Africa’s startups will build a stronger ecosystem with local funding

Yaba, Lagos’ startup ground zero.
Yaba, Lagos’ startup ground zero.
Image: Reuters/Akintunde Akinleye
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Startups in Africa’s three leading tech entrepreneurship markets—South Africa, Nigeria and Kenya—raised the most funding in 2016, like the year before. But this year, the total raised on the continent fell by 30.5% to $129 million, according to data collected by Disrupt Africa, from $185.7 million in 2015.

South Africa saw funding for start ups fall 14.6% to $46.8 million, Nigeria dipped 6% to $46.5 million while Kenya’s startup funding plunged by 78% to $10.5 million. Last year’s numbers for Kenya were skewed by M-Kopa’s $31 million funding.

There’s a silver lining to the data however. At 146, more African startups were funded in 2016 than in 2015.

The other piece of good news is that North Africa is making a comeback. After years of political turmoil, funding for start-ups is slowly reviving in countries like Egypt and Morocco. Fundraising for Egyptian start-ups jumped 105% to $9.7 million, compared to $4.7 million last year. It was the largest increase of any country that saw more than five startups secure investment during the year. Egypt had eight startups funded according to Disrupt Africa.

Ultimately, African startups will need more grassroots support, both from customers and investors. The expansion of interest by local and African diaspora angel investors, through organizations like African Business Angel Network (ABAN), is a promising sign of what’s possible.

Anecdotally, you can see from the press releases and announcements that are made, that much of the later stage funding for the tech ecosystem on the continent comes from outside. Names like Bill & Melinda Gates Foundation and Omidyar Investments and others are backing many of the later stage stars of Africa’s startup scene.

This kind of financial and international-standard validation is a good thing, up to a point. The role of local angels is vital for backing the kinds of early stage ideas that come to fruition when the entrepreneur and the angel investor speak the same language. We don’t mean a local language, but the same market language, where both parties understand the local problems better than can be expected of an outside investor.

That’s a vital step in finding more African solutions for African problems.