Perspectives on early-stage venture capital in Africa part two - with Philip Kiracofe

African innovation

Headlines this year, such as Tiger Global leading a $170 million round into Flutterwave, or SoftBank, and Sequoia Capital China investing $400 million investment into OPay might give you a flavour of the state of the venture ecosystem in Africa today. But ten years ago, support systems for entrepreneurs in Africa barely existed. And today, the ecosystem receives 1% of the funding that US companies do.

By the end of the century- a third of the world will be living in Africa, in cities. The pace of change on the continent is unlike anywhere else in the world. For populations and the environment, innovation is an existential necessity. For entrepreneurs and investors, the opportunities are unique and enormous.

Sharing his insight as one of the earliest external VC investors and accelerators on the continent in part 2 of the series is:

Philip Kiracofe - CEO and Co-founder - StartupBootcamp Afritech

What brought you to Africa?

I actually first came to South Africa in 2011, to run the Comrades ultra marathon and afterwards, went down to Cape Town to relax, drink wine and enjoy the country! While I was there, I stumbled on this nascent tech ecosystem, which at the time consisted of just a handful of startup companies and just two VC funds. Overall there was a very limited support structure for entrepreneurs.

I had been in the VC / startup world for over twenty years in New York, which we called Silicon Alley, and it suddenly dawned on me that this could be the next big scene. I'd also spent the good part of the '00s involved in a cross border venture fund investing in India and China, so I was already hooked into the emerging markets scene and I think this helped me realise the potential of Africa as the next big market.

Initially, my plan was to set up an early stage VC fund, but within the first year, it was pretty obvious that it wasn't actually the biggest opportunity; the startups needed more support than a traditional VC fund offers.

I ultimately moved here in 2013 and started doing advisory work with the startups to try to help them become more fundable. That culminated with meeting my partner, Zachariah George. We realised that working individually wasn't scalable enough. So we launched the first corporate-backed accelerator program with Barclays in 2015.

In 2016, we launched an impact-orientated accelerator for the Allan Gray Orbis foundation. By 2017 we’d joined forces with Startupbootcamp to bring the very first multi corporate backed global accelerator program to Africa.

Today, I've accelerated and or directly invested in more than 50 African startups and we've now started to see some of those startups deliver real material value.

Why did you think an accelerator was so relevant to the needs of entrepreneurs?

If you visit Silicon Valley, which you might call the epicentre of innovation globally, you’ll quickly realise the vast majority of founders are not actually from there; they come from other countries all around the world.

They go there because that ecosystem accelerates the process - it's a hyper-efficient machine that weeds out bad ideas, takes the good ideas, and helps them achieve scale at an unprecedented pace, which is how it draws the best entrepreneurs in the world. The Silicon Valley machine can help accelerate solutions to problems with funding, access to resources, engineers, and advisors. But very little of that exists in the rest of the world.

And if the problem the entrepreneur is trying to solve is not in Silicon Valley or the US, there is a downside as they end up being far away from where the problem actually sits - they can’t address it so closely.

Startupbootcamp launched in 2011 in Amsterdam and helped the Netherlands, and Amsterdam in particular, become the top-rated tech ecosystem in Europe. It really validated the idea that accelerators can help create these natural gravity wells in places outside of Silicon Valley. Accelerators can bring together industry experts, mentors, corporate partners, media, investors and create a self-fulfilling cycle, especially in emerging markets.

In Africa it works particularly well because if you're a startup, your route to market is rarely going to be by raising hundreds of millions of dollars and being able to blitz-scale through customer growth all across the continent - very few startups have that luxury.

Startups here need access to markets through inexpensive means. and typically, the best source of that is the corporate partners that can provide fast and easy route to market through their pre-existing customer relationships.

What have been the main changes in the tech landscape since you started SBC Afritech?

Overall it's clear the system is working and you see that by the investment figures going up each year. There's now been five or six unicorns in Africa, and a spectacular run of deals, even in COVID, which is great. There are a lot more people believing that African startups can become these great successes. 

Compared to the US, we still get less than 1% of venture funding. But nevertheless, it's growing by increasing margins each year and we're still at the very early stages of this story. There are decades of growth ahead of us, so it's very exciting to be at this level. 

There's now far more awareness of, and comfort with earlier stage investing. While the bulk of the funding is still coming at Series B and above, there's now been a few exits and that has buoyed the angel investor culture as capital is being recycled. African founders are taking funds from their own exits and reinvesting into other founders with earlier stage startups.

This has been one of the most influential factors in the dominance of Silicon Valley so to see it start to happen here on the continent is an inspiring sign of what’s ahead. Increased involvement from the diaspora have also had a positive effect.

There is now a huge expat community of Nigerians in the UK that send funds back to Nigeria and invest in Nigerian startups for example. SAFE instruments are pretty widely adopted and accepted which has expedited the process. Countries like Tunisia, Rwanda, Senegal, and South Africa, among others, are implementing startup acts that try to attract talent and align the country's growth goals with visa and taxation requirements to make it easier for entrepreneurs to set up shop and relocate into certain countries.

Are there still pervasive challenges for entrepreneurs who want to build unicorns compared to more developed markets?

There's perpetually this focus on unicorns but I really think about it more like apex predators. If you want to look at the health of the ocean, you go and count Great White Sharks. If you see the numbers increasing, that is generally a positive sign and if they're decreasing, that would be a warning of underlying issues.

