Even though its startup scene is still nascent, Sub-Saharan Africa continues to grow pools of capital and entrepreneurial know-how in hubs like Nairobi, Kenya.
Today, the Nairobi-based Savannah Fund, which is raising up to $10 million for startups in the region, just graduated its first batch of companies at PivotEast, a Disrupt-like competition for African mobile startups. They include a Ghanaian e-commerce startup called Ahonya that sells electronics, a Ugandan mobile game developer called Kola Studios that’s popularized a local card game and SafariDesk, a site that helps travelers find off-the-beat experiences and places for luxury camping.
Mbwana Alliy, who returned to East Africa after business school at Stanford University, said he picked these companies out of about 170 applicants across the continent. He then puts them through a three-month accelerator in Nairobi, where he’s arranged sessions with mentors like Aardvark’s Max Ventilla or other Silicon Valley-based or foreign entrepreneurs who come through the region.
They take about a 15 percent equity stake for about $25,000, which does sound steep. But Alliy says he’s seen a fair amount of deals where other angels might have taken 40 percent of a company for as little as $10,000.
The reality is, with a much lower per-capita GDP, the economics of founding a company in Kenya or Nigeria are very different than they are in the Valley.
Alliy says the whole process of setting up the fund, for which he’s still raising funding, has been a big learning experience. When he announced the fund last year, he set it up with i/o Ventures managing director Paul Bragiel and Erik Hersman, who co-founded Ushahidi, a mobile platform that’s been used to crowdsource information during disasters and elections.
“When I started, people asked me, ‘Mbwana, are you going to copy and paste i/o onto Africa?’ And I was well aware that it couldn’t be like that.”
Certain things have gone well. “The biggest thing I was surprised by was that we put together quite a few solid mentor sessions over the past three to four months,” he said, noting that big names in tech like Eric Schmidt have passed through Nairobi on visits to the local iHub. “A lot of global talent shows up here.”
He’s also taken initial funding from angels like Yelp’s Russ Simmons and venture capitalist Tim Draper, over going for institutional investors like other, more established venture firms.
But investing in the region is also naturally more risky and takes more gut-checking. Two-thirds of Savannah’s companies originally weren’t even incorporated at all and Alliy had to get the proper paperwork established.
“To be honest, we take risks. I kind of laugh when I think about what Valley VCs are doing,” he said. “All entrepreneurs there are so educated. They can read about what to do on VentureHacks. Everyone is so knowledgeable about everything. It feels so easy compared to Africa,” he said. “So I guess the thing is, we take more risks and we’re much more comfortable taking a bet.”
When they flew in the Ghana-based team from Ahonya, they went through Skype interviews and pure online vetting. The company has so far sold about 600 products online in about nine months, with an average transaction size of $350 (which is pretty big for Sub-Saharan Africa).
“We got a good feeling from them,” Alliy said. “We liked their traits. They were doing growth hacking in Ghana without even knowing what the term means.”