So it came as a rather interesting discovery to learn that according to a recent Africa Development Bank (AfDB) research study, increased uptake of M-PESA, which is the literal mother of Mobile Money, is said to be contributing with some level of significance to the levels inflation in Kenya. Inflation was a major problem in the Kenyan economy in 2011, having hit a high of 19.7% towards the end of the year.

It seems we have already got to that point already where mobile money is becoming a matter of concern as far as national economies are concerned. According to an article titled “M-PESA linked to rise in Inflation“ in the Business Daily, a Kenyan business paper:

Increased uptake of M-Pesa, Kenya’s dominant money transfer service, has fuelled inflation as the service grew large enough to influence implementation of monetary policy, an African Development Bank (AfDB) research claims.

Then very recently a discussion broke on local Kenyan discussion, Wazua, on speculations that Safaricom, Kenya’s top MNO and M-PESA operator, would buy a bank. Whether such speculations are true or not, one thing is for sure, mobile money has come a long way in a relatively short term and it’s for sure that mobile money is affecting economies at the household level and at national level so that now we can study the finance and the economics of mobile money. This area of M-Finance, as it were, will become an area of increasing interest in future, perhaps it will be even necessary for universities to include this topic as an area of study in itself or within finance-related courses.

The household level

William Jack of Georgetown University and Tavneet Suri of MIT Sloan in 2009-10 carried out a survey in which they sought to investigate the “Economics of M-PESA“, apparently the survey had the blessing of the Central Bank of Kenya, Safaricom and Vodafone.

Perhaps the most interesting effects of mobile money on households relates to ease of movement of funds & saving capacity.

According to the previously mentioned survey, it appeared that M-PESA encouraged people to feel safe to keep funds in their M-PESA account for fairly extended periods of time. On the other hand, mobile money also affords an easy, and cost friendly means of moving money.

It is true that Safaricom is moving massive amounts per day via M-PESA is estimated to move about 2 billion shillings daily, and according to a Safaricom report, between April and September 2011, they moved Sh. 314 billion. It’s interesting that this amount is actually a minor fraction of the total money moved within the country. According to the same report (based on fairly dated information):

…the volume of transactions effected between banks under the RTGS (Real Time Gross Settlement] method is nearly 700 times the daily value transacted through M‐PESA. On the other hand, the average mobile transaction is about a hundred times smaller than the average check transaction (Automated Clearing House, or ACH), and even just half the size of the average Automatic Teller Machine (ATM) transaction. Thus M‐PESA is not designed to replace all payment mechanisms, but has found and filled a niche in the market in which it provides significantly enhanced financial services.

It would be interesting to learn what the current share of total transaction volumes is being handled via mobile money versus other means (if you have any tips please comment below).

The Community Level

Beyond households, mobile money is affecting local community economics. The introduction of mobile money and it’s effects at individual and household level eventually spill over and start having effects in communal life.

The Bill & Melinda Gates Foundation funded a project dubbed “The Financial Services Assessment” project in 2010 that was designed to examine the impact of financial services on the lives ofpoor people across the developing world. Part of their outcomes relating to the effects of M-PESA were published in a paper titled “Community-Level Economic Effects of M-PESA in Kenya: Initial Findings“, authored by Megan G. Plyler, Sherri Haas and Geetvea Nagara of the IRIS Center, University of Maryland.

According to their findings, M-PESA had four overarching economic effects at the community level:

1. Local economic expansion: In essence, the team found that, M-PESA facilitated increased money circulation which had an effect of increasing local consumption, which of course means more business for local store owners and the like. In addition new business and employment opportunities arise out of for example the establishment of M-PESA agents, existing store owners could also diversify their offering by including this service that is now in much demand
2. Security: Other than physical security (i.e. muggers realizing that few people carry liquid cash) the study found that M-PESA contributed to money security, that is by enabling people to safely store funds in their mobile money account
3. Capital accumulation: Being able to save money instead of spend it enables wage earners to accumulate financial resources on their phone safely even without having to have a bank account or resort to a less secure mechanism such as keeping cash under the mattress
4. Business environment: “M-PESA reduces the overall transaction cost of moving capital along a network and increases the flow ofcapital. While the amount of money M-PESA moves is relatively small among formal financial systems in Kenya, the number of transactions and volume of flow is increasing and covers larger segments of Kenya’s population in terms of income, age and depth and breadth of access (Jack and Suri, 2009)”

The National Level: Monetary Policy

This is where things get really interesting. The effect at the household and even community level are almost predictable from the earliest signs of successes of mobile money. The national economic effects however have been more gradual and have become more and more pronounced with the increased adoption and use of mobile money services.

In fact, the issue of the macro-economic impact of mobile money has spawned academic interest and conferences to discuss these issues. In 2010, for example, The Columbia Institute for Tele-Information (CITI) at the Columbia Business School hosted an event dubbed “The Macroeconomics of Mobile Money” to discuss the impact of mobile money on the macro-economic situation.

1. Impact of Mobile Money on GDP

Menekse Gencer of mPay Connect Consulting gave a presentation at the CITI event (there’s a paper based on the same presentation as well) looking at the impact of mobile money on GDPs of emerging markets. According to him, mobile money has triggered improvements in GDP. Menekse notes a statistic that a 10% rise in mobile subscribers in emerging markets would lead to a 0.6% to 1.2% increase in GDP. Why would mobile money make contributions to a country’s GDP? According to Menekse, the answer lies in 5 forces that are inherent to mobile money:

1. The ubiquity of data transmission that mobile provides means that financial services can be extended to reach people who were previously unreachable.
2. Mobile money as a new industry that is precipitating new investments for new ventures, new jobs and new revenue streams for existing companies
3. Mobile money as an infrastructure supporting new businesses in other industries
4. Mobile money formalizes the informal financial sector , enabling savings, loans and investments in lieu of “cash under the mattress”
5. Mobile money enables efficiencies associated with digitization and reduces frictions associated with cash (such as theft or ‘shoe leather costs‘)

2. Impact of Mobile Money on Monetary Policy

a). Monetary Policy –  Effect on Money Supply

Mobile money would affect money supply in two ways at least as per the M1 definition of Money which combines the currency in circulation and demand deposits:

1. Currency circulation: Mobile money creates a situation where people have more money in their pockets in the form of mobile money. What happens if  these stores become vastly more than actual cash in supply?
2. Demand deposits: Traditionally demand deposits have been considered to include easily accessible funds stored in demand deposit accounts in a commercial bank. Well, how does storing money on your mobile phone fit into this? Further more, what if you could move the money off shore

b). Monetary Policy – Effect on Velocity of Money

The velocity of money  is the average frequency with which a unit of money is spent in a specific period of time. This is the issue the AfDB research we quoted earlier found – simply put, money held in M-PESA accounts has much higher transactional velocity.

“Evidence shows that the transactions velocity of M-Pesa may be three to four times higher than the transactions velocity of other components of money.

“The increase in the velocity of money induced by these activities may have in turn propagated self-fulfilling inflation expectations and complicated monetary policy implementation,” said AfDB in a brief on inflation dynamics in selected East African Countries.

Conclusion

The fact of the matter is that mobile money is not only disruptive in terms of technology, but also as far as economics goes. And this trend will continue into the future perhaps becoming even more interesting as the uptake of mobile money increases, mobile payments and mobile transactions become mainstream and even cross border as well as integrated to other forms of money stores.

In the beginning… What makes a social network successful?

