I have lived and breathed the modern technology Ecosystem of Silicon Valley for the last 7 years- it’s a well oiled machine that keeps on producing innovations that impact the world. In the last few years we have started to see the culture  start to spread across the world. From my vantage point, I started seeing some tech successes come out of New York, such as Foursquare. Then through the spread of conferences and events, places like Austin, Texas suddenly came on the map thanks to South by South West (which apparently has already become “too big”). Events such as Le Web in Paris, also start bring more Silicon Valley magic to Europe. Some of my good friends at 500 startups, like Bedy Yang, are investing heavily in tech startups from Brazil, China and India. Call it the globalization of Silicon Valley- more and more people are recognizing tech opportunities around the world.

Now it’s Africa’s turn. It is now impossible to ignore the strong economic growth and other indicators that point to not only a larger African consumer market and middle class, but a more connected continent that make it easier to reach and serve Africans even if many are still classed as “bottom of the pyramid”. Thanks to undersea cables that brought down the cost of communications and internet starting from the middle of the last decade, now conferences and pitch contests following on the heals establishment of numerous workspaces and hubs on the continent- this is now sparking a mobile revolution that is arguably only limited by 3 challenges:

  1. Africa’s perception and legacy: Despite the progress we are seeing in Africa, legacy and perception issues hold back the investment and awareness in the tech sector- Governments over focus on real estate and infrastructure vs talent development and policies to encourage foreign investors and business friendly environment to allow tech startups to thrive- this is not just an African problem, but many economies around the world now realize that Silicon Valley might have some things right as technology and innovation become more critical pieces of the economy.
  2. Ability to develop home grown talent through the right technical, managerial and entrepreneurial education: The explosion of workspaces in Africa is actually quite easy to explain- Africa once felt like a very fragmented tech ecosystem, you might be the only person in Zambia who codes in python and you feel isolated- you will get nowhere unless you try find likeminded people and the network of investors and mentors to realize your potential . Not only that- your tech skills are not well appreciated. One of the reasons I left the UK for Silicon Valley 7 years ago was because it was “cooler to be an investment banker or lawyer than to be an engineer in London”. Career distractions and traditional paths in a non tech region will make it harder for someone to benefit from their intrinsic interest in technology. I like the Village People lyrics from the popular song, YMCA. “Young Man, Go to the YMCA!”- in Nairobi for a techie it increasingly sounds like “Young Man, Go to the iHub!!”. The lucrative commodities and even AID sectors in Africa are these distractions for talent here- hubs offer an alternative for this talent to explore tech.
  3. Opportunity cost of investing in other sectors vs Tech: Similar to talent in tech, many investors in Africa can and continue to enjoy great returns in areas such as commodities and real estate, where growth can be as much as 30% a year! Making return on investment and payback periods very attractive when compared to tech. Tech requires patience and the risk-return profile is very different to other businesses- especially when you couple with the fact that many investors are not patient nor tech savvy. But this will change as investors realize the market opportunity and instant distribution to consumers tech enables- but many will remain late stage investors due to the current structure of their funds. The early stage funding problem will remain a problem as long as there is no tech savvy angel network that is willing to take risks and roll up their sleeves to get their hands dirty. What about Exits you say? It’s not like Silicon Valley where “acqhires” offer investors downside protection by tapping next door cash rich tech companies looking for talent to allow them to continue to innovate. The challenge in Africa remains finding entrepreneurs who bet big to build a solid scalable businesses or innovations across the region to generate exit potential as well as educating regional corporations and investors the importance of tech in their business if they are not to be left behind.

Despite these challenges, few things I have observed in the last month give me great hope as to why we are only in the beginning and we will see a continued acceleration of Africa’s tech ecosystem as the barriers to these challenges come down.

