Investors are a driving force in shaping Africa’s entrepreneurial ecosystem

If we look at the startup landscape in Africa (and read the press) it is clear that fintech is one of the fastest growing sectors on the continent.

The African Tech Startups Funding Report, released in January by Disrupt Africa found that in 2016, 29.6% of startup investment in the region went to fintech companies.

Read more: Report: African tech startups receive funding boost in 2016

This $55-million sum is a clear indication that there is energy and ambition among entrepreneurs and innovators for fintech — and significant appetite from investors. However, fintech is only part of the picture.

The entrepreneurial base has rapidly grown since 2015 – tech startups attracted 16.8% more funding in 2016 than 2015.

The focus on early-stage startups is noticeable when looking at the figures from the Disrupt Africa Report: 146 early-stage companies received a total of $129m in 2016 – more startups sharing the pot with fewer “standout tickets”.

Fintech represents low-hanging — fruit for innovators and investors because many parts of the region are underserved with financial services.

We have also seen growth in machine-to-machine innovation in Africa. M2M refers to direct communication between devices using any communications channel, including wired and wireless.

M2M includes industrial instrumentation. Thanks to application software, M2M can monitor temperatures and inventories, while in the consumer sector it can help to streamline products that consumers buy and keep them working efficiently.

‘The innovation ecosystem has done more than grow, it has exploded across the region’

In Africa, M2M is being used for healthcare services, utilities, conservation and even the mining industry.

Ovum’s Africa Market Outlook, “…believes that the utility sector offers the biggest opportunity among industry verticals in Africa for growth in M2M connections, particularly for the retail sector; mainly for payments, which are expected to be more profitable.”

A start-up nation?

The revolution in the telcommunications sector in sub-Saharan Africa is a story that we are already familiar with, particularly with mobile payment solutions.

So, does this surge in technological entrepreneurship tell us anything about what is happening at a grassroots level, within communities and society in general?

What we do know is that incubator hubs and region-wide funding initiatives have become significantly more widespread over recent years. There is a highly noticeable effort on the part of governments and private enterprises to raise awareness of entrepreneurship and promote innovation.

“Makerspaces” have also come to the fore over the past few years, which provide a wider range of services and facilities than the traditional incubator hub: access to training in business skills, lectures, manufacturing and production facilities, bootcamp-style courses and rapid-growth accelerator hubs.

The innovation ecosystem in Africa has done more than grow, it has exploded right across the region.

Private investment

Venture capital (VC) funding for startups has also sharply increased in Africa. Data from Crunchbase, TNA Analysis shows that VC funding for technology startups stood at only $40.6m in 2012. Within two years the figure surged to $414m and is projected to reach around $608m in 2018.

The 2015 book, “The Next Africa” by Aubrey Hruby and Jake Bright also supports this trend. They point out that there are roughly 200 innovation hubs, 3,500 new tech-related ventures and $1 billion in venture capital to a pan-African movement of startup entrepreneurs.

Fintech is clearly the story of the moment, with major successes such as bitcoin, blockchain and mobile-money solutions. Mobile technology is however also set to grow and provide major opportunities for VC’s and investors. For several years, healthcare programmes have been rolled out using smart technologies.

Examples include Nigeria’s Smart programme, which dramatically reduces the turnaround time for infant HIV diagnosis. Notable startups in the sector this year include a low-cost solution for hearing problems, Vela (a medical referral app) and a non-invasive malaria testing kit called Matibabu.

The entrepreneurial ecosystem is charging ahead in the right direction, creating jobs and wealth.

Yet, most important is the fact that so many startups are creating practical, affordable solutions to problems on their own doorsteps: African solutions for African challenges. These solutions are transforming lives in every sphere of society, which makes what is happening in the world of African startups so important.

The role that investors play is therefore especially important because there is a direct correlation between capital going in and game-changing innovations coming out.

Jean-Claude Bastos de Morais is the founder of the African Innovation Foundation.