Africa and African Startups Amidst the COVID Storm
By: Lynne Dejean
Tags: Seed Investment, African Startup, Africa, VC, Covid-19

Africa and African Startups Amidst the COVID Storm

In the face of #COVID-19, economies across the globe are bracing, setting priority to provide population healthcare and salaries to stay safe and fed. Over the years, #Africa, much like Asia, had been through pandemics, ie Ebola, which was officially declared a pandemic in February 2014, was only recently eradicated. In total the pandemic would have lasted 6 years, though no border was ever closed nor total confinement was ever implemented. If anything, growth accelerated, and we are witnessing the spread of #VC (venture capital) into the continent. According to Partech Africa 2019 annual report, African tech startups raised US$2.02 billion in equity funding, representing 74% YoY growth. One could wonder, how will Africa navigate through the latest crisis?

I spent a month in West Africa in January, as I was heading back to Singapore, #WHO declared COVID as pandemic. While I knew the virus originated from Wuhan, an inland city in China, I was also aware that much of Chinese investments in Africa were done by entities from the inland cities, so I asked questions: what was being done to protect #Senegal from contamination?

To my knowledge, the day I departed from Dakar (30th January), roughly 20 people were already in quarantine. They flew in from Asia, and the government had them monitored by the hospital for a month, luckily all of them were healthy. The government soon ordered for curfew and closed down restaurants, while allowing shops to open with strict rules of number of clients a shop should attend to at a time. In addition, a local firm started developing a $1 COVID test kit, which is coming to fruition as we speak. Only beginning of April did they realize COVID had entered through Europeans traveling to Dakar, they were able to track down the individuals, confine them, and trace all individuals who would have come across their path. Unfortunately, a cluster originated in the religious city of Touba, where the jurisdiction is mildly independent from the central government. The government soon banned inter-city travel, and quarantined the Touba families that were contaminated. As of last week, the cases of contamination I have heard of, all individuals were brought to hospital, their homes cleaned by professional medical teams of the famous French medical research institution Institut Pasteur. Auchan, a hypermarket, was shut just yesterday to go through a thorough cleaning, because the authorities came to be aware that a carrier of COVID was recently shopping there. While digital tracing is less useful here (as smartphone is yet to occupy majority market share), the state medical personnel call upon community solidarity to identify who would have been in contact with the patients. This is by far a more complete and safe procedure than what I have heard or witnessed anywhere else, and I would say lessons learned from the Ebola crisis were not forgotten, but improved and systematized into a knowledge that Europeans could use.

However, one might wonder about the social impact of COVID. In the age of social distancing and quarantine, we have heard from European B2C product startups (as in producing physical products, to be distinguished from services, and marketplace platforms) that times were tough for them. Some have not had revenue since February, influencer activity reduced, while online grocery platforms are thriving. Given Africa startups only receive 1% of global VC funding, I am reminded of a French saying “when the rich lose weight, the poor dies”, so what can we foresee for African #Startups and #funding ?

During the eCommerce Week 2020 last week, the #UN #ITC organized a Session on the topic of “Fuelling African #Seeding Stage #Tech Startup #Growth After Covid-19”. Martin (Tech sector coordinator at ITF) rounded up a party of entrepreneur (@Birame Sock), incubator (@Sam Ajadi & @Mark Mutahi), and policy advisor (@Eva Sow Ebion), to share opinions. While consensus is optimism, as we see the younger, more agile startups capable of adaptability and #innovation to adjust to the crisis, general concerns are about addressing the funding gap they are confronted with and which is amplified by COVID-19 (These companies are usually seeking to raise $10,000 to $300,000 in order to boost their activities to the next level of growth).

