Some banks, like Egypt’s Commercial International Bank (CIB), are beginning to get involved in venture capital (VC). What do you think about traditional lenders entering the space?
I think it’s inevitable. Banks are being attacked on all sides, with the development of things like mobile payment systems, peer-to-peer lending, crowdfunding, the rise of angel investors, the increasing amount of VC. You don’t necessarily have to go to a bank to find capital support any more. If banks don’t innovate and change their offering to the market, they risk becoming irrelevant, so you’re only going to see a lot more of this.
The question is, can they design it in such a way that they are actually serving the market and adding value? Competition is a great thing. Everyone needs to be evolving, innovating and becoming smarter about what they do.
Banks also know that a lot of wealth comes from start-ups. Most of the listed companies in the US are not that old in terms of when they were started or were founded but they are part of the Fortune 500; so banks know that if they’re not part of the innovation ecosystem, if they’re not connecting with these companies at the early stages of their growth, they might not be their big clients in the future.
So they want to grow with these companies because their future business depends on it.
What are the most exciting sub-sectors of tech at the moment?
For VC4A, the fastest growing area is within the agricultural sector. You’re also seeing a lot of growth in the fields of education, healthcare and energy.
Technology in and of itself is not interesting; it only becomes so when applied to a real challenge or opportunity. Tech is a great scaler but it doesn’t necessarily have an intrinsic value. What we’re seeing is when you combine it with the agricultural sector, you start to unlock some really interesting opportunities, ways of reorganising the industry or making it much more efficient than it was 10 years ago.
Where are most capital flows going to and from in terms of VC4A?
What we seeing now is that there are some high-net-worth individuals in the market, who are realising that there are some very promising investment opportunities, so they start to organise themselves as angel investor networks because you can divide the workload.
You can be much smarter, much more efficient when you are working together as a group to screen companies and invest in these businesses and then support them with mentorship and give them access to your business contacts etc. So you’re basically seeing a lot of growth in the angel- investing space locally, which helps to create a platform for foreign capital.
There are a lot of Africans living outside the continent who want to be part of the African growth story. They want to be involved with companies helping to generate growth in their country of origin and they’re looking for ways to invest and be involved.
There are a lot of diaspora Africans coming back to start companies here on the continent, because they can see opportunities and it is something that they cannot ignore.
And certainly there’s interest from Japan, South East Asia, the Middle East, North America and Europe. One in five working people will be African. The continent is the future and it is happening now so global investors are looking at how they can be part of it.
What are investors looking for in African start-ups?
What’s really interesting is not only the number but the quality of the businesses. So you now have really competent founder teams. It’s not just a single individual who has an idea but maybe three or four individuals coming together.
When you look at their level of experience and the traction that they’re building as a team in the market, it becomes quite compelling, especially if they’re going after really practical things.
If it’s logistics, how do I get this package from A to B? If it’s big data, how do I connect a system of weather stations so I can start to do analysis on weather patterns?
This involves huge business opportunities but when you see a team that actually has the skills and the expertise and the background to go after them, it’s pretty compelling.
What is the biggest impediment to a thriving start-up ecosystem?
One of the critical challenges is access to talent. You can have a great founder team but when they start to grow to 50, 70 or 100 people, they need managers, operations specialists, financial administration, they need commercial skills, acquisition skills.
Founders are finding they’re having a tough time recruiting. It’s not good if the moment you’ve trained someone they go and find another job somewhere else for twice the pay, it’s not sustainable.
So we need more talent for these markets. Universities have a big role to play. The American University in Cairo is a mind-blowing institution, I wish I’d studied there, and you need to have more quality institutions like this all across the continent producing thousands and thousands of engineers or operations specialists, so that these founders have people they can turn to when it’s time to scale up.
Where is the next country to watch out for in terms of tech?
You see entrepreneurship everywhere. There are people working across the continent on every problem you can think of.
So it’s really just a matter of spending time going to these places, meeting with the local community, engaging with the hub, engaging with the hackathon or the pitch event, going to the conferences and meeting the individuals. Very quickly you see that the whole continent is basically innovating. n