Social networking is fragmented in Africa- there is no clear winner. Also unlike the rest of the world, African consumers may skip portals such as Yahoo! and other local variants and leapfrog straight to social networks. The battle ground is mobile as the key platform to grow the next stage of users- arguably feature phone and those who upgrade onto smartphones such as Android. Facebook is growing at double digit rates across most African countries that matter, some would even argue that Facebook is helping drive ICT adoption in Africa. Of the 140M Internet users in Africa, almost 40M users are on Facebook- or just over 1 in 4. And I would argue that by current no.s they are now neck and neck with Mxit as the largest social network in Africa (over 40M users). Although Mxit is clearly a leader in active users in South Africa (10M).

Time spent on any network is really important for obvious reasons-but one of the most important is that its a means for many apps to reach and try engage the masses of where they spend most of their time. Also advertising spend follow eyeballs. As such the importance of social networks in Africa cannot be understated. First of, entry and exit points into these networks are key. For example, Yelp was initially discovered via google search due to the lack of local listings on Google, this gap provided an opportunity for Yelp to be discovered via SEO and even led to a buyout offer from Google. Yelp may IPO this year. And a few weeks ago, you saw what happened with Mocality? A rogue Kenyan employee tried to destroy the value they had created by stealing their listings. Using Mocality as an example- its important to consider 2 distinct value generating strategies for social networks- one sided vs two sided. Mocality built up a huge business listing in Kenya which then provides a clear value to attract users to the service. Without a large enough listing, you don’t provide enough value to users. Contrast this to a more one sided value such as Mxit and even Facebook. They built up value by allowing users to communicate with each other. With Facebook it was photos to communication. For Mxit it was clearly communication, offering a way for users in the African context to communicate cheaply instead of using expensive SMS. Only later once they built a huge audience, did they offer solutions for business and brand pages and become a 2 sided network as means to start generating advertising revenue to connect the 2 audiences.

Mobile is clearly a strong entry point for networks in Africa as Mxit has proved over the last 10 years to become the biggest social network in Africa and are now being challenged by Facebook given their momentum on mobile as well. Now with the growth of broadband and mobile internet, there is bound to be a shakeup. Mxit needs to adapt and move upstream to richer formats and larger screens, and Facebook needs to come down stream (hence the purchase of Snaptu last year). And then you have wildcards like Binu who are sneaking in with real practical solutions using BOTH feature phone adoption and the cloud to offer an entry point to other services mainly messaging, Twitter and Facebook and other content such as ebooks in the absence of smartphones… Lets use Facebook as an example again- what was their entry point? I would argue “the connected generation” at Universities- starting from vanity photos and growing all the way to social games and applications- controlling your entry point as an online community leads to very different outcomes. The Facebook generation is not the myspace generation is not the yahoo generation.

Facebook has a very creative localization strategy for making the network available in key languages (something Mxit has not yet addressed if they plan to expand across Africa and indeed the world). However Mxit has figured out how to monetize on mobile given their starting point, something which facebook has not on mobile yet nor remotely in Africa (although there are increasing no. of Africa advertisers). Mxit was recently bought for a rumored bargain price of 5OOM rand (~$60M) by World of Avatar. Alan Knott-Craig, now at the helm, may be looking to beef up and flip Mxit to a big network such as Google. But at this rate they feel more like a “yahoo!”-highly relevant still especially given their obvious local strengths and mobile offerings, but quite an old network by standard measures.

At $2-4 a user- Facebook probably generates at most $80M/year in revenue from Africa. Comparison with Mxit (if you take the lower bound on mobile, they are probably generating $20M minimum revenue a year from monetizing the 10M users in South Africa. South Africa is a key battle ground given the favorable demographics, spending power and maturity of advertising networks (by that I mean brands actually know how to spend money online to reach users vs many parts of Africa where billboards, radio, TV and print still dominate). But the growing middle class and the fact they will spend time on mobile across Subsaharan market provide excellent growth opportunities.

Vanity metrics (like registered users or visitors per month) can mask real underlying engagement drivers. For Facebook, the fact that half users come back every day is very impressive and the fact that they are the biggest social networks around photos make it a great platform for reaching a broad audience with their fine grained targeting features. Meanwhile, Some networks are just a cheap way for users to send messages (IMs) in the face of SMS costs- this is a category that Mxit falls into (with some 750M messages sent per day), although they now have games, music, news etc… but its not a robust a publisher/app development platform as Facebook- Facebook has an army of developers growing every day that can build social apps outside and inside its network from Games to Music and of course, simple like buttons.

Startup Networks- What can African Social Networks do to differentiate?

I decided to start with the big networks for a reason- it should follow logically from above how tough it is to build online communities and social networks. Mocality, Mxit and Facebook provide great examples of some best practices of how to reach scale and hence some big barriers that exist if you try to compete with them head on (it is advisable to leverage their size now given their critical mass- learning Facebook app development to build social apps in Africa should not need explaining anymore than building Android Apps)

• Regional or Diaspora affordable Communication: These networks start out as mainly 1 sided networks that allow users to communicate with each other. The recently launched Afroterminal- is more focused on Diaspora Africans. Understanding local customs, languages and culture is key to success.
• Business and Commerce related African Needs: Mocality mentioned earlier, focused on being the place to find local listings. Getting business online is a key initiative and battleground (ahem, Google) as it is an onramp to monetize small businesses and besides Kenya you have many opportunities for this in other African countries. Take Tanzania, there is Bongolive and Rasello that are starting to do this. In this category I would also add networks that provide career related networks (LinkedIn becomes a gorilla to compete with)
• Entertainment & Lifestyle: Some networks are purely a place to go find enjoyment. For instance Naijapals provides an avenue for users to watch nollywood movies. Others can be formed around music, games and even gossip. In Tanzania, Jamiforums (Lifestyle) and Issamichuzi (Gossip) are some of the most trafficked sites. Accessing and delivering content, often in a user generated matter is core skill.
• Strong Vertical Needs: I could class these as serious needs in Africa such as health. For instance Young Africa live from the Praekelt Foundation is an example of a network around health issues. These type of networks have a big enough audience with a very defined and often pressing need. Again, strong unique content or having a strong entry point around the core need is necessary to get these sort of networks going.

Key challenges for building an African social network

• Ability to technically scale the website with real engineering talent and managing cloud computing infrastructure. Remember Myspace or Friendster?. Anyone can put together a pretty looking site but it takes real engineering skills to scale a service to millions of users. Mxit has over 150 staff, Twitter and Facebook have armies of engineers that make the site load super fast. This is a key weak point for many new startup networks in Africa.
• No monetization path- Presence of online advertising networks as well consumer payment platforms for online transactions and/or subscriptions (e.g. virtual currency). Mobile operators are well positioned to partner with social networks and integrate mobile payments as virtual currency in Africa. Mxit already offers a currency, Moola, that users can use to purchase virtual goods. Facebook does also allows users to buy Virtual currency in some countries in Africa including Egypt Algeria and Nigeria- surprisingly no South Africa as of this blog posting or maybe via PayPal? Whoever wins the payment wars might get some of Facebook’s credit business across Subsaharan Africa. Note that many emerging market countries already accept payment by mobile payment providers Boku or Zong and even in remittance services such a Western Union or moneybookers- could I buy and send my cousin Facebook credits via a remittance service similar to how Willstream remittance works for healthcare? Don’t sit and wait- you can request your payment method here- if any of you want to request M-PESA, click here
  When talking any payment currency- its important that users are also validated with a real identity, for terrorism and anti-money laundering services, again, good mobile operator relations here may help.
• Provide a targetted audience for advertisers- Mxit is clearly positioning themselves as one of the largest mobile advertising platforms in Africa. If you go down the advertising model, you need good sales and account staff who can actually convince brands to switch away from advertising on radio, TV, print and billboard and use networks. Some networks in Africa have started to tap this but as you scale you need more sophistication- ability to track results and engagement and provide feedback and accountability to advertisers so that can see they are actually getting good value from their advertising dollars. Local presence is critical and works well with big brands. What about smaller businesses? Its much harder due to their fragmentation- is there a self serve system? Look at how creative Mxit has been in targeting diaspora e.g. targeting students for colleges abroad in this Boston University example- of course African students want educational opportunities!

