# **1 Introduction**

Digital technologies have been seen as a potential driver of leapfrogging in Africa. The African digital start-up ecosystem, though still nascent, is among the fastest-growing in the world. It is the only region where the median deal size did not decline during 2022 (CB Insights, 2023). Although framed as a footloose sector, digital business providers are widely perceived as an economic activity with the potential and opportunity to bring growth to deprived or lagged regions and enabling technological catching up (Friederici et al., 2017, 2020). The remarkable speed of mobile payment adoption by individuals and firms in Africa are practical examples of the potential implications of disruptive technologies. This process has been driven by leading digital tech platforms and firms, such as M-pesa and Wave, by incorporating innovative and disruptive technological solutions into their offerings, allowing them to disrupt markets through better and cheaper solutions for customers. However, apart from a few well-known successful cases, there is little evidence available on how digital startups in Africa have been incorporating disruptive technologies into their offerings, a key condition to play an enabling role for digital disruptiveness in the continent, or on the role of finance in this process.

This paper analyzes the extent to which digital tech firms in Africa incorporate disruptive technologies and how this relates to access to finance along the firm life cycle. First, it compares the level of disruptive technologies incorporated by digital businesses in Africa with the Latin American market,<sup>1</sup> and a global frontier from which a substantial proportion of digital technologies have emerged, constructed using business data for cities such as Seattle, Palo Alto, Tokyo, and London. Second, the paper documents the variation in the incorporation of disruptive technologies into their offerings along the life cycle of digital tech firms in Africa. Following the literature on firm dynamics and entrepreneurship, which suggests that young firms (startups) are more innovative (Decker et al., 2014), the paper compares the differences in the incorporation of disruptive technologies along the life cycle of tech startups. Third, the paper evaluates to what extent incorporating these disruptive technologies into the firms’ products and services is associated with the amount of funding received. It is expected that these high-potential firms incorporating disruptive technologies should exhibit a higher probability of attracting funding, but there could be different market failures affecting this process.

To address these questions, we use the technologies identified as disruptive by Bloom et al. (2021), based on patents for the U.S., and the frequency with which these technologies are mentioned in earning calls. Using textual analysis, we identify those firms in Crunchbase and Pitchbook<sup>2</sup> that include of the associated with these tech- any bigrams nologies, either in their short or in their long description. We focus on three main digital sectors: Fintech, E-commerce, and Information Technology (IT),<sup>3</sup> which were selected

> 1Latin America represents a good comparison group because it comprises emerging markets and, similar to Africa, it has significantly increased its tech adoption and entrepreneurship in recent years, and these dynamics are relatively inward-related, in sharp contrast with other emerging regions like Asia, where the dynamics tend to be trade and outward-related.

> 2Crunchbase (2023) data obtained from www.crunchbase.com and PitchBook (2023) data from https://pitchbook.com/.

> 3It refers to the provision of digital services, such as software and data.

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