Why is money the problem for a startup in Africa?
This post first appeared as my answer to a question on Quora:
Money really isn’t the problem for African startups and by definition of African startups, I mean startups founded or not founded by Africans but operate or have Africa as their primary market base.
One issue is the unassurance of a monetarily viable market that can match the millions of dollars from Venture Capital firms. As these startup’s burn through investors money, they simultaneously have a hard time in figuring out on how to have a profitable business model.
Konga for instance — an e-commerce firm in Nigeria — got money of up to $160m with major investments coming from Kinnevik and Naspers. A whole lot went into operational costs, building entire infrastructures that was lacking within the industry (Kongapay was built because there wasn’t a viable payment infrastructure in the country as at their time) etc. They eventually ran out of money and were forced to sellout for less than $10m.
Now all this doesn’t mean Nigeria isn’t mature for tech businesses or what have you on the contrary it means tech startups entrepreneurs aren’t solving the problems that need solutions. Simple. There are lots of people going to bed without food, water and electricity, there are bad roads, poor educational system, shambolic healthcare policies and facilities and most importantly unemployment.
Entrepreneurs need to create businesses that empowers an average African. That’s the first way to get this thing done. Empower them by creating a system that gives money or alleviates poverty or takes away a significant problem from their lives (power blackouts) or gives tangible value (healthcare and education).
African countries don’t require solutions to problems that won’t have an immediate poverty-alleviating effect on the lives of people. Africa needs solutions to real problems and not abstract ones.
Most of these ideas being churned out and funded by foreign VC’s don’t have positive effects that influences the majority of Africa’s demography which are the poor ones. They are too luxurious for the bulk of Africans to pay attention to while they battle with problems bigger problems staring right at their faces.
Ride hailing companies (Uber and Taxify) are perfect examples of businesses that tackles a pressing problem faced by Africans — Transportation. They’ve been solved to a limited extent, the transport problems in cities like Lagos and at the same time provided value to car drivers and owners hence its popularity. Yet most Africans can’t afford on-hailing services because of the high cost. Asides that, their business model is threatened by unstable policies instituted by a highly uninformed government. Other factors include lack of infrastructure which is majorly the responsibility of the government
One may also argue that poor Africans might experience higher economic dividends if more investments are poured into think tank groups that focus on policy research with sharp pro-trade and liberal economy undertone cum ideology.
Adoption of these developments as replacement to outdated policy and regulatory frameworks would lead to a multiplier effect that won’t only benefit just the poor people but also make room for the development of an advanced economy.
I believe if these issues faced by Africans are well understood by angel investors and VC firms they’d develop a sixth sense for the identification of well meaning ideas and startups that solve real problems rather throwing greenbacks on some “hey bro” app.