• Inability to innovate fast enough to address new emerging needs and platforms and take an ecosystem approach to maintain distribution and relevance. E.g. don’t get caught in the transitional period- like going from feature phones to smartphones, the challenge that Mxit faces right now. Be available everywhere (inc. feature phones) so that users can actually reach you on their device of choice and if they switch or upgrade. Strong networks will embrace and design for diversity- i.e. mobile web and tablets (HTML5) whilst having native apps on key platforms- Android, Nokia, blackberry and of course features phones.

Mapping the Africa social and interest graph has potential unlock a huge amount of value. Facebook and twitter are already providing citizens with a greater voice to scare Governments as we saw with Nigeria, Tunisia, Libya and Egypt in Africa alone in the last year. Beyond that what other change can these networks bring? Oh, and I am still waiting for an African Social Game that I might be able to play with my cousin in Kyela, Tanzania whether Facebook, Mxit or another Platform.

Ultimately a generally stable government creating the right environment for business and investment is critical for tech, innovation and startups to take off. More specifically though, it is imperative that governments also understand the specific opportunities that are there in the area of ICT, and not just the opportunities but also the challenges that exist because at times governments are best placed to provide the best solutions to some challenges such as by enacting enabling legislation.

Thankfully, governments in places such as Kenya, South Africa, Nigeria, and other countries on the continent have not been ignorant of this. This is evidenced in some initiatives such as setting up organisations specific to the growth of the local ICT sector e.g. the ICT Board of Kenya, government investment in local tech startups, investment in infrastructure and bringing up tech parks that aim at drawing in investment from outside.

Nigeria’s ICT minister, Omobola Johnson, recently had a chat with ABN Digital about the Nigerian ICT sector and what the ICT ministry is doing to promote the sector. What’s interesting is that, while she was speaking about the local, Nigerian, situation, many of her observations – challenges, opportunities… – are very similar to other areas on the continent. Let’s take a look at some of these:

Challenges:

1. Local Consumption

Ms. Johnson identifies the fact that many companies in Nigeria will opt for foreign built enterprise software whearas the country has skilled IT people who have created solutions that work.  This is a common problem on the continent. Somehow, enterprises generally do not trust locally built solutions vs. foreign built software which tends to be more expensive and at times even requires importing relevantly skilled personnel to handle the software.

This creates a situation where not only are local developers not getting appropriate support to build and maintain their software but also where they’re being overlooked as far as labor is concerned to install, run and maintain the software. (Read: Mending Africa’s Tech Skills Gap & Tapping into it’s Youthful Population to Power Innovation in Tech & the African Renaissance)

2. Funding

This is a classic challenge across many African countries. The number of Angel investors is growing but still there is a gap as far as securing seed funding is concerned. Mbwana Alliy recently wrote an article looking at the issue of raising seed capital for your tech startup in Africa. As he noted, the dynamics of raising funding on the African continent is are very different from what is the norm in other areas of the world. It would appear to be quite easy to create a startup and at a very early stage, get massive amounts of funding in places like Silicon Valley. In Africa, things are quite different. Ms. Johnson notes that to move local software development enterprise forward, the traditional, collateral-based funding options are not going to work.

…let’s face it folks, raising seed funding is hard enough for normal start-ups- I would say its at least twice as hard in Africa- even though Africa is uniquely positioned and there is rising curiosity and recognition of real growth investment opportunities outside of BRIC countries… Mbwana

Some governments have stepped forward to provide an alternative for funding through grants such as the Kenya ICT Board Local Content Grant.

3. Intellectual Property

Another issue that Ms. Johnson notes as a major challenge to the young Nigerian software developer is the risk of losing their innovation to a much larger entity where some other entity that has the muscle basically takes ones idea and runs with it. She notes the need for appropriate IP to protect local innovators.

The issue of Intellectual Property however is one that at times needs to be approached with caution – too much of it or applied in an inappropriate manner and we could end up stifling innovation instead of fostering it.

Strategies to maximize opportunities

1. Industry Standardisation

As far as the issue of local enterprises using locally built software, sometimes the enterprise defends it’s position as far as importing technology and skills by noting a lack of quality in local software. Ms. Johnson suggests creating a standardisation mechanism that upholds standards as far as software development is concerned – quality standards for the software itself, documentation etc.

This in part is what has led countries such as Kenya to launch certification and standardisation programs such as Kenya’s “Chipuka Certification” for software developers:

The Kenya ICT Board launched today, Tuesday, February 7, 2012 introduced a certification program that will offer credential examination for software developers in Kenya. The Certification program dubbed ‘Chipuka’ which stands for “To Emerge” is being designed in partnership with Carnegie Mellon University. The certification will help employers to easily identify software developers that have the skills necessary to carry out IT jobs to a professional and world class standard.

This particular initiative in Kenya, was also created to address the current IT skills gap in the country:

A study carried out in 2011 by the Kenya ICT Board and IDC, revealed that there is currently a software skills gap in Kenya. Although there is a high demand for software development in Kenya, few companies source these skills locally. At least a quarter of companies surveyed said they were not satisfied with the quality of IT professionals in the local market. As a result, nearly a third, plan to contract external providers.

The survey predicts that the demand for software developers will grow by 135% between 2011 and 2013.

2. Incubation

Incubation and innovation centers create spaces to consolidate entrepreneurial activity, foster innovation and impart other relevant skills to enable innovators turn innovations into products and a business. Private initiatives particularly as far as innovation hubs go are thriving across the continent. The government can step in and give even more thrust to these initiatives, of particular help would be more incubation centers in public universities. Places where university students can take the skills they are learning and apply them to innovative enterprise.

3. Develop local market

The fact is that to develop the local IT industry, enterprise support is necessary. Enterprises can create great demand for relevant skills and products. As Ms. Johnson notes “We may not be able to build the big enterprise software overnight… but there are elements of integration… ” and these are areas where local tech entrepreneurs can come in to create value and grow local IT industries

Two years ago, however, there was one discussion that much like a pendulum, swung into place a series of events that few have looked back to connect the dots to.

We frequently write about all amber and their conferences and it was in February of 2010 that they staged the inaugural Mobile Web East Africa conference in Nairobi. Afrinnovator’s Will Mutua was there in person to live-blog the two days with a series of curated tweets and tidbits on the proceedings. During this, however, at one segment in the first day’s program Mr. Peter Arina, then Chief Commercial Officer at Safaricom took to the stage to deliver an address on mobile internet usage in Kenya.

During his speech and the subsequent Q&A, he was challenged and Safaricom lambasted on their approach with developers, their openness to business ideas and the developer community and their pricing strategy for products for the Kenyan market. And unlike in today’s conferences where most of this happens in the “backchannel” on social networks, this happened in the ballroom at the Intercontinental in Nairobi and was preserved and documented through Twitter mostly.

