” says Angel Africa co-founder Eric Osiakwan. Startup funding in Africa is a much talked about issue and the way tech financing is done is becoming a constant point of conversation due to Africa’s tech boom.

Osiakwan, who was speaking at the IBMSmartCamp workshop at this year’s Tech4Africa conference, argues that the way Africa does startup financing needs to be rethought.

“Africa has moved from the consumption of technology to the creation of technology. Broadband would be more to an economy in the 21st century, what electricity was in the 19th century,” he says.

According to the TED Fellow, broadband has more impact in the developing world than the developed world and in Africa that impact can be seen in the innovations coming out of what Osiakwan calls the “LIONS of Africa’s KINGS”.

LIONS are the liberating innovation opportunity nations that the continent has. He argues that world-class innovations can be seen in the works in Kenya, Nigeria, Ghana, South Africa and Senegal.

“Africans are big on innovation, take Mark Shuttleworth, and we can still do it,” he says.

There are many innovation centres in Africa that are reminiscent of Silicon Valley.

“Starting small doesn’t mean it will stay small. This is how Silicon Valley started and in the next year it will be the same for Africa. I take innovation in Africa very seriously,” says the entrepreneur.

The finance ecosystem

Osiakwan says the success of Africa’s startup ecosystem requires a thought or methodology change in the funding ecosystem.

Currently the ecosystem consists of family and friends, something he calls the “fools” category, who invest seed money. Then you have the business angel investors who play in early stage startups. Success here eventually leads to private equity and venture capital funding for later stage companies and if you are really good then it’s IPO time, which means growth.

However Osiakwan thinks some of these stages need to be merged or bypassed. Investors need to put their money where their mouth is to some extent.

Why not start small in a startup and build a relationship with them rather than wait until they are big enough or show a measure of success?

“Build relationships with entrepreneurs by investing in stages. If you have one million to invest in one company why not invest in a five-year period rather than just once. Rather invest in an entrepreneur and help them build a business,” he says.

He also argues that more angel investor networks need to be built in Africa to help facilitate smaller funds for more companies. A model that Angel Africa looks at and South Africa’s AngelHub also follows.