Reconfiguring of AID systems to Philanthro-capitalism:
I have mentioned this repeatedly in other posts. I consider Aid as the fuel that propped up Governments and NGOs that have historically not contributed to economic growth. I find is fascinating all the talk about the World Bank nominating their new leader. The World Bank’s mission is to “eradicate poverty”- Did the BRIC countries lift themselves out of poverty thanks to the World Bank or was it their own style of capitalism and development? It’s foundations like Tony Elumelu foundation who are preaching “Africapitalism” that come with folks who have really proven how to build economies in Africa we should be paying attention to. Aid often crowds out private investment as well. So with less money going into these aid channels, legacy institution’s influence is now waining. Many departments are seeking new models to achieve more with less and get out the way to let private sector do more work-e.g. initiatives such as Data.gov. Technology is becoming a key ingredient in social innovations and many Governments in Africa are starting to recognize their importance and increasingly building tech capacity.
It used to be that a retired tech executive or newly minted rich entrepreneur in the western world with a curiosity in Africa would start a non profit or donate to one, they still can, but there are new avenues and tools to find and achieve a wider choice of impact, now they can put the same money into angel investing (increasingly less capital needed for tech startups) or contribute to an impact fund. For example, Salesforce, which pioneered an interesting CSR model is actively engaged social ventures at home, with the rise of clitivism such as the Kony 2012, we will begin to see more efforts being put into Africa social problems (first we need to get over the classic awareness problems I mentioned- yes, I know Kony is probably a bad example :)).

Salesforce is just one corporation that has pioneered an interesting model. Last week, Meltwater, pioneer of the outstanding MEST model in Ghana, held are rare session in Silicon Valley that brought together people interested in tech investing in Africa (it was well attended for a first event) including Omidyar Network, a leading philanthropic venture capital firm in Africa. The list will keep on growing. It’s not just Google.org anymore.

The role of Diaspora and expats in bringing the skills and talents to Africa:
With many economies in the west seeing a period of economic uncertainty, this provides ample opportunity for talent to address a new spectrum of problems in tech in other geographies. Several high profiles startups with great teams are flaming out in Silicon Valley because tech in the west is starting to feel like hit driven “media business”. Last week’s victim, Milk Labs – there’s only so many hours in the day a person can be on their phone using apps and only so many apps that fill the homescreen of smartphones. In Africa, many consumers are not only starting to get a taste of apps relevant to them with much less competition for their time, their usage patterns are often different- for instance, they are used to paying with their phone instead of using credit cards-or mobile is often their first and primary means of accessing reliable internet. It still amazes me how long it takes me to educate someone here in Silicon Valley about how mobile payment services like M-PESA work. Those that do understand how things work in Africa can start addressing opportunities that no one else is and impact millions of people in the process and make money doing it.

Lets take the above 2 points together and see how some organizations I have come across are rethinking how to enable more global prosperity and stability that is inclusive of Africa and talent networks.
Erik Hersmann and I were recently invited to Kauffman Foundation’s new formed Global Partner Network with participation from 18 countries- some of the key takeaway from that event were:

  1. How crisis can help catalyse change for a country (case in point Kenya with Ushahidi which has directly led to the iHub, with the founding alumni doing other great things to build and support the ecosystem).
  2. The importance of Immigrant and Diaspora Networks in fueling not only Silicon Valley but connecting back to home countries.
  3. Startup Chile was a real star of all the countries as a Government template that works to attract entrepreneurs- the fact that the Startup Chile’s website generates more hits than Chile’s tourism website show that there is a fast payback period the government sees into the economy without focusing on startup success. Which African Government will be first to replicate and adapt such a program?
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Erik explains the rise of iHub at Kauffman Foundation Global Partners

A week later I met with the US State Department, who held a briefing of their new “partneship program that taps diaspora networks- which has some $50M+ funding from OPIC in programs such as Diaspora Alliance/IDEA and the diaspora Africa marketplace. America’s last big export to the world is its entrepreneurship culture, and even the US Government recognizes this at the highest levels and are retooling themselves to offer this support in the future. The State Department is spending a bunch of time in Silicon Valley lately- they should really open an office here, as well as spend more time on the ground in target countries once they begin scaling up their program.

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US state dept outlines "IDEA" 5 pillars for diaspora engagement

Another trend worth watching is quietly building at university powerhouses. Take the generous $200M gift made by Bob King to Stanford to research emerging market economies with the goal to eradicate poverty. What does this mean? Whilst the new SEED department is still working out their model, I know they are focusing heavily on building connections to Africa- what I look forward to is more case studies and other teaching material making it to classrooms at Stanford- this provides inspiration for students to address new problems and build up the talent pool to address these markets. I also look forward to more African students such as myself making up more of the classroom- so I am not the only person here talking about Africa’s tech revolution and opportunities.

