Startup Rising Africa


  • Startup Rising Africa
    I just got back from Nairobi, which hosted the third annual Challenge Cup, discovering the best startups from 50 cities on every continent.
    by Christopher Schroeder Apr 12, 2016, 6:00am EDT

     

    It’s hard to get more American than generalizing Africa as one big homogenous thing. It is, of course, a rich and diverse continent of more than 50 nations, where merely a piece of it — say from Kenya to Nigeria — is a greater distance than the entire United States. Each country, and within each country, has distinctive languages, heritages, cultures and histories.

    But something relatively new is tying this great continent together: Progressively universal access to mobile and smart devices driving a new generation of regional — and someday global — startups. It’s happening everywhere.

    I just got back from Nairobi, which hosted the third annual Challenge Cup, discovering the best startups from 50 cities on every continent.

    I recently saw this firsthand with my friend, 1776 co-founder Evan Burfield. 1776 is a Washington, D.C.-based global incubator that is hosting its third annual Challenge Cup, discovering the best startups from 50 cities on every continent. We just came back from the regional finals hosted in Nairobi. From Morocco to South Africa, women and men came to pitch how they were deploying technology to solve problems and create opportunity locally, nationally and regionally.

    Burfield has a great global context, so I asked him: Why Africa, and why now?

    "First," he told me, "from money to food to energy, the challenges that the rapidly growing African middle-class face are significant. You still have hundreds of millions of people without access to an electrical grid across sub-Saharan Africa. Despite rich agricultural production, many urban citizens face significant burdens from food inflation."

    For example, a typical resident in Nairobi may spend 50 percent of their income or more on food alone. While some view these as daunting challenges, startup founders see these as huge markets that they can unlock with the right solutions.

    Last year’s global winner came from Nairobi, and is a case in point. Some 96 percent of Africa’s retail is done through informal markets, and last year more than $960 billion was spent at informal kiosks and shops primarily in urban markets. There are more than 42,000 street vendors in Nairobi alone, selling fruit, vegetables and other basics. Each day, each vendor wakes every morning at 4 am to walk two hours to middlemen outside of the city to stock their inventory. Aside from the inconvenience, there is safety risk, especially if carrying cash, and little opportunity for vendors to easily shift inventory on daily demand or have any track record to garner credit to expand their businesses.
    At the regional finals of the third annual Challenge Cup, hosted this year in Nairobi At the regional finals of the third annual Challenge Cup, hosted this year in Nairobi Christopher M. Schroeder

    Twiga Foods looked at the problem in three stages. What if, first, one could create an app-enabled end-to-end hub-and-spoke supply-and-logistics business for high-volume produce and goods to small store/informal kiosks, and deliver produce to them affordably? This would be safer and more convenient, and would allow vendors to adjust inventory purchases more than once in a day.

    Second, what if one created a customized smartphone app — maybe even giving the newly available $25 smartphones to vendors cheaply or for free — to simplify inventory purchases, including mobile orders and payments? Finally, with all the real-time dynamic data and market intelligence they would develop on the flow of goods and commerce across informal markets in Kenya and beyond, couldn’t Twiga begin to offer micro-credit to vendors to grow their businesses? More than 1,000 vendors already agree, and have signed on to their platform.

    "In addition," Burfield continued, "a powerful brew of new technologies is opening up entirely new frontiers of possibility for previously intractable problems. Mobile broadband, smartphones and social networks, combined with emerging technologies, can enable Africa entrepreneurs to leapfrog generations of broken legacy infrastructure bogging down developed countries. Mobile money and digital wallets like ZeePay are one obvious example. But you’re also seeing huge advances in areas like smart microgrids and telemedicine mobile unleashes."

    One regional investor told me: "If you think you can come to Africa and not understand the mobile players and their roles — like Safaricom — and the speed by which entrepreneurs are innovating upon their platforms, you’re dead in the water."

    Ever-increasing connectivity is the foundational story across the rise of the region, as it is across the globe today, driven primarily by access to mobile. Current mobile usages varies widely — Kenya has 85 percent penetration to Tanzania’s 67 percent, Uganda’s 52 percent and Ethiopia’s 34 percent — but adoption rates are rapidly growing, and smartphones are moving toward global adoption levels. According to the mobile industry trade association GSMA, smartphone penetration — currently at 40 percent across Africa — is expected to be in line with the world averages by 2020, reaching nearly two-thirds of the entire population.

    And even feature phones are a lifeline, not only for communications, but to stir growth in societies that are all but unbanked and reliant solely on moving physical cash. One in five mobile accounts in sub-Saharan Africa is connected to mobile money in some form, and the largest mobile payment country on earth in aggregate dollars is Kenya. In seven years since its founding, mPesa, the cash-texting service created by mobile provider Safaricom, is used by more than two-thirds of Kenyans daily, and represents 42 percent of the entire GDP.

