After the rise of technology hubs in the last two years, Africa's early stage investment is growing, anchored by humanitarian agencies and venture capitalists.
Hivos, Indigo Trust, Rockefeller Foundation, Syngenta Foundation and Omidyar Network are the humanitarian agencies or nontraditional venture capitalists that have been involved in African tech, even though the number of venture capital firms entering the region has also grown.
"Hivos, Indigo Trust and Omidyar have been the most active nontraditional funders, primarily by supporting the groups that support the startups like the iHub in Kenya, ccHub in Nigeria and BongoHive in Zambia, while Rockefeller and Syngenta are involved in agriculture and tech," said Erik Hersman, founder of the iHub Nairobi.
Humanitarian agency involvement in African tech gained steam two years ago when Hivos invested in tech hubs in Kenya after realization that traditional humanitarian aid was not working as well as empowering people through technology businesses.
Within the two years, companies such as Intel Capital have entered the sub-Saharan African market, pledging to accelerate growth within 20 years, targeting companies in all growth stages. Venture Capital for Africa brings together all the tech hubs in Africa and links VCs with innovative startups in the respective hubs. Savannah fund is the latest VC, launched a few months ago, while there are other VCs not limited to tech investments.
"The VC landscape in Africa has grown quite a bit in the last two years, particularly at the earliest stages; most importantly we are seeing a growing number of tech hubs around which communities can organize and incubators that are guiding startups through the process of developing scalable businesses, and there is increasing capital tied to these incubators, which really builds well for building a base of early stage ventures," said Sean Smith, an analyst at Invested Development, a management fund that invests in early-stage startups.
With the positive developments, Rockefeller has embarked on research under its Impact Investing Initiative, which will offer policy directives on the differences between humanitarian agencies involvement in businesses, commonly known as "impact investing," and general private sector development.
The study will be conducted in five African countries through grants from Rockefeller; Ghana Venture Capital Trust Fund, Strathmore Business School in Kenya; Lagos Business School; Dalberg Global Development Advisors working in collaboration with APIX (Investment Promotion and Major Projects Agency) in Senegal, and Greater Capital in South Africa.
The reports will address country specific policy issues while Africa Venture Capital Association, in collaboration with Bridges Ventures, will synthesize all of the country-level work into a single report that will address common issues across the continent.
While humanitarian agencies are involved in projects that impact larger community issues, instead of focusing on profits like in private funding, there are questions on which kind of funding brings out the best effects. Some people argue that humanitarian agencies allow companies to grow without pressure, others argue that private VC companies have stifled growth of some companies by demanding higher performance and profits, without focusing on consumer trends and competition.
"This is a very difficult question as impact can be difficult to measure, making the cost versus benefit of different approaches somewhat tricky. However, our fund's position is that technology provides a path toward scalable, profitable, sustainable solutions to many of the problems facing the African continent, and I find it encouraging that humanitarian organizations are willing to experiment in the space," Smith said.
Through support from humanitarian agencies and venture capitalists, companies such as M-Farm, which provides market information, KopoKopo, a mobile money solution and PesaPal, a payment gateway that is gaining traction among consumers and businesses, have gotten funding and are proving employment opportunities. At the same time, there are other startups that have struggled to gain market traction.
"Many startups usually lack the money needed to do the marketing to reach the mass consumer -- business-to-business is more interesting, as a smart founder can work a couple key relationships and leverage that into a platform that scales to many more companies," said Hersman.
While the VC and humanitarian investment space seems to be growing well, Hersman said that the angel funding sector (less than $100,000) has been very slow in Africa. Angel funders are usually individual entrepreneurs who invest in exchange for equity and can support the company through various levels of growth. South Africa is the only country with an Angel Hub, with a portal that allows investors and startups to register.