This may have seemed like a mere afternoon spat with a few loud voices in the room, but it set forth what can only be seen as a shift in how the M-Pesa founding company communicates. Just over 3 weeks later and Safaricom formally took to social networks Twitter and Facebook and have since become somewhat of a beacon of what corporate social media looks like in the East Africa region. They then put it to the community to vote and nominate leader who would work with the telecommunications provider to mend their relationship in what has come to be known as the Safaricom Innovation Board (though not sure what the status on this is at present).

Since then their approach, availability and openness has dramatically improved and they are quick to acknowledge and listen if not respond to developers. Given not all of these initiatives have born fruit, the point is that they began to listen and participate; be it from senior leadership in the company to internal staff.

Mobile Web East Africa returns to Nairobi on the 22nd and 23rd of February with the aim of taking the mobile monetisation & content creation dialogue to the next level. Taking place at the Southern Sun in Westlands, the conference promises to trigger conversations and thought that could shape not only the country, but the rest of the region in the mobile space. Here are 5 reasons why Mobile Web East Africa is a “must-attend” this year:

1. PanAfrican Perspective
Speaking to top local blogger Bankelele recently about the event once this week, he mentioned what made the inaugural conference worthwhile for him was to see another African market and their progress in mobile juxtaposed with the Kenyan market. Be it advertising spend, successful campaigns and rich insights into what was happening in and around Kenya and South Africa.

The rich information and geographical spread made for a fine time in what Bankelele frequently refers to as “reading the tea leaves” for the Kenyan market. This year, a greater regional focus with a lens on Kenya but an eye on Tanzania, Rwanda and Uganda means the principles, pointers and practices shown at the conference will keep Africa and East Africa at center stage.

2. Audience and Ambience
I attend a range of conferences every year and one thing that gets my attention is the organiser’s approach towards audience interaction. Having spoken at previous all amber events, it’s no secret I appreciate their “roundtable” format. Sparking stimulating conversations with fellow participants and with the panel at the event is one of the reasons we had the Safaricom debate in the first place and always leads to rousing discussions.

3. Scintillating Speakers
The speaker list this year is impressive. A variety of local, regional and international names jetting in to speak. Multi-platinum record label Roc Nation will have their Head of Digital Briant Biggs speaking. Not to mention one of the world’s top 50 women in mobile entertainment, Emma Kaye of bozza.mobi. Regional speakers include Johan Nel of Umuntu Media and Emeka Okoye of Vinkantti Software while locally we can expect Karanja Macharia, CEO of Mobile Planet, Jessica Colaco of iHub Research and Taha Jiwaji of Bongo Live! among others.

Full disclosure: I will also speaking at the event.

4. Startups & App-Developer Subsidy
For app developers or those who are part of start-ups, there is a 50% subsidy for you to attend.  Conditions for eligibility are any of the options below:

• You represent a company that is under 2 years old and has less than 10 employees
• You are a Mobile Application or Games Developer

They are also happy to consider applications from individuals representing NGOs and Academia. To apply you can email info(@)allamber.co.uk. For a list of testimonials from people who have attended using the subsidy and more details you can go here.

There will also be an App Developer Competition at #MWEA2012 where your app gets voted on and the winner at the event stands to get $1,500 worth of advertising spend on the InMobi network, free entrance to the conference (a refund where applicable) and the pitch before the audience, not to mention their subsequent applause. More on that here.

5. The Future of Mobile
Afrinnovator’s been doing plenty of prospecting on what the future of mobile looks like on the continent in 2012. And Kenya or as most are beginning to christen it “Silicon Savannah” sets out to prove worthy of the title.With the convergence of some of the smartest minds in the industry and stakeholders from all across the value chain in mobile present in the room we can expect to do better than just read the tea leaves, but brew up a piping hot cup as well.

All things considered, this event ranks as a “Must-attend” and Afrinnovator intends on keepingyou posted on developments and proceedings in the buildup to Mobile Web East Africa 2012. Register here. 

Kenyan mobile tech startup MFarm, launched at the first IPO48 contest in Nairobi in October 2010 by the all-girl tech team of Jamila, Sue and Linda. The 48 hour “idea-to-business” contest pit them against more than a dozen other contenders and they came out top winning £10,000 from Kresten Buch and HumanIPO.
In 20122, MFarm was a finalist at Pivot25 (now PivotEast)

Their product? A mobile-based solution that gives farmers across Kenya daily commodity pricing, and getting access to market and suppliers through group buying and selling:

1. Daily Market price information
2. Group Buying by farmers
3. Group Selling by farmers through the SMS & web

They’ve now been selected as finalists for The Unreasonable Institute, and as Afrinnovator’s been witness to their success from their conception over a weekend to the milestones they’ve achieved in their incubation at the m:Lab East Africa we’re proud to share in their success.
The Unreasonable Institute is one of the world’s foremost impact accelerators, supporting high-impact entrepreneurs through a process of selection to pick 25 of them from across the globe for their remarkable program. MFarm are among these finalists. Their challenge like all other finalists of the program is to raise $10,000 within 50 days with the minimum amount that be sent in being $10!

To support them (and we encourage you to!) you can do it through The Unreasonable Institute Marketplace or Kenya’s revolutionary mobile money service, M-Pesa below:

• Marketplace: https://marketplace.unreasonableinstitute.org/project/m-farm/
• M-Pesa: Pay Bill Number 531300 Account Number MFARM or 0712502130

Share your comments and wishes to them by tweeting them or by giving your message below in the comments.

In a rapidly changing technology world, it’s not only important that one understands how to do your current job/technology well but also be exposed to new ones, particularly in open source and cloud computing and mobile development technologies that may not have originated from the enterprise segment or the 10 year old technology used by your bank. – Mbwana Alliy

In a previous article looking at doing tech business in Africa, we found that Africa’s youthful population is where it’s at. Majority of the African population is under 30 years of age with two thirds being under 25 according to the Africa Commission. We saw that presented an unprecedented potential market for those who can understand this demography and provide what they are demanding.

On the other hand, this youthful population also presents a massive potential labor force. According to the Africa Commission, by 2015 youth will account for up to almost 30% of the total African labor force. If appropriately skilled and exposed, this youthful population can easily provide the brains and smarts to power Africa’s renaissance particularly as far as technology and innovation go.

Douglas Cohen, in an article titled “The IT Skills Gap is Everyones Business“, explains the ICT skills gap in South Africa:

There is a shortage of ICT skills in the South African market. That is a fact. There is however a difference of opinion on the scale of shortage. The National Department of Labour last issued a National Master Scarce Skills list in April 2008, indicating the ICT sector needed a minimum of 37,565 IT professionals to ensure adequate skills in this sector. However, the results of a more recent ICT survey, conducted by IT Web and the Joburg Centre for Software has found the department underestimated, by almost half, how many ICT skills are needed in SA. The suggestion therefore is that the ‘real’ skills shortage can be as high as 70,000 practitioners – more than 25% of the current workforce.

The Right Education

The World Bank Knowledge Economy Indicator comprises innovation, education and ICT scores and measures a region’s innovativeness relative to these. As the diagram above shows, Africa lags behind other regions as far as this measurement. But even more important is the relation between education and innovation. Regions with better scores on education tend to be more innovative.

