Why African Technology Startups Should Look For Partners

This post was originally published on Forbes.com By Mbwana Alliy

Tech entrepreneurs in Africa often wrestle with developing applications on basic feature phones for too long or jump to work on smartphones too early, but underlying platform bets are potentially costlier mistakes of not properly segmenting the fast changing African market, courting the wrong type of early stage financing and not focusing enough on channel partnerships to reach their target African customers.

The most refreshing pitches at the inaugural DEMOAfrica in Nairobi, Kenya last week were the ones that proclaimed “We are here seeking partners that can help us grow.” Whilst at the 3rd annual Tech4Africa in Johannesburg, South Africa, startups actually appreciated Venture Capitalists as potential partners to help them improve their pitches vs simply asking for money. In part, this is a reflection of the maturity level of the different markets.

Social tech enterprises to Save Humanity

Low tech solutions for the bottom of the pyramid attempting to solve the most challenging problems in humanity are the classic imagined startups. Simple apps relying on SMS and related GSM technologies that work with the most basic mobile phone where the killer apps are cheap communications and innovative ways to move money. Access to finance solutions, particularly pre-paid and rent to own models, get overwhelming attention from entrepreneurs in this segment include improving access to clean energy, health, education and access to markets or providing a voice for the voiceless.

However, many entrepreneurs developing solutions for this segment quickly realize they need strong partnerships with mobile operators to grow viable businesses at scale. The potential social value is enough to challenge outdated international development models and inspire social entrepreneurial talent and corresponding impact investors to flock to Africa. Impact investors will often scrutinize partnership plans for scalability early and may appear to take less risk.

See Africa Differently for the Booming Middle Class

Mobile Internet infrastructure in African cities is on par with western markets and counters the notion that Africans only use SMS and voice on “dumb” phones. Sub $100 unsubsidized entry smartphones are selling well to an emerging middle class. 3G is reliable and affordable in these urban markets, where the middle class is concentrated. In Dar es Salaam, you can get 400MB of prepaid data from Airtel for less than $2.

Cheap data is increasingly fueling local apps in media consumption. Take the range of Africanstreaming music and even video services. African Mobile Operators are starting to recognize the potential and have begun to promote App Store competitions. Many of these services are now able to scale across multiple markets, even global, making them more interesting to technology investors. We are starting to see the early stages of e-commerce ventures from South Africa, Nigeria to East Africa attracting global players such as Rocket Internet via a mobile operator partnership approach.

Partnering Africa’s Enterprise Market

Often overlooked is the less glamorous enterprise market that might be more lucrative from a payoff and scale tradeoff, but also ripe for partnership opportunities. Local startups trying to sell solutions to large businesses face an uphill battle and often find themselves uncompetitive with the increasing presence of multinationals, more so when dealing with Governments that characterize some of the largest enterprise IT spending in less developed subsaharan countries. But African mid-enterprises in areas such as fast moving consumer goods increasingly need solutions tailored to the market and in most cases the right combination of low and high tech may be the right product fit- like a Human Resource systems that pays suppliers or staff in mobile money and sends SMS alerts. A local startup that understands these needs might be do better to partner with multinationals to deliver robust solutions that enterprises trust, particularly when it comes to reliable server and cloud infrastructure.

Funding will follows Global Teams with clear Messaging & Purpose

Local entrepreneurs, particularly in East Africa raising seed financing are often baffled by Venture Capitalists and look upon them with a skeptical view rather than potential business partners. Local investors who might best relate to local entrepreneurs are too busy investing in real estate or other booming parts of the local economy to understand the risk reward trade-off in technology. The growing Technology Hubs serve a vital role in educating all sides . More recently, conversations that started from Kenya’s iHub have observers starting to ask the right questions and set correct expectations as to whether every member of a workspace can actually be an entrepreneur.

The Startup team composition is ever more important beyond just functional and experience- Startups that have a balance of local and foreign talent are at a distinct advantage in addressing fundraising challenges whilst having a firmer foothold on their business, Diaspora talent with experience abroad are even more bankable. Experienced foreign talent are able to raise smarter money faster, whilst locals, with less of a cushion and more urgency often struggle to understand the importance of corporate governance, and often find it easier to get grants or competition funding.

But Impact investors would probably never invest in an African mobile gaming company and a VC firm would probably never invest in a social enterprise targeting the bottom of the pyramid and more time is wasted on both sides figuring each other out as some ventures increasingly blur the lines (sometimes on purpose- like a mosquito bashing game that educates players about malaria after every level completed. Crisper messaging and positioning from both entrepreneurs and investors would go a long way into improving funding outcomes.

Mbwana Alliy is the founder and managing partner of Savannah Fund, an Africa-focused technology venture capital fund. He is passionate about product development and launching new ventures in technology. Follow him on Twitter @mbwana