Birame, founder of Shazam and Upscan, who recently returned to her home country Senegal to start #Kweli, a healthy food export company, tells her story: closing of border drove her to setting up an Instacart-type onshore food delivery business because suddenly all physical merchants are interested in digitalizing their sales. Nevertheless, #e-wallets and delivery capabilities became key, and collaborations among startups a means to survive and perhaps a model on the long run. Both Birame and Eva (director at #i4policy, an NGO with aim to help governments in Africa implement policies helping the startup ecosystem to grow) see the #AfCTA agreement (making entire Africa a tax-free zone) and intra-continent trade growth as a greater opportunity. In their view, the continent should be seen as a single market, where vertically integrated groups of companies supplying complementary services could grow at lesser cost due to lesser language barriers to any other continent. In addition, as governments gather to fight COVID, cross pollination in policy inspiration as well as collaboration could be born in the field of startups.

According to #briterbridges, funding in Q1 for African startup has grown by 20%. Despite a slow down from March. #Fintech, #health, #edtech & #e-commerce remain the leading sectors, and we expect logistics to catch up for reasons mentioned by Birame. In marketing we foresee a drop in favour of #digital media marketing. To our knowledge, most GPs in Africa remain optimistic, first reason is majority of funding is still from DFIs and they are stable investors, secondly the general consensus that startups in Africa are more used to operate in “defensive mode” ie keep more stock in case of social movements, in addition to most companies are in the business of “emergency supply” – medical, food and deliveries, logistics, payment. As Mark (#BiDnetwork, a London-based incubator) “investment mandates are spoken for, we don’s expect it to change dramatically”.

In our view, as VC, this crisis, if anything, will accelerate the digital migration in Africa. This is an issue we had been previously confronted, when trying to expand digital marketing platforms or payment systems in South-East Asia, even as of 1.5 years ago, when we were thinking of a solution to get the wet market merchants to use our wallet instead of cash. Now, as hand-to-hand transactions are perceived risky, migration to digital payment, even for small amounts, would happen without the marketing budget initially required. We are also observing consumers’ increased interest in trying multiple online delivery platforms as products run out from one platform or another. Interestingly, in our view, the African continent has seen the most innovative use of technology ie use of a drone to delivery medical staff protection gear, by Ziplin in Ghana.

Startups in Africa looking to benefit from this change should use this time wisely, observe the performance of competition, establish a constant dialogue with their community of consumers, innovate their product based on feedback, build, structure, train theirteam to perform and pay attention to cost efficiency. Financial management is key and metrics should be drawn to self-measure and create a team cost-oriented mentality. Malcolm Gladwell, in Outliers, said one needs 10,000 hours to be expert at anything, if you run your company on those basis, you will thrive when we all come out of this, STRONGER.

Collaboration is another vertical we see beneficial, as Birame says “Fail fast, cheap and often” If you are testing an idea, ask all your friends from the ecosystem to pull in a community of people to provide feedback. Everyone benefits from it. If there is something you need that is not your specialty, ask your friends to help in the first instance, then see how perhaps you can work together through contract or simply cross-investment. Last year, most VC funding went into established companies in 4 countries, Senegal has the potential to be added to that list, but to create substantial revenue, you need to grow fast, or aggregate. The latter is what I see most beneficial.

It is likely, in similar manner to other continents, that VC funding for African startups will change this year in strategy. My suggestion is to keep a dialogue flowing. While investments this year might mainly go to established companies that had previously received substantial funding, there is value in letting VCs observe how you navigate the storm. Like elsewhere, the trend is to pick startups based on cashflow management capability and contingency, instead of solely on growth potential. I have recently talked to a startup in e-waste recycling, the team just added a new activity making hand sanitizers, to pay off their recycling facility rental, such #resilience is what sets people apart. Not only do they show they are sensitive to market changes, they keep contributing to the community by producing something that is useful, and their sense of practicality and survival is key to thriving in any environment. To attract funding on the long term, a good sense of financial management, as well as proven resilience are key.

RVP Africa is an affiliate of RVP One, a Singapore MAS regulated fund management company. We concentrate on B2C digital market places, SAAS, digital marketing and lately manufacturing of consumer products. We have previously exited companies that integrated FoodPanda Singapore, DocDoc, as well as listed Ibuy on ASX. For more information: lin@rvp-group.com