Crippling Tech Curricula

A few years back I had the opportunity to work briefly at Microsoft East Africa as what they call an Academic Developer Evangelist. The point of the role was to influence college and university tech-related academic programmes so that they adopt and teach the latest Microsoft developer tools and technologies such as .NET. The job gave me an opportunity to gain some insight into the state of technology education across the East African region.

What I quickly realised was just how static tech curricula were relative to the dynamism of the real world of technology. Most students were stuck at the level of outdated, obsolete  concepts (across the open source and proprietary spectrum) that put them at a disadvantage upon graduation. Many tech firms have to re-train fresh graduates upon hiring them so that they can come up to speed with the realities of technology in the real world.

Industry – Business Gap

The tech curricula problem is aggravated the more by the gap between industry and the academic world. The problem is simple, ICT-related businesses operate in the ‘real world’ of technology that is highly dynamic. To be competitive, they have to be constantly on the look out for what’s new, and adapt rapidly when things change – when new technologies come up, when the major tech companies such as Google and Microsoft take strategic routes that set the pace for what direction technology will develop in future… The most successful ICT companies have to be agile.

On the other hand, the academic world is sort of closed up in a cocoon of relative stability. The same things are taught year in year out, with little or no change to reflect the reality of the world of technology. Unless a student is exposed elsewhere, or they happen to be really curious, they’re stuck. To make matters worse, the education system often trains students to not be inquisitive and explorative.

In Kenya, many have complained against the 8-4-4 curriculum saying that it’s basically a system that encourages cramming and regurgitating. The fact of the matter is that even before they get to university, students have already been accustomed to receiving without question what the teacher gives them, then getting an exam where all they have to do is give back to the teacher exactly what the teacher gave them in exactly the same way, or else they fail.

Mr. Macharia, CEO of Seven Seas Technologies in Kenya notes:

“ … there’ s an urgent need to incorporate industry needs in university curricula across all our universities to ensure industry relevance.

Time has come for all the stakeholders in the higher education sector to join hands and tackle the skills deficiency problem to avoid sending out to the job market graduates trained under IT environments not aligned to the dynamic ICT Industry. It is costly to have fresh graduates, hired as engineers on the bench and not billable for several months before we can actively deploy them to customer environments, a practice quite the opposite in the accounting industry.”

Solutions

What are possible solutions to the skills gap dilemma? Altering university curricula is a long process, you can’t just wake up tomorrow and say, “hey, lets drop this and start teaching that.” and just do it. Are there other alternatives? Is there anything that’s currently providing a solution?

1. Tech hubs

Tech hubs across Africa are providing brilliant spaces for learning to take place outside the confines of strict curricula. Before tech hubs it was difficult for students to get direct access to and interact with industry practitioners. Meetups and tech talks in these community environments provide great opportunities for the exposure of students. With the right exposure, at least the student can then take the initiative to go out and learn for themselves.

2. Industry Steps In

It may not be the core business of industry practitioners to provide training to young students but it is to their advantage to have the necessary skills readily available. This is what must have led the likes of Seven Seas Technologies to invest in training freshly graduated university students.The alternative, importing the necessary skills, is a costly affair. Perhaps more companies should step in to fill this gap in like manner, at the end of the day, it is to the benefit of the organization.

3. Third party initiatives

One of the best examples is Coders4Africa:

Coders4Africa was created in 2010 through the efforts of five friends who collectively have over 40 years of experience in the software engineering and development field. We are a not-for-profit organization with an initiative that focuses on providing professional training and certification on a variety of platforms to 1,000 African software and application developers by the year 2016. After years of interaction with technologist in Africa we decided to focus on software development as a way of giving back to the communities we originated from. Being born and raised in Africa although educated in the United States, gave us an advantage in regards to bridging the gap between Africans and the diaspora. - Kwame Andah (Co-Founder, Coders4Africa)

At the end of the day however, innovation is not just a matter of having raw skills. It’s about applying those raw skills innovatively. It’s about thinking outside the box and applying the necessary skills to create.

The beauty about tech skills particularly when it comes to programming, is that these skills can be easily acquired by the individual. The World Wide Web harbours a wealth of great learning material that is free to use, plus the necessary tools are also available for free download. Several great influencers and innovators in technology were not even schooled in tech but were self-taught.

As we noted, Africa’s youth are tech-savvy, eager to learn, agile and have a great desire to carve out for themselves a better future free of the stain of mis-conceptions of the continent. Rightly skilled, this young population can be the engine to drive Africa forward into its future. Jon Kalan, writing for the Huffington Post notes regarding Nairobi’s youth:

The country’s slowly improving education system is churning out a new generation of university graduates who are aggressive, ambitious, and hungry for a better future. They are fiercely proud of Nairobi, and feel they hold the responsibility for its economic future and its emergence in the global spotlight in their hands. They no longer graduate university with hopes of ending up at the once best paying jobs in town — UN agencies and the scores of other well financed NGOs. Instead they dream of starting their own business, or finding work in an increasingly robust private sector full of entrepreneurial ideas. The same cannot be said in most of Kenya’s neighboring countries.

If you are anyway involved in mobile, technology or gadgets you will know that the focus of the vast majority of reports, articles and statistical data is around the growth of the smartphone handset segment globally. Some estimates during the middle of 2011 estimated that around 472 million smartphones would be sold worldwide by the end of the year.

The table below from research firm Gartner estimated that in quarter 3-2011, there were 115,1 million smartphones sold globally.

That is a significant number; however smartphones only represent one portion of the entire handset/device ecosystem. Using Gartner information again, we can see that total handset sales across all phone segments is massive and that smartphones make up approximately 26% of all handset sales in the third quarter of 2011.

That means that 74% of the remaining handset sales are made up of entry level and feature devices.

So what about the humble feature phone?

Defining a feature or smartphone phone is a minefield because the definitions change so rapidly due to the improvements in technology and cost efficiencies in manufacturing. I maintain that if you put 5 mobile executives into a room and ask them to define what a smartphone is you would get 5 different answers and opinions. So for purposes of this article, I would like to classify a feature phone as a device that supports WAP (GPRS/Edge) connectivity, has a colour screen, can send an MMS message, has low-resolution camera and lastly supports J2ME native applications.

The feature phone segment dominates mobile connected devices globally. There are numerous reasons for this,

• 10 years of device sales
• An established and installed base of users
• Cost of ownership and affordability

Globally the segment is dominated by Nokia Series 40 handsets (S40). Nokia estimated that nearly half of its 1.5 billion S40 handset shipments are in active use today, with 675 million active owners of S40 phones in the world.

This is a significant part of the market and it should not be discounted at all when looking at mobile services.

Below is a graphic from a mobile research firm called Vision Mobile which illustrates the size of the feature phone market in comparison to smartphones globally (collectively called the “connected device” market). Smartphones make up 27% of the graph below, leaving 73% that are feature phone devices.

Feature phones in Africa

Nokia is the dominant OEM (original equipment manufacturer) of mobile handsets in Africa. One estimate has positioned Nokia with a 65% market share across all Africa. The vast majority of the devices supplied by Nokia can be classified in my view into the following:

• Basic 2G handsets like the Nokia 1110. These devices are the bottom of the pyramid devices which allow for phone calls and SMS messaging
• Low-end feature phones (2.5G WAP) devices like the Nokia 5130 XpressMusic
• High-end smartphones devices (3G and up) like the N and E series Nokia phones

To see an indication of Nokia’s market share in the connected device market, two mobile platforms, namely InMobi and Opera Mini, provide great insights into Nokia usage across Africa.

