Proparco Financing Start Ups To Build Tomorrows African Economies

Private Sector
PS D 29
1st QUARTER 2018
Development P R O PA R C O’ S M AG A Z I N E
FINANCING START-UPS
TO BUILD TOMORROW’S AFRICAN
ECONOMIES
Africa
Start-ups
Venture capital
Investors
Innovation
PRIVATE SECTOR & DEVELOPMENT
is published by Proparco,
SUMMARY
Agence Française
de Développement Group,
share capital of EUR 693,079,200,
151 rue Saint-Honoré, 75001 Paris -
France
Tél. (+33) 1 53 44 31 07
E-mail: [email protected]
Website: www.proparco.fr
04 30
Blog: blog.private-sector-and-
development.com
THE CONTRIBUTORS ANALYSIS
Publications director
Supporting digital innovation
06
Grégory Clemente
Founder
ecosystems: what role for DFIs?
OVERVIEW
Julien Lefilleur By Christine Ha
Editorial director
Venture capital in Africa:
34
and editor in chief the long-term opportunity
Anne-Gaël Chapuis
for investors CASE STUDY
Deputy editor
Romain De Oliveira
By Andrea Traversone Why and how does Orange
finance innovation in Africa?
10
Editorial assistant
Véronique Lefebvre By Grégoire de Padirac
OPINION
Editorial committee
38
Christel Bourbon-Seclet, Myriam Brigui, Why are there so few unicorns
in Africa and what are the key
Marianne Cessac, Jérémie Ceyrac,
Fariza Chalal, Anne-Gaël Chapuis, CASE STUDY
Johan Choux, Odile Conchou,
Nicolas Courtin, Clara Dufresne, factors for success to help them Supporting start-ups in Africa:
Claire Gillot, Peter Glause, Olivier Luc,
Elodie Martinez, Gonzague Monreal,
emerge? Schneider Electric’s approach
Amaury Mulliez, Véronique Pescatori, By Maurizio Caio By Christophe Poline
Gregor Quiniou, Julia Richard
de Chicourt, Françoise Rivière,
14 41
Tom Rostand, Bertrand Savoye,
Hélène Templier
ANALYSIS PERSONNAL ACCOUNT
Advisory board
Jean-Claude Berthélemy, Paul Collier, Start-ups and digital From the dream of a cashless
Kemal Dervis, Mohamed Ibrahim,
Pierre Jacquet, Michael Klein,
innovation: fertile ground for Africa to a constantly
Nanno Kleiterp, Ngozi Okonjo-Iweala,
Jean-Michel Severino,
social transformation in Africa expanding start-up:
Bruno Wenn, Michel Wormser By Karim Sy the Zoona story
Graphic design and creation By Mike Quinn
18
LUCIOLE
44
Photo credit (front cover) SPOTLIGHT
Backdrop Ltd, March 2018
The impacts of digital credit PERSONNAL ACCOUNT
Translations
Jean-Marc Agostini
in Africa: beware of negative “I’m extremely hopeful about
Neil O’Brien/Nollez Ink externalities emerging companies who will
Warren O’Connell
By Isabelle Barrès be entering the world of venture
Editorial office
capital-backed start-ups”
22
( : ? ! ; ) D O U B L E P O N C T U A T I O N,
www.doubleponctuation.com By Grant Brooke
Printing on recycled paper
ANALYSIS
Pure Impression
What role can DFIs play in
promoting the development 48
ISSN 2103-334X
Legal deposit at publication
LESSONS LEARNED
23 June 2009
of the African venture capital FROM THIS ISSUE
ecosystem? By Johann Choux
By Michelle Ashworth
50
26
LATEST EDITIONS
KEY DATA
EDITORIAL
W
ith some USD 560m raised by over 120 African start-ups in the
new technologies sector, 2017 broke a new record for venture
capital investments on the continent. This marked increase
compared to 2016 (+53%) not only gives us a glimpse of the
huge potential for investors in Africa, it also allows us to see
venture capital as an essential and credible driver to meet the development challenges
on the continent.
Grégory Clemente Africa is a land with many opportunities: investment funds and international financial
Chief Executive Officer
institutions have made no mistake about this. Despite the fact that physical and digital
of Proparco infrastructure is still underdeveloped and that there is a certain volatility on markets, the
increase in its population (+25% between 2007 and 2016), combined with its constantly
rising gross domestic product (GDP), brings the promise of a bright future. Countries
such as Kenya, South Africa and Nigeria are already considered as hubs conducive to the
emergence of start-ups. How could we fail to mention here the M-Pesa mobile money
platform in Kenya, a real success story for the entire continent? While there has been
a big boom in African e-commerce and fintech start-ups and the related venture capital
investment, other sectors are also attracting more and more attention from investors
(i.e., connecting the most remote populations to solar power, e-health, e-education, etc.).
Consequently, can we see start-ups as new tools for development in Africa? We think
so! It has been proved that start-ups can serve as building blocks for job creation and
new economic models, and that they can meet needs which are still served little or not
at all. However, entrepreneurship, which is often seen as an alternative to unemploy-
ment and low wages, can create false vocations in light of the media and operational
success of certain start-ups.
Devoting an issue of Private Sector & Development to venture capital and the world of
start-ups in Africa means looking at a booming market, understanding the main com-
ponents and discussing the potential negative externalities which can stem from this.
Consequently, we wanted to give a voice to experts and avid players, who tell us about
their experience. When reading the articles in this issue, we see that the common thread
is that development finance institutions (DFIs), which include Proparco, undoubtedly
have a crucial role to play. For Agence Française de Développement (AFD) Group, this
involves a complementarity of operations. Thanks to the work conducted upstream by
AFD to establish an ecosystem conducive to the emergence of start-ups (through the
creation of incubators, accelerators, etc.), Proparco, for its part, can actively participate
in financing these future “tech” champions in Africa.
3
CONTRIBUTORS
Michelle Ashworth Isabelle Barrès Grant Brooke

