Venture capitalists are pouring hundreds of millions of dollars into Africa-focused start-ups as they look to tap into a second-wave of technological advances building on the rapid spread of mobile phones. From e-commerce to health and financial services, international investors are targeting fledgling companies in particular across Kenya, South Africa and Nigeria, three hotbeds for innovation.
They are drawn by a flourishing start-up scene and burgeoning demand from the continent’s youthful population for online products as higher speed mobile broadband becomes available and smart-phone adoption accelerates. The development of mobile payment systems within Africa is meanwhile making it easier to sell both digital and physical products online. The tech sector is a rare bright spot as many African economies come under pressure from falling prices for commodity exports and the slowdown in their biggest trading partner, China.
The latest research by GSMA Intelligence, which collates data from mobile operators worldwide, projects that venture capital funding to the African tech sector will rise to $608m in 2018 from $414m in 2014. Disrupt Africa has recently tracked $185m of funding to African start-ups in 2015; including major deals such as the $25m secured by Tanzanian solar firm Off Grid Electric.
Joe Mucheru, who resigned as head of Google Kenya last month to become the country’s technology minister, estimates there is close to $20bn looking to invest in African tech. “If we organize the businesses well there’s at least $10bn worth of value we can get out of Kenya,” he said. “But at this stage we’d be hard pushed to get even $1bn because we’re still keeping our businesses in a sense to ourselves. We still haven’t seen the culture and ability to create the value and networks that we need.”
Among the most successful fundraising has been by Nigerian companies mimicking western models for e-commerce and online booking. Nigeria’s online streaming service, IrokoTV announced $19m of new investment recently.
In the east of the continent start-ups focused on creating infrastructure solutions specific to Africa’s poorly served markets are also drawing growing interest. Kenyan technology start-up BRCK, which manufactures routers and modems allowing users to access WiFi internet in remote areas, earlier this month said it had secured $3m in funding from a group of international investors to help expand its operations in the region. Investors included former AOL executive Steve Case.
Keet van Zyl, a partner at tech-focused South African venture capital firm Knife Capital, said the pace of growth, combined with a lack of domestic funding sources was “opening the door for international investors” despite barriers such as protective intellectual property laws which can act as a deterrent.
Originally appeared as Smart Africa: Venture capitalists aim to tap mobile tech wave by William Wallis, John Aglionby and Nicholas Megaw