Africa is already home to a vigorous entrepreneurship scene. Strong growth and the lack of local technology infrastructure have generated the world’s highest startup rate.
Successful startups will have a first-mover advantage and the potential to dominate their market. As African consumer societies continue to grow, this holds the promise of substantial returns. Savvy investors are paying attention and learning how to adapt their approach to African realities.
The best-known opportunity for tech investors there is in mobile, so a lot of would-be investors make identifying mobile opportunities their first strategy. infrastructure weakness has put a premium on all things mobile and created an infusion of high-tech solutions into low-income markets.
However, it can be hard to estimate the commercial potential of such ventures because there aren’t comparable business models elsewhere. Stories of heart-wrenching failures are all too numerous.
So a second strategy for early investors is to spread their bets more than usual. That’s easier than it looks because most of these asset-light start-ups require only modest initial outlays.
The recent Demo Africa, the continent’s largest innovation conference, planted the seed of a pan-African business angel network, which complements an increasing number of incubator facilities and venture-funding vehicles. Demo also saw intense interest from big Western companies, with the likes of Microsoft trying to get a foothold.
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A third strategy is to focus more on the entrepreneurs themselves than on business models or technologies. Investors may not understand the complexities on the ground, but if they find someone capable who does, that’s enough.
Many first-time Western investors get burned and pack up quickly. Others see the continent’s uncertainty as opportunity. Although unreliable infrastructure hobbles conventional companies, it opens the door to novel business models. Building a wide array of relationships with capable local entrepreneurs is the key.
(Ronald Klingebiel is a professor of strategy at the Frankfurt School of Finance and Management in Germany. Christian Stadler is an assistant professor at the Innsbruck University School of Management in Austria, and author of “Enduring Success: What We Can Learn from the History of Outstanding European Corporations,” from which this article was adapted.)
