Tanzanian tech failing to attract investment, say startups

Tanzanian tech failing to attract investment, say startups

Tanzania’s tech ecosystem has shown positive growth over the past few years but is failing to attract large funds and investors, startup leaders say.

Compared to hubs in South Africa, Nigeria, Egypt and Kenya, Tanzania receives far less attention from venture capitalists and Africa-focused funds.  

Out of last year’s 98 disclosed tech deals in Africa totalling $1.25bn, only one deal was made in Tanzania, according to a funding report by intelligence firm Briter. 

“We are talking to investors, trying to convince other funds that are investing in other countries to come to Tanzania,” says Jumanne Mtambalike, CEO of Sahara Ventures, an accelerator and tech-consultancy firm based in Dar es Salaam’s Bagamoyo Road area, known as ‘Silicon Dar’ for its profusion of tech firms.

Sahara Ventures has invested between $6,000 and $15,000 in 34 startups, and holds an annual industry event where more than 200 Tanzanian entrepreneurs look for seed-funding. 

In the last eight years, Tanzania has moved from just two innovation hubs to almost 60 across the country, the former engineer says. However, the country struggles to develop these companies to the point where they are ready for bigger ticket sizes. 

“This issue is how many are investable or at a stage where they can raise proper investment from venture capitalists. Then the number shrinks to anywhere between 40 and 60.” 

In January, the East African nation had its biggest success yet when a technology-driven gas company KopaGas was acquired by UK-based Circle Gas for $25m. But the deal is far from the norm. 

Mtambalike explains that the gap in the funding pipeline, like elsewhere in Africa, is the ‘missing middle’: cheques of around $100,000 that can help a company market its product and get it ready for Series A funding. In a catch-22, many Tanzanian tech companies can only raise capital if they have already raised capital. 

“What you are asking right now is to present a company to some commercial investment firm when they haven’t raised anything before,” says Mtambalike.

Unlike Nigeria, where mid-sized investments from locals help companies prepare for outside investment, Tanzania has no such entity to graduate its startups to higher heights. 

The lack of investment is also partly a reflection of Tanzania’s socialist past and current business environment, Mtambalike says. Tanzania is more cautious about foreign actors than neighbouring Kenya and puts more controls on foreign investment. 

“Competition and things related to competition are things that are new to us. We need to understand the dynamic kind of environment needed to attract capital and foreign investors.” 

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Written by Tom Collins

Tom Collins is a seasoned East Africa analyst reporting from Nairobi on everything from banking and finance right through to regional politics and trade. Stay up to date on regional developments by following @thomashcollins1

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