    As one regional venture investor told me: "If you think you can come to Africa and not understand the mobile players and their roles — like Safaricom — and the speed by which entrepreneurs are innovating upon their platforms, you’re dead in the water."

    Finally, there is a significant talent pool to draw from in Africa — understanding hyperlocal needs, but also trained to compete in the best global engineering skills at a fraction of the cost in the West. "Many of the Africans entrepreneurs I encounter represent the elite of their society," Burfield told me. "They have received world-class educations, but aren’t interested in following in the family business. When combined with members of the African diaspora starting to return home, and ex-pats looking for the big new problems to tackle, most people would be amazed by how many entrepreneurs I encounter in Africa did their undergrad in great institutions around the world, or are self-taught from online courses and hackathons here. These are world-class entrepreneurs."

    "These are world-class entrepreneurs." — Evan Burfield, 1776 co-founder

    As a recent Andreessen Horowitz podcast on Africa underscores, while the opportunity rising is significant, it is for those willing to play for the long run and make the significant effort to understand and build relationship on the often difficult ground.

    Individual markets are hard to scale, even online, because they are relatively small, and differences across markets can be as great or greater than similarities. Mobile is becoming ubiquitous, but data plans are often prohibitively costly. Venture capital available — even seed, but especially Series A and beyond — is tiny and too often crowded out by donor organizations.

    As one startup told me, "The nongovernment and government organizations mean well, and I’m happy to take investment without giving up equity. But it distorts market pricing, and there are always strings attached — their agenda may not be the best agenda for growing or pivoting my business."

    Will rapidly expanding juggernauts of the West — and perhaps China — put a cap on potential across Africa?

    And a larger, long-term question hovers over Africa, as it does in startup ecosystems in growth markets everywhere. Today the Facebook, Twitter, Snapchat and LinkedIn of most countries where governments haven’t banned them outright are Facebook, Twitter, Snapchat and LinkedIn. Amazon has reportedly committed $2.5 billion to enter India. I never took a cab in Nairobi, because Uber was safe, reliable and cheap, and there was no negotiation. One entrepreneur who tried to create an African encrypted-texting enterprise was easily swept away by WhatsApp, Telegram, and even China’s WeChat. Will rapidly expanding juggernauts of the West — and perhaps China — put a cap on potential across Africa?
    From Morocco to South Africa, women and men came to the third annual Challenge Cup to pitch how they were deploying technology to solve problems and create opportunity locally, nationally and regionally. From Morocco to South Africa, women and men came to the third annual Challenge Cup to pitch how they were deploying technology to solve problems and create opportunity locally, nationally and regionally. Victoria Njirithia

    Twiga co-founder Grant Brooke believes there is enormous competitive advantage in understanding the hands-dirty needs of local and the region — last-mile logistics, rule of law, cultural norms and touch — not easily replicated by general platforms and not even on their radars. "Technology first is fine," he told me. "But problems need to be solved now physically on the ground — and then tech can follow."

    Burfield added, "Twiga is the case in point — you think Amazon is going to try to figure out the physical customer service and logistic needs of tens of thousands of fruit distributors across Africa?" He paused: "In growth markets around the world, because of the raw size and their rising middle classes and purchasing power, big and great companies also will be created that the juggernauts will want to acquire."

    As African startups find paths to expand in the region and to other emerging growth markets sharing similar unique needs, why wouldn’t the next juggernaut start here?

    I would also add that being a global player — once synonymous with selling to the West — will have new meaning as economic growth is driven primarily everywhere else. If Alibaba has proven anything, one can build an enormous software-enabled enterprise without the West at all. As African startups find paths to expand in the region and to other emerging growth markets sharing similar unique needs, why wouldn’t the next juggernaut start here?

    None of the startups we met were concerned with these macro concerns. They prepared deeply for their pitches, rehearsed repeatedly, took every moment personally, but also had a camaraderie and desire to help each other.

    "Overcoming challenges — that’s what entrepreneurship is all about," YozaApp founder Nicholas Kamansi, an Uber-like laundry outsourcing from Uganda, told me. "This is central to the future of my country, and I think for all of Africa." Everyone was eager to get home and get back to work.

    Christopher M. Schroeder is a U.S.-based Internet/media entrepreneur and venture investor. His book, "Startup Rising: The Entrepreneurial Revolution Remaking the Middle East," is the first to document the rise of innovation there, and its new edition includes his experience in Iran. Reach him @cmschroed.

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