African Startups Face An Uphill Task Even After Funding

Written by Kamau Mbote

All across Africa startups are coming against several teething obstacles including difficulty in accessing financing for their ventures. But in recent years a number of funding sources have come into play and most startups just have to make the right pitch to more than willing investors to access the most required initial capital.

Crowd funding sites that provide micro financing platforms have also made it easy for budding entrepreneurs to fund their businesses. There are as many as three crowd funding sites in South Africa namely StartMeFundFind and ThundaFund. In Nigeria there’s StartCrunch, while Kenya has M-Changa and Babandu. In Ghana there is SlizeBiz that focuses on angel investments as well as obtaining micro finances through the general population.

There are also venture funds that such as the Savannah fund and The Omidyar Network that can provide financing to the second stage startups.

But even with these funding sources African startups  are finding it difficult to make a name for themselves in a continent where even medium sized companies struggle with a market dictated by cartels, multinationals and government interference.

A number of  incubation hubs with international and organizational assistance, such as the IHub and NaiLab in Kenya, have put in place centers of excellence that seek to give entrepreneurs an enabling environment and have even gone forth to find interested investors for these startups.

Startup Garage support

Through these garages the startups can access free office space, free utilities and a chance to network with other small businesses in various fields and learn from each other even as they interact with mentors hired by the incubation facilities. The incubators are also a good place for the founders of these businesses to meet with investors who can provide funding many of whom prefer to work with the centers rather than with individual startups.

But as many of these budding entrepreneurs have discovered it takes more than just accessing financing to make it in the African market.

“A great product or solution can stay stagnant if it lacks adequate channels for adoption and a supporting sector ecosystem. Mentors are critical in ensuring that startups get access to required avenues to scale,”  Zack Mukewa, Business incubation manager at the Nailab, told AFKInsider.

“If startups found appropriate board members in relevant industries, they will be guaranteed recommendation, advice and connection to ensure they get out to critical markets.”

Anthony Gitobu, chief operations officer at online food delivery company – Yum, says the first thing these investors realize upon launching their business that they are not operating in a perfect market, where forces of supply and demand will help their business, but that they will need to build more social linkages with the right people and organizations for them to access the actual market.

Many of the investors in these firms are usually foreign who appreciate good ideas and go forth to inject money into them, but do not run local businesses which could help them pull strings.

“Besides capital start up need business advice. Start up need all the advice they can get in the different venture they get into. It’s important to hear from successful people and those who have failed from start up. This offers a learning opportunity for the start ups,” Gitobu told AFKInsider.

“Incubation hubs are solving this by offering access to mentors and industry contacts who help the startups access the market. Local investors are a plus since they have contacts in the relevant industry and more than money offer relevant contacts,” said Francis Gesora, founder of BookNow, an online ticketing service.

Another major problem startups have to grapple with is the lack of skilled personnel to help run the business including marketing and administration. Startups, especially in the ICT sector, are forced to high expensive labor at the on the set for investors to be comfortable to finance their business.

Staff retention and marketing

These skilled employees are usually targeted by established competing companies, which can afford to poach them at higher salaries.

The startup also needs to have a very aggressive marketing strategy and budget for the service or product he’s selling to gain traction in the market.

“New products are not the easiest thing to introduce into the market. A large marketing budget may make it easier but clients may take a while before they trust the product. It takes a lot of patience on the business side to make this happen. Not forgetting great confidence in your product.” He adds.

African startups have also had challenges in getting their products patented across the continent. Not only is it expensive but it is also unrealistic considering the difference in legislation across the 54 states in Africa.

Charlse Muchene of Clad Light — a startup that has created wearable technology for use by motor cycle rider and their passenger — told AFKInsider that his firm had decided to pursue a Kenyan patent first in the hope that money generated can be used to acquire the regional copyright.

“If we waited to first raise the money for a continent wide patent we could wait forever. We have just decided to start in Kenya where our patent application is still ongoing then we will focus elsewhere later,” Muchene said.

African government are also not very keen in encouraging local entrepreneurs and most of the time they only extend tax breaks and create special economic zones to attract foreign investors. These skewness in legislation and policy makes it even more difficult for local entrepreneurs to make it in the market place.

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