Startups, Incubators and Angel Investors: LBS Africa's Digital Lions

Startups, Incubators and Angel Investors: LBS Africa's Digital Lions

In 2015 alone, African startups received over $185m of funding. The lion’s share came to rest in the laps of South Africa, Nigeria and Kenya – the countries with the highest startup activity. No longer heavily reliant on grants or foreign donor funding, equity investment is on the rise on the continent. This begs the question – which route should startups choose to travel, that of the incubator hub or that of the angel investor? The London Business School Africa Business Summit’s experienced Digital Lions panel tackled the situation head on.

The LBS Africa Business Summit 2016

The LBS Africa Business Summit is now in its 15^th year and holds the honour of being one of the leading and oldest African business conferences in Europe. The esteemed Dr Mo Ibrahim gave the opening keynote, setting the scene for the day: “Africa today is split between the winners and losers of low oil prices”. “Democracy is just one aspect of governance”, the founder and Chair of the Mo Ibrahim Foundation stated, “but if you are starving, democracy doesn’t mean anything to you.”
‘Digital Lions: The Emergence of African Tech-Hubs and the First Unicorn’ was one of many breakout sessions during the summit, featuring panelists who look out onto the bustling African startup landscape everyday. From VCs to startup competitions to incubator hubs, a range of perspectives made themselves heard.

Do incubator hubs work?

The measure of an incubator’s success is not the number of entrepreneurs that go through the program, nor how well known the name is. True success is determined by whether the startups end up being successful, sustainable and scalable. The panel were quick to distinguish between accelerators and incubators with the former sometimes lacking the time necessary to coach an entrepreneur adequately to help develop their business.
“African startups need more mentoring and support than in other markets”, Jørn Lyseggen, the CEO and Founder of the African startup incubator MEST, remarked. “It’s the mentoring and time that fundamentally create value.” Aaron Fu, Nest’s Africa Managing Partner, has seen quite a few incubators that have done it right. “It’s about taking experience from elsewhere in the world and tailoring it to the African market.”
For more information on this topic, Lexi Novitske, investment officer at VC firm Singularity Investments, has written a four-part blog on startup funding for TechCabal.

Developing on the ground talent

Great ideas require great minds behind them. As a VC firm, Nest has just established operations in Kenya, and Aaron continues to follow a philosophy of investing in people first. In his experience, the talent definitely exists in Africa but these talented individuals are currently building products for big companies, in relative security, not for startups.
Jørn holds a firm belief that one of Africa’s most valuable resources is its talent and in the tech space especially, there are already startups focusing on existing talent on the continent. Lexi Novitske spoke highly of Andela, who have a mission to train 100,000 world-class developers in 10 years across Africa

What do VCs look for?

Incubator hubs do invest in startups but of course that has long been the realm of the VC. When questioned on where the areas of interest for investment lie, Lexi answered without hesitation: fintech. In doing so she echoed the words of banker and Atlas Mara co-founder Bob Diamond in his earlier keynote, “Tech will change the financial services sector in Africa”.
In addition to fintech, B2B services and media (Nollywood is of course a $3bn industry), Lexi also stressed the need for quality management teams. In the early stages, revenue and customers take precedence over profitability but that won’t always be the case. Startups are expected to grow.
Jørn agreed. 50% of MEST’s investments are in companies with the possibility of global appeal and the other half are in companies with more of a local focus. There is a need however to mobilise people who have studied abroad to move back and bring their experiences with them. “Skills and experience are a currency as valuable as any investment”, Jørn asserted. It is these managers and executives who can help African startups to scale, blending local knowledge with global understanding.

Angel investing: an alternative

Compared to other parts of the world, the angel investing community in and focused on Africa is still very light but steadily growing. It’s easy to add “angel investor” to your profile, and unfortunately just as easy to use that position to listen to and steal startup ideas. Marcello Schermer, Africa Regional Manager of the global startup competition Seedstars, is a strong advocate for educating the community on what angel investing truly entails: investors and entrepreneurs alike. This is where the development and growth will come from.

What’s next?

Africa is determined to succeed and the wealth of innovative new startups addressing key issues being driven by the continent’s brightest and bravest is testament to that. Whether they choose to avail themselves of the guidance of an incubator hub or the drive of angel investors, it is evident that the result will be perfectly and uniquely African.  Imitation may be the sincerest form of flattery but there is nothing to prove it gets the same results. As Marcello observed, Africa must stop looking at the West as a blueprint. Aaron is adamant that the tables will turn: the continent can provide the solutions for the rest of the world. Maybe the fact that the data network is better in Ghana than it is in San Francisco already shows the scales tipping in that direction!
“Maybe we can fix all of Africa’s problems in our lifetimes,” Ken Njoroge, Cellulant’s CEO and co-founder mused in the final keynote of the day. “Go big, go bold or go home.”
 
Want more from 2016’s #LBSABS? Read Movemeback’s favourite quotes here!
 
*UPDATE*: You can buy tickets to this year’s conference here!