The Missing Link in Africa’s Tech Eco-System: From idea to biz plans, we need more pre-incubation – and this is how
East Africa’s “Silicon Savannah” with its emerging startup ecosystem has attracted much international attention in recent years, and rightly so. Co-working spaces, hubs and incubators are mushrooming in innovation centers such as Nairobi, Kampala and Kigali, raising hopes and expectations about the future of entrepreneurship on the continent and attracting increasing investor interest.
A recent mapping conducted by Afrilabs and the World Bank counted 100 tech hubs across the continent. Places like Ihub and m:lab in Kenya, klab and THINK in Rwanda, Hivecollab in Uganda, Co-Creation Hub in Nigeria and HubAccra in Ghana have become hotbeds for young entrepreneurs and represent key actors of a new movement. Hackathons, idea competitions and challenges have created excitement across the continent, encouraging young people to start a business instead of entering into white-collar jobs or seeking employment in the public sector like their parents’ generation once did. The continent’s success stories are regularly featured in publications like Forbes, inspiring the next generation of young innovators to start-up.
Having worked for the past five years in the Indian startup ecosystem, first with German development agency GIZ and now with Intellecap, I have been an excited observer of the African startup movement. With Intellecap’s expansion from India to East Africa, observing has recently turned into action. For the past few months, we have been working with young entrepreneurs who work out of Rwanda’s tech hub klab, full of energy and with the vision of developing the next African version of Facebook or Amazon and to create a solution that will “leapfrog” the current generation of technology. E-commerce platforms, applications that enable schools to do their work more efficiently, or online-stores that bring Rwandan designs and crafts to the global market are among the solutions that the young innovators are developing. Motivated to create impacts in their communities, they spend hours in klab’s co-working space poring over ideas on top of the already long hours dedicated to outside jobs or studies.
Realizing that these young entrepreneurs struggle to move their idea to business plan stage, klab, GIZ Rwanda and Intellecap have partnered to support them on their journey to develop their business models. Through StartupWave, an incubation platform that offers a blend of virtual and in-person support, the young enterprises are supported on their journey from idea to the next stage. During the next three months, StartupWave will guide the klab entrepreneurs through the process of developing their business model, providing them with feedback from selected mentors. To complement the virtual support, a one-day bootcamp was organized last week, providing entrepreneurs with face-to-face feedback from a mix of mentors from the business sector and the local startup ecosystem, including Grofin, Inkomoko and Intellcap’s Impact Investment Network. The initiative with klab and GIZ serves as a pilot on how an ecosystem infrastructure developed in India can be adapted to the African context: The vision is to make StartupWave available to incubators and other service providers across the continent. Working with the young innovators and discussing their challenges, I left the boot camp with a few questions for ecosystem players and those who support us to address.
How do we grow the base of viable startup ideas?
Tech entrepreneurs and innovators are excited about the possibilities that virtual solutions bring: With little upfront investments needed, many startups choose to tap into the virtual world and create applications and platforms to target the online consumer. While many of the ideas are great, they often remain supply-driven, requiring a lot of awareness creation about the product on the side of the consumer. At the same time, real-world problems often remain unaddressed. The question, therefore, is how the gap can be bridged between those who understand local problems and those with the tech solution to address the challenge. While we have been successful in creating spaces for innovators, the next task ahead of us as an ecosystem is to develop service offerings that help young innovators to better define the problem they want to solve and develop a truly convincing value proposition that can scale.
How do we help a growing number of innovators to turn ideas into business models?
Idea competitions and hackathons have generated great ideas that have the potential to turn into groundbreaking businesses. However, experience shows that innovation alone does not make a viable business. Especially in the early days, startups require a lot of support. Incubation programmes require a sound business plan that demonstrates long-term viability and sustainability of the business and startups need to be able to clearly articulate their growth path. The question remains: How can we as an ecosystem help innovators to move from idea to business plan stage, particularly for those firms at the pre-incubation stage? Virtual incubation models such as StartupWave can be one solution. While it is too early to assess the impacts of virtual support, early indications suggest that it can increase the number of startups that move from idea to b-plan stage, if used in a smart combination with physical and face-to-face support.
How do we bridge the capital gap for early-stage innovators?
The entrepreneurial movement has been successful in attracting investor interest. But while Africa’s largest online platform VC4Africa that connects startups with investors was able to raise USD $27 million for its listed enterprises in 2014 from a community of 600 investors, seed financing remains a challenge for most startups. Looking at the capital needs of young innovators, most of the time the only available option is financing through friends, family and one’s own savings. After exhausting funds from this phase of bootstrapping, early-stage enterprises often require between $100,000 and $500,000 USD – another gap in the early-stage financing system. Initiatives like the pan-African Business Angel Network (ABAN) or the recently launched East Africa Chapter of Intellecap’s Impact Investment Network are attempts to close this gap and unlock domestic capital from local angels, family offices and high net worth individuals. However, while increasing the supply of capital is needed, more efforts are required on the demand side. That is to say, more energy needs to go into preparing startups to raise capital and help them learn to speak the language of the investors.
I left Kigali with the take-away that we need to spend more efforts strengthening pre-incubation capacities. Advising enterprises on finding the right market and value proposition and supporting them with their business and financial models will not only create stronger startups, it will also help to improve the often-mentioned “pipeline” for investors. Collectively and as an ecosystem, we need to strengthen the link between pre-incubation, incubation and investments and create a continuum of support for startups to assist them throughout the cycle from idea to scale.
For more insights on the ecosystem for young entrepreneurs: Intellecap 2015: Catalyst for Change: Creating an Ecosystem for Young Entrepreneurs in East Africa.
 World Bank 2014: Tech Hubs across Africa (as of 2014)
Stefanie Bauer is a senior manager at Intellecap – a global advisory. She is part of a team that strengthens exchange between India and Africa on entrepreneurial ecosystems.