It usually takes three vital ingredients to make a business idea come alive: a determined and resourceful entrepreneur, a marketable idea, and yes, you guessed right – capital. Nine times out of ten, a lack of access to capital to kickstart a business venture is the major reason many African business ideas are never realized. Investors who can catch on to the good investment opportunities in African startups will most definitely be smiling to the bank! Let’s examine the opportunities in Africa’s startup markets and how you can take advantage…
Why do African startups promise such huge potential for investors?
Poor access to capital has continued to choke enterprise and small business prospects across Africa. To make a bad situation worse, the banks are not eager to provide capital to startup businesses. They are too focused on businesses with proven credentials to bother about ‘big hairy business ideas.’ Just for the record, Google, Facebook and Twitter were once big hairy ideas.
how to invest in african startups 101: In the US alone, more than $50 billion is invested annually in small businesses and startups by Angel investors and Venture Capital firms. There is evidence of a widening gap between potentially profitable business ‘ideas’ and available investment capital in Africa. Only the savvy investor will successfully adapt to the huge risks and reap the enormous rewards of Africa’s untapped startup investment market.
Africa is awash with young talent and ideas that have the potential to change lives, countries and maybe the world. The combination of a large pool of educated young people and inadequate formal employment opportunities is breeding entrepreneurship and creativity across Africa.
The banks, which remain the traditional and most influential sources of capital in Africa, are increasingly reluctant to support startup businesses. Most times, requirements such as collateral and guarantees are clearly out of the reach of most startups and, in the end, many of these businesses never really start up.
With restricted access to capital, many of these ‘would-be’ entrepreneurs lose their dreams and revert to tuning up their resumes in a bid to struggle for limited employment opportunities – and many end up working at jobs they clearly have no burning passion for. Up to 90 percent of African ideas never become real life businesses.
In spite of these odds, some promising African startups have received startup capital and have achieved amazing success. We’ll look at a couple of these innovative ideas that received the crucial lifeline they needed to grow to the next level.
Some African startup investment success stories…
Investing in startups – 1: Iroko TV was a startup business idea focused on transforming the poor distribution system of Nollywood, Africa’s popular and most prolific movie industry. With roughly 40 films produced per week, Nollywood has become a global and cultural phenomenon, adored by millions in Africa and across the Diaspora.
Despite its international following, most Nollywood movies were largely distributed via physical compact discs. Jason Njoku saw an opportunity to expand the reach of these popular movies by distributing them through the internet. After his amazing success sharing these movies through a Youtube channel, IrokoTV was born. Today this platform has catalogued more than 5,000 Nollywood movies online and attracts more than 10 million page views every month.
Following this spectacular success, Iroko TV attracted nearly $10 million from Tiger Global Management, a New York-based private equity firm. In July 2012, it got an additional investment of $2m under a Swedish-based hedge fund-backed arrangement.
In May 2013, Jason Njoku and Sabastian Gotter, both co-founders of Iroko TV, founded SPARK, a one million dollar angel investment outfit based in Lagos (Nigeria) and dedicated to funding and helping young tech and internet startups. The firm has already provided seed capital (between $30 – 75K) to fifteen startup companies. The companies in its portfolio include online fashion and drug stores, an online social-based borrowing service and a photo stock website.
Investing in startups – 2: M-Kazi is another amazing success story on the amazing potentials of African startups.
M-Kazi (Kazi is Swahili for ‘job’) is a Kenyan mobile recruitment service that allows job seekers to get information about available job vacancies and helps employers to target the right talents. MKazi’s SMS-based information service can be used on basic mobile phones with no internet capability which are still very popular in many parts of Africa.
The company, founded by Nancy Wang (far right) with co-founders Lino Carcoforo and Mem Maina, has been attracting a lot of interest from foreign investors; the most significant of which has been the investment by Jerome Kisting, a Canadian angel investor. The seed round which closed in late 2012 is believed to have raised thousands of dollars for the new venture.
MKazi has raised US$ 100,000 to date and is looking for an additional US$ 350,000. Using launch pads like Demo Africa, the three founders hope to get exposure, strategic partnership and mentorship that will be crucial in the long term success of the business.
Next month I will review in the second edition of these series about Market Opportunities for investing in Africa’s Startup businesses
Jonathan Nzali Tips 