Startups in Africa place too much emphasis on the technology or solution being built and not enough on how to take the product to market and capture market share. While Africa is acknowledged by business development experts as the next growth market for ICT startups, there are challenges that have to be faced if these fledgling tech-focused businesses are to make it big.
Sandheep Ramluckan, Managing Director of the Cape-based startup accelerator program StartUp 90, says the increase in spending on broadband infrastructure and in digitization means this is an ideal time for ICT startups.
He refers to media reports by the BBC and CNN, as well as ABI Research, to support his view. "By 2015 all countries in Africa should have migrated from analogue to digital. This will free up spectrum leading to cheaper bandwidth and higher internet penetration. Faster internet speeds is on the horizon with approximately 50% of Africa expected to be covered with LTE networks by 2018. Additionally, Africa has the fastest growth rate in mobile subscriptions and is the 2ndmost connected region in the world. Combined with a young population and some of the fastest growing economies in the world; the market potential for an ICT startup is massive."
However, whilst the environment may be conducive to establishing a sustainable tech startup, issues like available funding and unclear business pitches remain stumbling blocks.
"Most traditional investment institutions avoid technology startups. This is either because the technology is new and unproven – which means that the risk is too high, or that they don't understand how to value a technology startup. The problem stems largely from the fact that traditional funding schemes are not structured to deal with technology startups – especially startups developing 'disruptive technologies' which generally requires the creation of a new market," Ramluckan adds.
Where angels (and VCs) fear to tread
Funding at startup stage largely comes from angels and venture capitalists, but even then there are disconnects in the investment ecosystem says Ramluckan. "There are not enough angels that prepared to 'get the ball rolling'. Additionally, we do not have venture capital in the true sense of the word. In an ideal situation, angels will provide the seed round of funding and VC's would provide Series A funding. But as many VC's will tell you, they have to provide the first round, second round and subsequent rounds of funding themselves."
At the same time, those who have something they believe is worth funding often fall short of the mark because of their inability to articulate a clear customer value proposition to investors. This is because of a tendency to over-emphasise the solution being provided and understating the problem that is being addressed.
Ramluckan says before approaching investors, those behind startup ventures have a clear understanding of their business model.
This view supported by Prosper Mashungupa and Admire Zinamo, founders of Matriculate education startup. The focus of this business is to convert past exam papers into short video tutorials with full solution demonstrations.
The idea behind Matriculate came from Mashungupa's experience in teaching mathematics over the past three years. He found that material to support learners was difficult to access and use, so he devised a solution that converts exam papers into digital format.
They have not yet approached investors and have decided to concentrate first on planning a route to market.
"Our aim is to roll out a mobile app for feature and smartphones for easier access by students," Mashungupa told ITWeb Africa.