Venture consultant, CDC Group Vice President of the Center Co-founder and CEO
for Financial Inclusion at Accion, of Twiga Foods
Michelle is Venture Consultant to the CDC Group Global Director of the Smart Campaign
plc, the UK’s development finance institution, Grant Brooke is co-founder and CEO
where she advises on all venture related activities Since 2010, as Global Director of the Smart of Twiga Foods. Raised in Texas, Grant
in both South Asia and Africa. Michelle is also Campaign, Isabelle Barrès leads global efforts to co-founded Twiga after years of academic
Head of Venture at the Church Commissioners for protect and empower consumers in financial work in Kenya’s informal markets. Grant has
England, the Church of England’s investment inclusion, leveraging more than 23 years of turned Twiga into one of Africa’s fastest-
fund, which she joined in December 2016. Prior experience in banking and finance. Prior to this, growing companies.
to joining the Church Commissioners for England, she held key leadership positions at Kiva and MIX
Michelle was Director of Fund Investments at in their start-up phases. She developed, grew and
venture fund-of-funds, VenCap International plc. managed Kiva’s funding and client impact
Michelle is an alumnus of INSEAD. She holds operations, and helped to create the MIX and
a Diploma in Financial Strategy from the Said managed its strategic initiatives. She holds a
Business School at the University of Oxford. She bachelor’s degree in economics from the
received a Masters of Philosophy in Science University of Montréal, an MBA from McGill
degree in Pure Mathematics and a B.A. in University, and a post-graduate degree in
Mathematics from the University of Birmingham. development economics from the Sorbonne.
Maurizio Caio Christine Ha Grégoire de Padirac

Founder and Managing Partner, TLcom Digital & ICT Project manager, AFD Investment manager, Orange Digital Ventures
Capital LLP (ODV)
Christine Ha is Digital & ICT Project manager
Before launching TLcom in 1999, Maurizio was at Agence Française de Développement (AFD). Grégoire de Padirac is an investment manager
a Director of Bain & Company leading their In particular, she is in charge of projects related at Orange Digital Ventures (ODV) and is
technology practice for the EMEA region out of to digital innovation. Christine began her responsible for investments in the MEA zone.
London and San Francisco. He was previosuly career as a telecoms and IT systems consultant Grégoire joined the ODV team in Paris in 2015,
with McKinsey in London and Milan. He has before joining Orange as a digital where he covered the Internet of Things (IoT),
a Stanford MBA and a Laurea Degree in transformation project manager. cybersecurity, eHealth and entertainment.
Business Administration from Bocconi She is a graduate of Télécom ParisTech He was previously responsible for the
University in Milan. Maurizio chairs the TIDE engineering school. distribution partnership with Deezer. Grégoire
Foundation, dedicated to improving the began his career as a strategy consultant
entrepreneurial ecosystem in Africa. at WMI Consulting. Grégoire de Padirac
graduated from ESCP Europe (Paris) and
City University (London).
Christophe Poline Mike Quinn