InMobi is a mobile advertising platform serving mobile WAP banners across Africa. In Q3-2011 InMobi served over 15 Billion WAP banners to connected devices across the continent. This is a snap shot from InMobi Research, please take note of the Nokia information provided in the snapshot. 61.1% of available impressions where made from Nokia Devices on the InMobi Network.

Opera Mini is a third party mobile browser that has over 144 million monthly users globally. In June 2011 Opera Mini released their State of the Mobile Web and data for 10 African countries was provided - Opera looked at the top 100 handsets used in each of the top 10 African countries, of the 100 total handsets listed:

• Nokia: 89
• Samsung: 7
• Sony Ericsson: 1
• Alcatel: 1
• Apple: 1
• LG: 1

Incidentally the one iPhone was from Ethiopia.

What does this mean for Africa?

There is a huge installed base of feature phone devices across Africa which is made up largely of Nokia devices. There are many reasons for this market share including but not limited to the quality of the devices and superior battery life (an important consideration due to intermittent power supplies across Africa)

Smartphones are coming into Africa thick and fast with other OEM’s like Samsung and Huawei leading the charge with cost competitive Android based smartphone devices. However it takes time for these devices to find their way into the hands of subscribers. As is evident from the data, most of the handsets that subscribers currently use are feature phones and the status quo will remain as such for the next 2-3 years.

Any organization looking to provide mobile services in Africa needs to factor this into their plans especially when it comes to the ever-interesting debate between mobile web versus mobile app (a discussion for another time).

In South Africa, for example, probably the two most common feature phones in the market currently are the Nokia 5130 XpressMusic and the Samsung E250. It should be noted, if you are developing mobile web or even mobile applications for the mass South African mobile market and not designing for the E250, you are doing it wrong.

I would like to point out that mobile applications that have J2ME (Java) versions will still have the biggest potential audience reach in Africa. Any developer will tell you that developing for java is a nightmare and rightfully so BUT if you would like to see attract the biggest possible audience in Africa, that is the starting point for any developer.

Don’t forget about the humble feature phone, they make up a large part of the handset universe and are not going anywhere anytime soon.

Is this true, is there more to the feature phone than meets the eye or are we approaching the age of the smartphone from here on out. Sound off below in the comments.

I will start each point with generic advice applicable to any start-up and then I hone in on Africa relevant issues-“Reality of Africa”. I hope this helps start-ups navigate a difficult but necessary process if we are to see more entrepreneurial activity and to grow the ecosystem in Africa.

1. Make sure you are ready – Checklist

This first step is actually common everywhere, entrepreneurs think they deserve financing when its just an idea in their head all the way up to startups showing significant progress but are probably stalling and need significant technical/business help and capital infusion to grow their venture. Also fundraising takes a significant amount of time and if the team is small, it might actually harm the business for key individual founders or CEO to spend 6+ months pitching to investors. Its important to appoint someone in the team to focus on this more (usually the CEO)- poorly prepared startups on the funding road doesn’t help either side. A startup with a single founder is disadvantaged vs a well rounded team that compliments each other. So its key to make sure you have hit key milestones before putting your startup at more risk by spending time on the road searching for funding- you might talk to 50+ potential investors before you get anywhere.

Next, having a product or service out in the marketplace with early customers/users and even revenue is extremely important, I underlined and bolded that for a reason. Investors have many choices to invest and they need to see your company making traction. Last week at 500 Startups demo day here in Silicon Valley, the batch of 34 startups not only proved to me that the bar is getting higher, but its also getting more international as well with significant strong representation from Brazil. India and China which are already hot. With the cost of launching internet startups continuing to drop wherever you are, we will only continue to have more quality startups surface and compete for investors attention- traction is a real currency. The only exception is if you are already an accomplished entrepreneur and have proven to make investors money- then money might be chasing you vs the other way around. But even then, companies like Color here in Silicon Valley that burn millions of dollars with no traction still exists based on founder reputation. Past success is not indicative of future performance, but it certainly helps.

REALITY OF AFRICA: Being ready in Africa for seed investment is definitely different from western markets. Its harder to show revenue for a consumer mobile/Internet start-up- ad networks are just developing, significant scale on internet or mobile users is harder to achieve, and payment ecosystems and trust on the Internet in Africa (different on mobile) is not mature- but this is changing fast. On the enterprise buyer side, most in Africa don’t understand technology that much to decide between different offerings- however, if a technology solution solves a unique problem and gets adopted by a mainstream customer, being first to market has a huge advantage. What I have also seen in Africa is how much startups overplay their intellectual property advantage “my mobile money solution is proprietary” and so have been in stealth and not launched. First of all, enforcing intellectual property is hard in Africa given the legal system, second if you don’t share your idea with others how will you grow your team and add value? The point is that it’s not that IP is useless, many companies do very well on this- but just don’t think your web or mobile startup built with open source technologies has IP that is more valuable than getting real customers and revenue. Many African startup founders also downplay their previous success too much, if you ran a successful tech development firm for many years talk up the experience, it shows that you have what it takes to recruit local staff and build a business. If raising money from Silicon Valley, traction for Africa startups has to be very high to generate interest and compete against what other options angel investors have and because of the unfamiliarity of the market at this stage. What becomes hard is companies that can’t bootstrap to show enough traction, its hard to do a energy/clean tech startup without raising significant capital vs a mobile/web internet startup.

2. Create a clean and short deck + put startup on Angel List and VC4Africa- but it’s no substitute for business planning and deep analysis and connecting face to face with potential Investors

A great deck not only communicates the problem and solution- it also creates an emotional connection and inspires whoever who is looking at it to want to learn more. The deck is often e-mailed to investors, they take a look for 5 mins and then they decide whether to follow up and learn more. Treat the deck that way- its not a full business plan. Here are some guidelines:

• Don’t put too many figures/statistics – limit to 3 per slide- be selective of the most important ones
• Use strong visuals showing the product and screenshots of the service in action
• Focus on the team, achievements and why you are unique to address this problem.
• Make sure the deck flows and tells a story about how you came across the problem, who you are and how you are best positioned to provide the solution
• Keep to no more than 10-12 slides, shorter is better. Other supporting data can be put in an Appendix.

Its harder than one thinks to create a great deck with the requirements above- its a continuous process whilst getting feedback and knowing who the audience is also key- getting a designer to polish up the deck may even be needed. A 1-2 page brief may also be a good idea. Also don’t be afraid to be creative and show off relevant skills- for instance, check out this great HTML5 deck by DressRush (now renamed Tailored, a graduate of 500 Startups) that is both easy to go through and got a lot of buzz online- it shows the team gets how to market and promote.

This brings me onto Angel List. This has become the “LinkedIn for Startups” and although right now it’s heavily Silicon Valley startups and angel investors it has scope for international use if both startups and investors abroad use it – so right now its useful if you are targeting Silicon Valley investors. Some of the features that are great on Angel list including newsfeed notification of progress in your startup, you can put advisors, early investors etc… In short it becomes a place where investors can discover and track your progress.

However, you should also be sure to have solid business analysis behind your startup and industry. When investors dig deeper in a 2nd or 3rd meeting they’ll ask for this- showing that you’ve done the work rather than dismiss the questions as irrelevant is the way to go. But if investors ask for data that doesn’t exit or impossible to predict in an early stage startups, it might be a sign that they are just looking for an excuse to say no as part of their “due diligence process” or just don’t get technology in Africa.

