On 12 April, Africa witnessed a historic moment, one that could potentially prove seismic in shaping its future. Jumia, the e-commerce startup that has been catering to African consumers through the online sale of products since 2012, officially launched its Initial Public Offering (IPO). The “Jumia Phenomenon”, it being the first African tech start-up listed on the NYSE, has now firmly cast the spotlight on the continent’s start-up scene. A range of stakeholders including governments, investors and prospective entrepreneurs are keen to learn and participate in what is happening.
Whilst Jumia brought on a revolution in a fragmented and outdated African retail environment by bringing mainstream e-commerce to Africa, an undertaking that will lead to positive spillover effects for Africa’s tech ecosystem (such as Jumia Alumni Founders), I want to highlight other innovations happening on the continent that are supported by venture capital, through my experience at Savannah Fund, which has invested in over 30 start-ups in seven countries over the last six years. Given that I’m writing from Arusha, Tanzania – an agricultural hub in the heart of the Rift Valley on the slopes of Kilimanjaro and Meru – I will focus on agriculture’s potential tech transformation and highlight some of the challenges African start-ups face.
Africa’s potential to be the “food basket for the world” has been no secret for a while. With 60% of the world’s unused arable land and 54% of Africa’s population working in the sector, the continent has enormous agricultural promise. The African Development Bank acknowledges the importance of agriculture to the continent’s transformation by explicitly making it one of its High 5 priorities, under the headline “Feed Africa”.
Aerobotics is one tech start-up rising to this challenge by employing drone imagery and artificial intelligence to enable early pest and disease detection to help forecast yield. Another start-up, Tulaa in Kenya, which provides smallholder farmers with quality agricultural inputs on credit and also employs artificial intelligence to connect farmers, input suppliers and buyers in a digital marketplace.
Innovative business models employing sophisticated technology very often require partners and investors not only with an understanding of Africa, but with expertise in sub-sectors like artificial intelligence and robotics, and how they can be developed and applied within an African context. Venture capital firms, contrary to the common misconception, are not simply providers of capital, but by way of their team composition often add value to their portfolio companies precisely through this wide range of knowledge and expertise on the operational and business side.
In staying with agriculture, we cannot ignore climate change. The existential threat of this crisis looms large over our planet, and Africa is the continent that will be most severely impacted. Apart from the fact that climate change is set to create uninhabitable living conditions and an explosion in migrants around the world, it is also very likely to affect those in the agricultural sector in Africa and in particular small-scale farmers who rely on consistent yields to earn a living.
WorldCover, an emerging market climate insurance start-up, is one such company that is helping to address this problem by offering crop insurance to smallholder African farmers, providing a much-needed safety net against unpredictable weather patterns.
This is an area where African venture capital firms can thrive. Start-ups with profiles similar to WorldCover’s are often seeking not only capital, but also the right partners who can provide the necessary assistance to navigate specific African markets and a diverse set of countries in areas such as those dealing with regulatory compliance and local recruitment.
The reverse direction is also an area of value, helping African start-ups access global markets and capital and assistance, as the likes of Savannah Fund have done, by providing a bridge to Silicon Valley and increasingly to Europe and Asia. Aerobotics have taken this path, from the farms and orchards of South Africa to one of the biggest agricultural markets in the world: California.
With the backdrop of some early successes in agriculture, what challenges lie in venture-backed start-ups in Africa?
• Evolution in early-stage funding: It’s often said one of the last areas of the private equity/venture capital ecosystem left to develop is the early stage (this follows over two decades of $100 million+ funds struggling to find a good pipeline of deals in Africa). Tech start-ups on the continent are starting to emerge as well as funds to crack this chicken and egg problem. This phase will naturally incur a lot of risk-taking, pivoting of start-ups and yes, failures – VC is in the risk business, unlike later-stage funds that are in the scaling-up business. Challenges remain, but there are some important recommendations as outlined in the recent Frontier Economics report.
• Strong governance is key A challenge with African start-ups (often first -time entrepreneurs) that we tend to encounter comes in the area of governance and accurate reporting of key metrics and financials. Often they fail to recognize that instituting strong mechanisms early establishes good habits for the future, creates transparency and order, avoids skirmishes with local tax authorities and severely improves their chances of executing successful follow-on fundraising. Savannah Fund has evolved to be a lot more hands-on in this area, as it is critical to leveling the playing field and being globally competitive.
• Transition to scaling up In addition to the work done by the likes of Andela and Moringa to provide a pipeline of local talent, start-ups sometimes seek access to capital, markets and talent globally as they scale. We have noticed companies that are able to leverage global connections (Silicon Valley to Japan or Cape Town to London) are at a distinct advantage vs. those that do not. This is where early-stage VC firms can act as an important bridge for start-ups coming from a less developed environment – this includes helping start–ups join global accelerators such as 500 Startups, Techstars or YC to the west, Efounders program by Alibaba to the east, or access development finance debt within African or European multilateral institutions.
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The latter is often cheaper capital if it’s shown to have a development impact, such as helping smallholder farmers or creating jobs of the future. Founding teams need to be creative, but stay focused and not get distracted. Examples of start-ups successfully leveraging global firm expertise and capital sources include Aerobotics joining the Google Launchpad for Africa and WorldCover graduating from YC.