Q&A: What Africa needs to build the next Facebook

I recently sat down with Seedstars World’s Marcello Schermer (pictured middle) and Gregory Pepper (pictured left). We spoke extensively about the startup pitching competition and how it’s supporting emerging companies from all over the globe. We then dissected the startup ecosystem in Africa, focusing on what it will take for Africa to launch the next Facebook.

Sourcing tech startups from around the globe, Seedstars World is currently making its rounds through 16 African countries. The top company from each country will stand a chance of winning a US$500 000 equity investment in Switzerland next year.

Ventureburn: What is the business model for Seedstars World?

Marcello Schermer: We aim to find good early-stage startups from across the world, invest in them and help them scale. We use an exciting self-propagating model.

There are lots of companies in so many places doing exciting things. Now you can find cool companies anywhere you go. You can go to Mozambique and you will find very exciting startups.

There is a lot of talent in Africa’s startup ecosystem. It’s very broad, and for us the task is finding talent and seeking how we can connect things in the end.

VB: What is more important; local relevance or global scalability?

MS: The local leverage is important because for the company to work, it has to expand from the initial point in the country where it is; but the idea is that these companies can scale.

Solutions they’ve found must be able to grow and adapt to the market in countries around the world.

VB: What are the popular industries you’re seeing in Africa?

MS: It’s actually very mixed. What we are seeing in Africa is healthcare; there is a lot of applications trying to connect people in rural areas to doctors in hospitals in urban areas. There is a lot of ecommerce startups, financial technology is also important in Africa – redefining the payment system, reaching the unbanked.

Read more: Duty free shopping startup named top dog at Seedstars Abidjan

These are the three main things that come out of Africa disproportionately to what come out in other places.

VB: Why add more African countries this year?

MS: For us it’s not just going to where the hotspots are (Nigeria, Kenya and South Africa), we’re going to places where there are emerging entrepreneurs. Ethiopia is one of them and we are going there for the first time this year.

Another place we are going for the first time this year is Mozambique and it’s because there are a lot of activities on the ground, and giving them more exposure and access to global market can help jumpstart these newer startup ecosystem.

We think we can play a really important role in helping jumpstart activities in these countries by going there and giving them attention.

VB: Do you think the startups in these new emerging markets are strong enough to stand on their own?

MS: They are pioneers obviously. If you look at Mozambique; it’s not easy there but it’s not easy in South Africa or Nigeria either. Across the world, it’s challenging to build a startup but because it’s challenging doesn’t mean it’s impossible.

Since these startups are pioneers and trailblazers, they make it easy for subsequent startups that would launch in the respective markets — one success is going to make the next success easier — it’s like a vicious cycle.

VB: How and why is it important to support startups in emerging markets?

MS: The philosophy for us is there is no difference in the quality of talents between emerging and developed markets.

In emerging markets there is a tougher route to the market both in the country and to scale globally. It is easier if you sit in Silicon Valley to scale to other places than if you are based in Uganda or Mozambique.

I think it’s important to support them with access to market and global exposure to ensure global competitiveness. It’s necessary to support them and helping them grow beyond their local market and how we do it simply by building network and bringing exposure to the equation.

VB: What do you think is lacking in Africa’s tech ecosystem?

MS: It’s always tough to talk of Africa as if one big thing. There are few things you need in a tech ecosystem — you need the universities, corporates, startups, support system and my feeling is that in African countries, one or more of these key elements are lacking.

South Africa has very strong talent base because they have very good universities, entrepreneurial structure, decent government support but funding is still an issue. In Nigeria, there are very motivated entrepreneurs, very good ideas, very big local market but the challenges are funding.

A few of the elements that make a perfect ecosystem are missing in some of these African countries and these elements are needed to make the startups grow.

VB: What roles do governments have to play in building the startup ecosystem in African countries?

MS: African governments have two major roles to play in the ecosystem. One is in reducing friction, making tax laws easier. Basically, the government needs to get out of the way of people wishing to launch companies.

Read more: Meet South Africa’s 12 selected startups for Seedstars World 2015

The other one is a debatable proactive role which is to actively support entrepreneurs. Launching structures for them to grow, funding them, giving subsidies. You can argue about how much sense it makes but I believe governments could play active roles. Not just for entrepreneurs but providing means for money to flow into the country, making it easier for investors to invest, giving tax breaks and other incentives when they invest in high-risk entrepreneurs.

Government has a very big role in incentivising people to do things and I think they can do a lot.

VB: Seedstars World is sponsored by Lastminute.com among other big tech companies. Is it a trend for bigger companies to latch onto accelerator incubator programs like Seedstars World in order to keep up with innovation game? If it’s true, is it working?

MS: It’s actually a trend and I think it’s a good trend because a company like Standard Bank and a company like Lastminute.com are in a couple of markets. The problem with the companies is they are very slow and bad in innovating.

I think it’s a win-win situation because if you take a startup and you pair it up with Standard Bank or Lastminute.com that has a lot of customers, they can work with startups and give them access to lots of customers and markets.

Standard Bank can give a startup they are interested in access to 18 markets across Africa overnight which is great for the startup because they’ll get customers they could never have had before.

It’s good for the corporate because they get to offer innovative services to their customers and I think it’s a win-win situation for everyone.

VB: Will it ever be possible for African startups to compete globally especially with those from Silicon Valley. What should be done to build companies like Facebook in Nairobi, Google in Lagos and Twitter in Cape Town?

MS: I don’t think there is going to be a specific time frame in which you can say this is going to happen but I do believe there’s potential, the talent and knowledge are here in Africa.

Read more:Startup competition Seedstars World 2015 to kick-off in Mozambique

If you look at it closely, Silicon Valley has over 80 years of history. The ecosystem in Silicon Valley is 80 years old. The ecosystem in Nigeria is four years old. It will be wrong to compare a four-year old ecosystem with an 80-year old ecosystem.

It’s just a matter of time for Africa to have its big break in the startup world.

VB: Is it just time that is needed. What should we be doing in Africa in order to achieve this tall ambition of building companies such as Facebook?

MS: Waiting alone wouldn’t achieve that obviously, there is work to do. What needs to happen is an ecosystem grows in cycles. You need to have successful companies; then the founders of these companies make money they reinvest into the ecosystem and then the whole ecosystem grows. And over time, this reinvestment grows the whole pile and the ecosystem grows together.

What we need urgently is better exit options for startups and having the returns of these exits reinvested into the ecosystem. The problem we have today is if you build a company, there is no way to market it — there is no IPO, you can’t really go public in Nigeria or South Africa or Kenya, and acquisition is still very low.

VB: What’s your current perspective of the Nigerian startup ecosystem?

MS: What characterises Nigeria is the hustler mentality — you see people are incredibly hungry, entrepreneurs are incredibly driven. They are very aggressive in a positive way in building a business but what I think is lacking is a really good support system for the startups.

How do they get from bootstrapping to raising the first round, raising the second round, and building a really big company?

There is a lot of hustle and bustle in the early stages but how do you take that and structure it into a pipeline of growing startups? And that’s where you need angel investors, venture capitalists and others. The later stages of the startup ecosystem in Nigeria are still missing.