REALITY OF AFRICA: The deck for an African start-ups needs to focus a lot on the problem being solved and traction (users or revenue) the business has achieved more so than in western markets. Given that cutting edge engineering skills are often lacking in Africa, highlighting the development teams previous programming accomplishments will go a long way to ensure that the product risk is minimal- good design is also a big differentiator. A good mix of local and foreign talent that compliments each other especially for a business with significant on the ground presence- can anyone in the team speak fluent Swahili when operating in Tanzania and trying to address the bottom of the pyramid market? Also note, a deck targeted at social impact investors will look very different from one targeted at traditional investors in terms of content and what is important- this leads onto the next point- what sort of investors are ideal for your venture? But first, a word on analysis- focus on key assumptions- why did you chose Kenya over Nigeria or South Africa? Does Africa really need another mobile money online solution and what problem are you really trying to solve? Will people really find and download your application? There is a lot of data on the growth of Africa tech these days- take this deck that came out last week curated presentation of stats, data, graphs, analysis and insights on the mobile telecoms sector prepared by Jon Hoehler and Andrew McHenry . How do these numbers help support your startup? Next also be sure to outline how the funding you are seeking to raise will help you achieve your next goals (something often overlooked)- will this get you to revenue, scale, launch a new product or are you just topping off funding because you are out of money to fund operations?

In Addition to putting your profile on AngelList, another option that might have less tech savvy angel investors is VC4Africa.

3. Identify a short list of relevant investors- key criteria for Africa.

Startups can waste lot of time pitching to the wrong investor audience- at the same time you never know whether an investor is interested in your space or not- it’s a balance in time management so it’s key to think thoughtfully about who you may want to target. Start with you closest connections then move out from there. Don’t forget to include friends and family in this- since they know your character best and can provide moral support.

• Do they have any money (obvious I know) AND a connection or interest in your space.
• Do they understand technology like the delicate balance between growth and profitability?
• Do they provide value add knowledge, networks and mentoring? What is their expertise?
• Do they treat their investment like putting money in the bank and getting interest or is it a risky bet at the casino but they learn and have fun. Is this a “feel good” or “impact investment”- make sure you line up on this. Sometimes their investment is just a way for them to “learn about the space”.
• Are they investing for a small stake in a big pie of big stake in a small pie?
• Do they have the bandwidth to help you based on other investments and their day job? Remember a savvy angel investor has many options and some like to get really involved, others more hands off. Are you the best option right now and why?

REALITY OF AFRICA: Unlike Silicon Valley and other parts of the world- this list is likely really short- there are just not many active angel investors in Africa who understand technology, start-ups and pass this list- and there are not enough rich uncles in Africa to go around and support all entrepreneurial endeavors of friends and families (but this is slowly changing as success stories realize they can give back to the ecosystem and also make money). And even then, not many investors are accessible or even know how to angel invest- significant networking help is needed to reach them and get above the noise. African Diaspora living abroad have significant capital they could mobilize for your venture- there are many Kenyans, Nigerians, South Africans etc.. living abroad who might be looking to invest back home. Extending further, the Indus Entrepreneurs (TIE )network of indian diaspora has links to silicon valley that inc. tons of angel investors might overlap with the Indian population that may have resided out of East Africa. They might be eyeing Africa as an attractive investment in technology especially if India has becoming increasingly competitive, saturated or too corrupt and bureaucratic. In Silicon Valley, a connection to The African Network (TAN), might also be able to help. The middle east is another option- UAE, Oman are heavy investors in East Africa for instance.

A word on impact investors- they started in microfinance where they realized you could profitably serve the poor in India, Bangladesh, Latin American and in Africa and have now moved into other areas (health, education etc…), its a new industry and as a result many change their investment strategy as much as the wind in the Sahara or Indian ocean changes direction! Some are more stable than others and clearly state (or can be deduced from their investment portfolio). Impact investors are also less likely to ask about high financial returns and how you will exit your company by selling to tech multinational as they mainly care about what “impact” you are making- such as no. of jobs created, reduction of malaria prevalence, serving an under-served population etc…

4. Connect and educate with potential investors- ask for advice and you might get money. Update progress on Angel list. Draft and test your e-mail pitches, find investors at conferences, use your social skills well- how you interact and reach investors is a key skill. It’s like dating… It also communicates what you might be like to work with. The most networked people do better in business than just being smart and savvy- this is doubly as important when it comes to getting angel investment- it is about who you know and who can refer and vouch for you.

STOP! Before you proceed- go through 1-3 a few times. 4 becomes your point to start talking to people and work your way to investors. Oh and 1-3 is called “creating a company”- you’ll be repeating it again and again for further rounds of funding. No shortcuts, learn to do it once because you’ll be doing it again.

REALITY OF AFRICA: Africa needs tons of education to foreign investors due to preconceived notions of Africa despite growing interest- as a result they might be risk averse right now until they get more familiar with the continent- try avoid the “driveby investors” who might not add much value apart from their money. For local investors it means focusing on how the technology works. Even after foreign investors “get Africa” its really hard to anchor themselves around the needs of Africa since they are not living and breathing the problem you are trying to solve. An American team pitching to a traditional American investor who has never been to Africa would need a lot of education- they might even need to come with you to Africa to see the problem you are trying to solve first hand. People are just waking up here in Silicon Valley to the wonders of Africa mobile banking about 2-3 years late even though M-PESA is already a tired story. This means increasing the time it takes to raise money from this group of investors. European investors might take less time on education but they might not get the technology aspects as much as a Silicon Valley investors- also their risk appetite and familiarity with tech angel investing is likely to be different. An ideal investor would be some foreign expertise that brings tech and management discipline/experience and a local investor who can provide local context and connections.

5. Practice the pitch and work up to your favorite investor(s)- Know the toughest questions upfront and address them intelligently and honestly. You might have to go through “Gatekeepers” who have the connection to the high profile investor, understand their position, don’t assume they will just make an e-mail intro out of the blue. Treat them well- their job is not to refer every start-up, it defeats the point of a gatekeeper. Note the common questions (note: not many are technology related- no one cares if you built it in php vs ruby!). Sometimes you’ll get questions to which there are not good answers- don’t be afraid to say “I don’t know”- its a mark of maturity, but be sure to convey that you will find out or are actively working to solve that problem and you are a fast learner.

REALITY OF AFRICA: For entrepreneurs originating from Africa, the pitch delivery needs to practiced to perfection. Being able to pitch in 6-10 minutes is daunting for most entrepreneurs, but it should be an opportunity to distill your startup into the key elements- In Silicon Valley, you never know when you might have to talk about your startup, could be in conference, in a bar or in an elevator (hence the elevator pitch!) So most startup founders can talk about their startups really succinctly.

If you have to talk too long- see point 4 on education. You might need to follow up or prepare with the person introducing “referring” you the investor. Here is a checklist of questions you should watch out for and have good answers ready:

• Africa is the dark continent- its unstable right?
• Do Africans have real money to spend?
• There is serious currency risk, check out the inflation in Kenya and Uganda? How will your business handle it?
• Nigeria is the best place to do a start-up right? It’s a big market! Why are you in Tanzania?
• Can you hire the technical and managerial talent to grow your venture?
• How will I get my money back via- Exit?