 

New models of education and mentoring paired with risk capital

Accelerator models with technical and managerial networks help prepare first time entrepreneurs at much lower risk with low amounts of capital. Even if more than half of the companies fail (a lesson in failure is a powerful thing), the alumni they create after a few years provide a valuable talent pool to draw upon for those startup winners who are now trained and still on the startup career path). Even here in Silicon Valley, I have seen folks who tried a startup for a year that failed yet the next year they are directly managing $1M a year businesses when they join a successful startup that has achieved escape velocity. A culture that accepts failure is critical to innovation and Silicon Valley thrives in it every day. There’s even a conference on this called FailCon. If you read Eric Ries’s Lean Startup Book (highly recommended)- he uses an excellent analogy around GhostBusters for startups and failure. At  a startup, like Ghostbusters, it feels lonely until that phone rings and the problem you are trying to solve becomes a reality with your team  prepared to tackle it- then everyone is chanting “who are you gonna call… Ghostbusters!”- many startups in Africa are right at the point of before that “call”- the line between crazy and genius.

Even new financing models such as Crowdfunding are only made possible thanks to online distribution and global participation platforms that tech enables means ideas can make into prototype much faster than ever. Investors who don’t pay attention to how lower amounts of capital for prototyping with a built in high failure and learning rate can help seed a network of ever more experience future entrepreneurs will be in for a shock when breakthroughs emerge and they can’t participate in those deals because they weren’t early and patient enough. Hands on investing in Africa is a reality as the talent and markets around technology continue to develop. Well run incubators challenge the very notion of educational systems to prepare future entrepreneurs. Don’t believe me? Like the Paypal Mafia, The Y-Combinator Alumni are already forming a formidable network.

It seems everyday we are hearing more positive news on Africa’s tech scene (the press clearly get it now- like this great segment from Aljazeera’s Stream program), we now need more success stories of breakthrough companies and products beyond the Ushahidi’s and M-PESAs. My bet is that we are right at the cusp of that- the blueprint has been laid- we must keep building, and remember, its ok to fail if you learn and move forward.

Africa Tech Blueprint Summary

Perception & Legacy Developing Talent Investment Opportunity Cost
Past
  • Aid Systems crowd out private investors. Political Instability and high perceived investment risk.
  • Can’t serve the “poor” in Africa except through charity.
  • Weak tertiary education and training systems = lack of talent to support a thriving homegrown tech ecosystem.
  • Return on Investment and Payback period attractive in other sector e.g. commodities Boom, Real Estate etc…
  • Traditional Private Equity/VC structures favor high minimum investment in business with proven business models
Future
  • Africa is the last big consumer and fastest growing middle class.
  • “Arab Spring Moment” acts as a reset. Entrepreneurship recognized as key to stability and prosperity- Governments (with less resources) take note and play enabling role to foster growth through entrepreneurship
  • New models of capitalism from homegrown “AfriCapitalism” to social venture/impact investing point to being able to serve the “bottom of the pyramid at scale”.
  • Technology seen as a key catalyst to reduce cost and enable innovation.
  • Incubators, Accelerators and Hubs/Workspaces + Tech events/pitch contests act as finishing schools and readiness for Entrepreneurs. These are the new Universities that facilitate peer learning, learning from failure.
  • “Hacking” seen as a means to test and learn to build prototypes that can become real businesses.
  • Returning Diaspora talent or expats help build up ecosystem with relevant skills, networks and investment capital or remittance channel support.
  • Global talent fromm leading universities such as Stanford, Harvard and MIT engage in Africa helping transfer knowledge and skills.
  • Tech recognized as key drivers to economy thanks to investment in infrastructure and rise of connected African consumer.
  • Instant Distribution and payment systems develop at scale.
  • Patient Investors and tech savvy angel investors get their hands dirty and invest in potential, not just quick payback deals.
  • Success stories and development of Exits for investors bring in “laggard investors”.
  • Multinationals recognize and invest in regional R&D offices not just sales or cheap outsourcing hubs.

 

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