It's easy to simplify and say more unicorns are better. But in Africa, if you build a company that's doing a few million dollars in recurring annual revenue, that's a great business; and you may not even need to go out to raise a huge round.  There are an increasing number of companies with valuations in the $100-200 million range, and those could become quite sustainable in the African context. For many of the most influential investors on the continent, these ‘non-unicorn’ startups and scaleups are where the best opportunities sit.

It's not that we necessarily need more unicorns, it's just that in the early days, people celebrate them and they draw attention. We often talk about the gazelles, which are the fleet of smaller startups - there are herds of them. Camels is another phrase that you often hear referred to, because they're enduring and slower, but they're incredibly resilient and can survive in harsh environments.

So those are the types of animal references that are more popular here but regardless of which analogy you want to use, the ecosystem is improving quite dramatically!

Most funding is pouring into Nigeria, Kenya, Egypt, South Africa. Which other countries are overlooked by investors at the moment in terms of their ability to produce quality businesses?

There's plenty of examples of tier two countries that are seeing the fourth industrial revolution as their chance to kind of jump to the front of a queue or the top of the pile. Tunisia was the first company to launch a startup act, Morocco is making a huge push and I’d say that francophone West Africa is becoming very strong.

Senegal, for example, has a government-backed $50 million fund that invests in startups and SMEs and in fact we are just about to launch a new Startupbootcamp campus in Dakar. Egypt's just killing it, although they're often lumped in with the Middle East, more than Africa.

Rwanda is often referred to as the Estonia of Africa;  they benefit from having a relatively small population in a somewhat autocratic government that can be quite nimble as governments go, and they've fully digitised the entire economy and also have a very impressive citizen regime.
The 2018 StartupBootcamp accelerator cohort

Do you see the concentration of people in cities/countries as a problem or an advantage?

You have to understand the magnitude of the growth in populations to comprehend the opportunity. Nigeria currently has a population of about 200 million, but by the end of the century is predicted to be close to one billion. By the end of the century, 13 of the 20 largest cities in the world will be in Africa, including the top three.

Lagos for example will quadruple to 80 million and Dar-es-Salaam is projected to be the second-largest city. If you've been to any of these African cities and seen the state of their infrastructure today, it's challenging and chaotic.

And on top of this, the population is going to increase by orders of magnitude up to eight times! It seems inconceivable but it’s going to happen whether we are prepared or not. If you look at a scenario where a third of the people in the world are going to be in Africa, and the majority living in cities, the ways in which those areas are going to develop is not going to be following conventional playbooks, or using templates that have been used anywhere else in the world, it's going to be entirely new stuff. 

People are going to have to develop completely novel and disruptive approaches to everything; transportation, communications, food, sewage, clothing, logistics, commerce.

Every aspect of life will be fundamentally disrupted in the cities which are now going to become the epicentres of innovation globally, out of necessity. In Africa, innovation is not a cool, sexy thing. Innovation is an existential reality. They say that necessity is the mother of all innovation - well here is all the necessity in the world! This translates to huge opportunities in many sectors.

Which sectors are going to produce innovative products that can be exported to the rest of the world?

There's so many interesting challenges and I think problems that are solved here are actually going to fundamentally enable a net export of solutions. Agritech is a huge one, but it’s equally e-commerce, payments and things like identity. I'll just take KYC as an example, we've got a company called MPost that takes your mobile phone number and turns it into your postal address.

This innovation of number portability means once you get a mobile phone number, If I wanted to send something to you - I would just insert your number, you would receive a notification, share your location, and then the package gets to your nearest post office or delivered to your physical location! As most people keep their mobile number for life, this gives you a postal address for life too.

If this was rolled out in or starting first world economies, everybody would take it - they hate filling out these forms to change address - it's such a hassle. Instead, this solution just pings the recipient - gets an API call back, and it can verify the person and the address, it’s perfect!

Another incredibly exciting portfolio company is Yobante Express. They have disrupted the widespread practice of casual couriers transporting packages across Africa by adding tracking QR codes. They now have a network of hundreds or fixed relay points in six countries across Africa, and thousands of casual couriers who can carry parcels from one relay point to the next as they go about their daily lives.

Yobante is now delivering more than 150,000 parcels per month, and they guarantee every one. Their loss or damage rate is less than 1 out of 30,000, making it among the most reliable delivery services in the world. They are now rapidly expanding the network with a goal of offering coverage across the continent. Yobante describes themselves as a 5000 year-old overnight success.

Solving a practical problem

M-Pesa is another great example of a formal solution to something that was already happening on a very informal basis. The problem it was trying to solve was that there were people with mobile phones but they did not have access to the scratch cards that they needed to top up their credit.

Some clever individual figured out that they could buy a SIM card or buy a scratch-off card, scratch off the number, send a text message to their Auntie out in the rural area with that 16 digit number. When she plugged that into her phone, voila, she had airtime! That was the first digital exchange of value that we would call mobile money.

They weren’t doing it as a cool business - it was just to solve a practical problem. Safaricom saw the prevalence of this effect and made it a little bit easier and formalised it and hence M-Pesa was produced.

But they didn’t invent it, it was consumers that innovated and solved the problem for themselves!

Luke Birch