6. Scoring an anchor and influential investor can significantly boost your chances but be careful who this is? Refer to point 3. Accelerators and incubators act a lot for this a “stamp of approval” but also make it efficient for investors coming to visit a region in Africa. In Silicon Valley, getting vouched and having influential personalities such as Ron Conway or Dave McClure can get you a long way to closing your funding round. Angel-list again is another way to make this process more efficient, but it is no substitute for face to face interaction if you can get it. Sometimes you are better off preparing really well and scoring an introduction from someone influential than trying to talk to a mass of investors who don’t understand you (at least in the beginning).

REALITY OF AFRICA: Incubators and Accelerators popping up in Africa are helping to solve this. Accelerators like the Umbono in South Africa or Meltwater in Ghana can be a fast track to get to this step- it might take you 6 months to get to this step on your own or 3 months if your join the “right accelerator”. Be sure to evaluate them properly, the founders can have significant connections to real tech investors, others may have different intentions all together- who is the Ron Conway of Africa? The person might exist but they might not be as publicly visible as the Silicon Valley equivalent. Try get yourself into the regional pitch contest in Africa- for example Pivot East in Kenya that is organized by the iHub and sponsored by many other startup friendly organizations that provide proven regional and global visitbility.

7. Be wary of terms and make sure you have a clean cap table- but don’t overly negotiate. You are getting married but it’s one of many spouses on the long road to success. Term sheets for startups are becoming increasingly standardized across the world. Some VCs are even providing their standard ones on their website you can customize For example, passion capital in the UK (wish more African VC funds would do this!).

REALITY OF AFRICA: African investors not familiar with start-up term sheets and a country’s legal framework around concepts such as employee stock pools (setting aside shares in your company to motivate new employees with success in the company) and convertible note (a hybrid debt/equity investment instrument common in early stage start-up) might harm a start-up by demanding unreasonable terms and not ensuring the risk and reward of start-up team and investors are adequately balanced. This can kill a start-up. The big advice here is to find a lawyer that understands both sides and can educate appropriately. Do your research- the links above from sites like Quora can help you get educated fast.

Finally- remember the old investment cliche- “we invest in people not ideas”- its actually true. Treat your angel/seed investor the same

Qualitative vs Quantitative Factors

According to the report, South Africa is the continent’s most active country by volume of geo-located Tweets, with over twice as many Tweets (5,030,226 during Q4 2011) as the next most active Kenya (2,476,800) and third comes  Nigeria at 1,646,212 tweets. This continues to give credence to the idea that these three are the countries to watch as far as technology and innovation in Africa go.

Mbwana recently wrote a very well thought out exposition on what factors to look at when selecting which country is best to do business in Africa. Among the factors, Mbwana points out that one should look at are regulatory and macro-economic factors. Looking at rankings based on World Bank and IFC data, these three countries feature prominently among the top 15 countries in Sub-saharan Africa that are easiest to do business in – South Africa ranks 2nd, Kenya 9th and Nigeria 15th.

It is interesting, however, that based largely on more quantifiable terms such as taxation and credit rankings, the latter two of  these three countries do not appear to be the most promising to invest in a tech startup relative to others on the list. There appears to be other factors that are making these countries rise above other states that would seem obviously better candidates when considering where do a tech startup than these.

It seems the more qualitative aspects have a strong bearing on where to do tech business in Africa. Borrowing from Mbwana’a article two key qualitative considerations are:

An entrepreneurial support network – Startup Culture:

Basically is there a critical mass of other like minded people in the country? People you can learn from, people who’ve already interacted with the system and have learnt how to go about things in that country when doing tech business? In any case having more people trying to achieve in the same area as you are also makes it exciting to do business and creates a great ecosystem to operate in.

Perhaps that’s why so many tech startups move to Silicon Valley, there’s something about being in a place where there are many people competing and co-operating and those clusters create great feeding ground for investors. Vibrant innovation hubs such as Nairobi’s Innovation Hub and Nigeria’s Co-Creation Hub are indicative of the presence of a strong entrepreneurial support network.

Lesson: Don’t forget the qualitative aspects. Balance out the quantitative aspects verses the more qualitative ones.

Local Culture:

In ‘Pondering Africa’s Tech Investment Potential for 2012 and Beyond‘, we noted how devastating it can be for the foreign investor to fall into the mis-understanding that Africa is one country, with one culture.

The diversity of cultures in different parts of Africa has a strong bearing on not only how people do business there but also on how consumers will respond to products – not just the product itself but how it is presented and the messaging around it. You can have a great product and kill it with your advertising messaging.

A great example of how understanding the culture can make a great difference in how well the target market take up a product in Kenya is Safaricom’s advertising. Many of Safaricom’s products were more widely received than competing offerings simply because they understood local Kenyan lingo and incorporated it in product names and advertising messaging.

For example, transferring airtime credit from one’s Safaricom line to another is dubbed “Sambaza” the competing Airtel service (this was really the mistake of Airtel’s predecessors, Airtel seems to be doing much better) called their own similar offering “ME2U”, people took to Sambaza versus ME2U and nowadays you’ll hear a Kenyan with an Airtel line saying they want to “Sambaza” credit to another Airtel line…. this is a bit hard to explain given most of the people reading this are not Kenyan but it’s exactly the same thing as saying you are going to “Google something on Yahoo”

Lesson: Keep in mind the context of your operation

The Youth of Africa are where it’s at

The report indicates that 60% of Africa’s tweeters are between the ages of 20 and 29. That’s pretty amazing if you think about it.

According to the 2011 Africa Youth Report compiled by the Economic Commission for Africa:

The majority of Africa’s population is below the age of 30… Young Africans are the key to an African renaissance and will remain players in and advocates of social transformation and development in many spheres. The enormous benefits young people can contribute are realized when investment is made in young people’s education, employment,health care, empowerment and effective civil participation

According to this document from the Africa Commission:

Almost two-thirds of the population in Africa is below 25 years of age. More than 20 per cent, or almost 189 million, are youth between 15 and 24 years of age. This share will remain more or less constant for the next 10 years.

This presents an unprecedented market and labor pool (Read: Kenya Julisha ICT report: Invest in new skills. It’s called Human Capital) if tapped. Many are tech savvy and connected unlike ever before on the African continent and they are willing to learn & try new things. They do not have immediate memory of colonial times, and so are not living with that burden on their minds, they see a world open to them to explore, where they can compete with contemporaries from across the globe, and share and learn from them.Thanks to the Internet and web (particularly delivered via mobile) they have ready access to information and this has empowered them.

Lesson: Tap into the youthful African population

Reflecting again on the Twitter report, it is interesting that majority of Twitter users in Africa are using it to stay connected with friends – 81% of those polled saying that they mainly used Twitter for communication with friends. One could easily draw a parallel between Twitter and SMS messaging (only that Tweeting is cheaper). Perhaps one reason why Twitter is picking up is that Africans can already relate to sending short messages via mobile and so it is really to turn to the internet based for communication with friends – the principle is the same.

Lesson: If you’re introducing something new, it could be helpful if you can mimick something that’s already common to increase adoption rate

The Power of Mobile (duh)

The Portland Communications research indicates that close to 60% of tweets from Africa are sent via mobile phone. Now, the amazing link between Africa and the mobile platform is not a new subject but one that deserves mention over and over again. The simple fact is that the mobile device will remain the most powerful platform to reach the mass market in Africa for some time to come.

There are companies that are doing pretty well by tapping into this. For example, ForgetMeNotAfrica brings internet messaging and social networking to every mobile phone including the most basi ‘feature’ phones without WAP.