Diving deep into Africa’s blossoming tech scene

Jumia may be the first startup you’ve heard of from Africa. But the e-commerce venture that recently listed on the NYSE is definitely not the first or last word in African tech.

The continent has an expansive digital innovation scene, the components of which are intersecting rapidly across Africa’s 54 countries and 1.2 billion people.

When measured by monetary values, Africa’s tech ecosystem is tiny by Shenzen or Silicon Valley standards.

But when you look at volumes and year over year expansion in VC, startup formation, and tech hubs, it’s one of the fastest growing tech markets in the world. In 2017, the continent also saw the largest global increase in internet users—20 percent.

If you’re a VC or founder in London, Bangalore, or San Francisco, you’ll likely interact with some part of Africa’s tech landscape for the first time—or more—in the near future.

That’s why TechCrunch put together this Extra-Crunch deep-dive on Africa’s technology sector.

Tech Hubs

A foundation for African tech is the continent’s 442 active hubs, accelerators, and incubators (as tallied by GSMA). These spaces have become focal points for startup formation, digital skills building, events, and IT activity on the continent.

Prominent tech hubs in Africa include CcHub in Nigeria, Pan-African incubator MEST, and Kenya’s iHub, with over 200 resident members. More of these organizations are receiving funds from DFIs, such as the World Bank, and aid agencies, including France’s $76 million African tech fund.

Blue-chip companies such as Google and Microsoft are also providing money and support. In 2018 Facebook opened its own Hub_NG in Lagos with partner CcHub, to foster startups using AI and machine learning.

A number of Africa’s digital working spaces have moved toward investment activities. CcHub’s Growth Capital Fund has invested in six early-stage startups. MEST’s seed fund has made 46 investments.

Startups

Africa is becoming a startup continent, with thousands of VC-backed ventures descending on every problem and opportunity.

Prominent startup sectors include fintech, e-commerce, logistics, and agtech. Blockchain-enabled ventures, such as agtech venture Hello Tractor and payments company SureRemit, are cropping up, too.

Africa’s 442 tech hubs are incubating hundreds of new ventures annually. iHub has supported over 400 startups, accelerated over 50, and pulled in over $40 million in investment and grants to its portfolio companies. Cameroonian hub ActivSpaces has run 80 ventures through its startup incubation program, spanning ventures in healthcare, to proptech, and entertainment.

A more widely distributed number of African startups is emerging across all development stages, from seed to early and later-stage. Some later stage survivors include Series E VOD venture iROKOtv, headed up by Nigerian entrepreneur Jason Njoku. Kenyan-based Cellulant—a startup with a niche for providing payments infrastructure to banks—raised a $47 million Series C round in 2018. Nigerian payments company Paga, launched by Tayo Oviosu in 2010, raised a $10 million Series B in September 2018.

Oviosu also represents one facet of the local, global, and repat mix of Africa’s startup founders. A number of ventures that gained traction in the earlier days of the continent’s tech boom, 2007 to 2014, were launched by repatriate founders—Africans who had worked and studied abroad (often in the U.S. and Silicon Valley) then returned to the continent to start tech companies.

Obvious earned degrees from USC and Stanford (MBA) and worked at Cisco before launching his fintech company in Lagos. Sam Gikendi, founder of Nairobi based API business solutions firm Africa’s Talking, earned his degree at MIT and worked at Morgan Stanley in New York before returning to Africa to found his company.

More of the most recent early-stage ventures—such as Ugandan healthtech company and 2018 Startup Battlefield winner M-Scan—were created by founders who’ve worked and studied primarily in Africa.

Some of the continent’s tech leaders, such as Liquid Telecom’s Oswald Jumira, have recognized a skills gap between repat founders (who’ve had access to advanced degrees and global tech) and recent startup entrepreneurs, many of whom are younger and haven’t had access to global tech or advanced degrees. Liquid Telecom had teamed up with Microsoft to sponsor programs to support coding and entrepreneurial training through select African accelerators and incubators.

U.S. institutions are stepping up on the tech skills building front, too. MIT’s Legatum Center sponsors fellowships, a tech competition, and a digital entrepreneur skills building bootcamp on campus for early-stage African startups. Carnegie Mellon University formed a computer science campus and degree for Africa in Rwanda.

Africa’s tech sector has also attracted a number of expatriate founders and foreign startups. The co-CEOs of Jumia are French. East African agtech startup Twiga Foods was founded by American Grant Brooke. Nigerian ride-hail company Gokada was launched by Bangladeshi techie Fahim Saleh.

Sub-Saharan Africa is also becoming a testbed for global drone ventures, such as San Francisco based venture Zipline, which first piloted and launched its UAV medical delivery programs working with the governments of Rwanda and Ghana.

Investment

The value of capital going to tech companies annually is still the subject of statistical debate, but by Partech data, the continent surpassed the $1 billion VC mark in 2018.

While $1 billion barely registers in markets like Silicon Valley, that volume represents a more than one-hundred percent increase in VC to Africa over a four year period, at least by one comparison. Several countries—Nigeria, Kenya, South Africa, and Ghana—have emerged as centers for VC, startup and incubator activity.

