A Sweet Big Lie Told to African Startups

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I love to write controversial articles because it makes us think. Recently, the amount of startup capital coming to Africa has increased significantly, and African startups’ money raised reached $5B in 2021. A few unicorns have also emerged in some of the more matured Startup African startups ecosystems, primarily Nigeria. The number of African startups attending reputed global accelerator programs such as the YC has also increased.

Does This Mean Anything

Listening to the late Ali Mufuruki TEDx Huston talk on “The African Rising Narrative, Is Africa Really Rising” made me question so many things in the all narrative of measuring the progress of the African startup ecosystem concerning the amount of foreign capital raised by local startups. Maybe we are setting the benchmark very low for ourselves. While the amount of capital raised per year can be one of the most critical parameters to pay attention to, it shouldn’t be the main. The amount of money coming to Africa is still wanting when you compare it to other parts of the world. IPOs within the United States alone reached record high numbers, with 407 companies going IPO in 2021 generating $615B. If you compare this to $5B that come into the continent of 54 countries, you quickly realize we are settling for less.

The Real Value of Startups

Maybe we should go slow with the all valuation and exit thingy. My biggest fear is that African startups might fall into the “Silicon Valley Syndrome”, whereby founders will do anything to grow faster and get valued at a better price even though the business struggles to create value for customers. There is an obsession with valuations and not the actual value created by startups on the ground. It creates a highly complex scenario for the local ecosystem whereby people outside the startup ecosystem struggles to understand the real value created by startups. To them, startups should offer more to grassroots communities beyond lucrative exits and crazy valuations. A traditional definition of what a startup is might do more harm than good to African startups, especially when facing policymakers and other social groups with no clue what a startup is. Whether we call them “Zebracons” or “Camels”, we need to find a way to make African startups look more like African businesses and not vehicles created to be sold to the highest bidders in the PE and stock markets.

Real Metrics

Some startups are doing astonishingly well to address customers’ needs and propose real value to their clients. Many startups get evaluated based on irrelevant aspects to the African market; school of the founders, diversity of teams, registration in foreign markets, and strategies to exit away from home. While it’s a free economy and businesses can do whatever they want. I’m always asking myself what the long-term impact of this is. Will Africa ever fix challenges facing their startup ecosystem and create wealth locally, or we will forever celebrate two or three startups that make it to the London or New York stock exchange? Are we going to build robust support systems locally, or we will forever celebrate ten African startups that made it to the Y Combinator? There are over 3,300 startups in Nigeria alone, estimated in 2020. Are we expecting all of these to IPO at London Stock Exchange or get acquired by some Russian company?

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Estimated number of startups in selected African countries in 2020 — Statista

Are These Our Startups

I know there was a heated debate when Jumia was listed on the New York stock exchange a few years ago—questioning the Africanacity of Jumia. And there have always been discussions around foreign founders having a better chance to attract capital in Africa than Africans themselves, but that is not the point I want to make. Traditional SMEs create two-thirds of the currently available jobs in the African continent. What is known as the informal sector is what drives the African economy. Startups need to up their games. Formal SMEs contribute up to 40% of national income (GDP) in emerging economies. These numbers are significantly higher when informal SMEs are included. While startups play a vital role in disrupting sectors and accelerating digital and financial inclusion, their impact on job creation and decentralization of wealth through value chains can be questionable. We can not afford to build startups for valuations and exits. We don’t have the Silicon Valley luxury, while eventually, any startup should exit at some point in time. At least a real value should be created on the ground. Most grassroots consumers don’t care much about valuations if it solves a problem. An average African won’t care about the paper worth of Mpesa, but they know they need the service to survive.

Necessity Versus Convenience

African founders are slowly moving from imitating Silicon Valley products to African markets to copying what works in other African countries, massive progress. African founders must learn to unlearn Silicon Valley and be authentic to themselves. Building for African consumers is complex; everything is a basic need, and always people have to make challenging options when it comes to parting ways with their money. The same commission you want to get can do many things; buy an internet bundle, electric unit, voice charges or even pay for lunch. African founders need to “Unsilicon Valley” and develop solutions and products that matter. Of course, they will constantly be challenged to weigh options on whether to build for investors or your customers. Go for the second; the first will follow you. It is good to think about exit from the beginning, but it shouldn’t be what drives your mission. At least is the advice I got from the few successful founders from Africa that I have engaged.

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Closing Thoughts

If I were an African founder today, which I am, my focus would be to build a real business. I don’t worry much about valuations and exits, but I care. If I can deliver value, there is always a chance of attracting capital or strategic partnerships that will accelerate my growth. I would have focused on building robust local and international collaborations. My priority is always my customer and the value of creating for them. African startups and ecosystem actors need to move beyond valuations and exit and focus on what matters most; the socioeconomic impact of the startups. | Jumanne Rajabu Mtambalike

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