 

 

As for investment in startup sectors, digital finance is king in Africa. By stats offered by Briter Bridges and a 2018 WeeTracker survey, fintech now receives the bulk of VC capital and deal-flow to African startups. In its latest Africa funding report, Partech classified financial inclusion as a sector attracting 50 percent of $1.1 billion in VC to African startups in 2018. 

The number and location of firms funding African tech is also shifting. A 2018 TechCrunch and Crunchbase study tracked an increase in viable global VC funds focused on Africa (51) with a larger number of those firms (43 percent) located in and run by Africans—most of them in Nigeria. Silicon Valley accelerators, such as Y-Combinator and 500 Startups have started recruiting from Africa. YC accepted 7 African startups in its Winter Batch 2019 class.

African angels are also on the rise. Several later stage-founders, such as Paga’s Tayo Oviosu and iROKOtv founder Jason Njoku have formed angel funds—Kairos Angels and Spark—to support earlier stage ventures in Africa.

In 2019, Orange Digital Ventures VC, Mariem Diop, formed Dakar Angels Network to bridge the resource gap for startups in French-speaking Africa — 24 of the continent’s 54 countries.

Demographics and modernization

The value thesis for VC to African startups shapes up around demographics—primarily youth populations and urbanization—and growth, reform, and modernization in the continent’s core economies.

The continent has been home to the majority of the world’s fastest-growing economies for nearly a decade now, per IMF stats.

Though Africa (primarily Sub-Saharan Africa) still stands last in most global rankings for smartphone adoption (33 percent) and internet penetration (35 percent), the continent continues to register among the fastest growth in the world for both.

Sub-Saharan Africa countries with the highest number of internet users include Nigeria (111 million), Kenya (43 million) and South Africa (31 million). Smartphone adoption is low, at 34 percent, but expected to grow to 67 percent by 2025, according to GSMA.

Tracking a trend of the last decade, governments in core startup countries have demonstrated some commitment to fostering enabling environments for tech. For example, the government of Kenya—seen as a leader in shaping good tech policy—established a Ministry for ICT in 2004 and its current ICT Minister (Joseph Mucheru) is a former founder and Google Africa exec.

To not paint too rosy an assessment, I should highlight there’s still a heap of big problems and challenges—unemployment, poverty, corruption, infrastructure deficiencies—all over the continent.

But overall, Africa has tracked progress in many of its economies and its countries, businesses, and 1.2 billion people are digitizing rapidly.

Performance

As startup scenes go, Africa is currently performance light, in terms of the big money-events. There are a handful of notable exits and only one billion-dollar valued unicorn and major IPO (the same company, Jumia).

Jumia — which operates consumer retail and online service verticals in 14 African countries — raised more than $200 million in an NYSE IPO in April.

On the slim list of big-money-events, it’s important to note the ecosystem is young. Most of Africa’s VC growth, startup formation, and improvement in digital infrastructure has occurred over the last 5 to 10 years. The momentum of all the factors discussed previously make the likelihood that more performance events (and of course some big startup failures) are on the horizon.

To watch

I’ve actually done some projecting here at Extra Crunch on where to look for exits and ROI in African tech—the long of it available here.

For the short of it, as much as Jumia has raised hopes for more African IPOs, big public listings and nine-figure valuations could remain rare in Africa. Make no mistake, more IPOs are coming. But the VC and operating environment for African startups is still too difficult to reach that unofficial $100 million revenue mark for going public.

The rise of venture arms and startup acquisitions (primarily in fintech) will factor more prominently than IPOs in creating Africa’s early tech successes. Specifically, startups shaping APIs, products, and business models to scale revenue streams in Africa’s informal economic spaces are the ventures to follow. Some of them are likely to get bought by the big banks and telcos that haven’t previously been able to reach those spaces.

Another thing to watch is more African startups becoming international players. We’ve already seen through fintech use-cases such as Kenya’s M-Pesa that digital products developed in Africa have the potential to travel. More Africa focused VCs and startups I’ve been talking to and covering over the last few years—particularly in fintech and data-analytics—have started shaping business models gain traction in Africa first, as a strategy for expanding abroad.

We recently tracked three fintech startups here at Extra Crunch—FlutterwaveMines, and Chipper Cash—that have set up headquarters in San Francisco and operations in Africa to tap the best of both worlds in VC, developers, clients, and the frontier of digital finance. All three plan to take their products that have been tried and tested in Africa to markets in Asia and Latin America in the near future. Last year at Disrupt San Francisco, Paga CEO Tayo Oviousu announced his plans to expand into Mexico.

So if you’re a VC, you may want to consider getting on a plane to do office-hours at iHub in Kenya or CcHub in Nairobi to talk to some early-stage ventures. Seed investments on the continent are still a bargain by global standards—in the $25K to $50K range. If you are founder outside of Africa, especially in fintech, you may want to pay closer attention to the continent’s tech scene. Some of Africa’s startups could become your partners or competitors very soon.