Sustainable Investment Director, Schneider Electric CEO, Zoona
Christophe Poline has been Sustainable Investment Director Mike Quinn is Group CEO of Zoona, an African FinTech business
in Schneider Electric’s Sustainable Development Department that aims to free up African economies by reducing the need for
since 2009. After creating the inclusive employee savings plan of cash. He has lived in Ghana, Zambia, and South Africa for the
Schneider Electric in France, he is now responsible for managing past 12 years, and has now settled in Cape Town. Mike grew up
its inclusive component. This fund invests in social businesses in Calgary, Canada, and completed his undergraduate degree
in France and Europe that contribute to the fight against energy in Mechanical Engineering at the University of British Columbia.
poverty, as well as in Sub-Saharan Africa. Christophe Poline was Mike holds an MBA with Distinction from Oxford University,
previously an international financial controller at Schneider where he was a Skoll Scholar for Social Entrepreneurship,
Electric. He graduated from ESSEC Business School and alongside an MSc in Management Development from the London
the University of Paris Sud. School of Economics.
4
COORDINATORS OF THIS ISSUE
Karim Sy Johann Choux Steven Gardon

Founder of Jokkolabs Head of the Investments, Financial Investment Officer, Proparco
Institutions and Innovation Division,
Karim Sy is an Ashoka Fellow and winner Proparco Steven is an Investment Officer in Proparco’s
of the 2012 social entrepreneur award. Investment Department, where he is
He founded Jokkolabs, an “action tank” to Johann manages the division responsible responsible for assessing opportunities for
promote structural change from an economic for Proparco’s equity investments in start-ups equity investments in start-ups. Prior to
and social perspective. Thanks to his role as a and venture capital funds. Prior to joining joining Proparco in 2013, Steven had an
catalyst for initiatives in both France and Africa, Proparco in 2013, Johann conducted equity entrepreneurial experience in India and
Karim was appointed to the Presidential research at Natixis. He subsequently worked worked at BNP Paribas Développement in
Council for Africa (CPA), set up by President on strategy and corporate development at the private equity teams. He holds a Master’s
Emmanuel Macron in August 2017. His Boursorama and, finally, was a manager in the in Financial Engineering from the Lyon
experience of working mainly in Sub-Saharan Corporate Finance Department of PwC. He Management School.
Africa covers business aviation, small-scale graduated from EDHEC Business School and
mining, water and mining prospection, is a CFA Institute member.
consulting and the financial sector.
Andrea Traversone Éloïse Guillaud Manal Tabet

Partner at Amadeus Capital Partners Investment Officer, Proparco Investment Officer, Proparco
Andrea joined Amadeus in 1998 and is Éloïse Guillaud joined Proparco’s Investment Manal joined Proparco’s Technical Assistance
a partner focusing on the mobile sector. Department in 2012, as an Investment Officer in and Resource Blending Unit in 2017. During
He is the Amadeus representative for the Sub-Saharan Africa region. Since early 2018, her 13 years of experience in coordinating
Kreditech, an online credit scorer and lender she has been dealing with direct and economic development projects, Manal has
focussing on emerging markets, and leads the intermediated investment operations in the Asia particularly focused on entrepreneurial
Amadeus Digital Prosperity Fund investment region. Eloïse appraised Proparco’s investments ecosystems, social entrepreneurship and the
activities. Andrea also serves on multiple in the start-up Afrimarket in 2016 and the mobilization of diasporas. She has conducted
boards (Igenomix, Travelstart and ip.access). venture capital fund TLcom Tide Africa Fund in programs to provide access to finance
Andrea started his career as a financial auditor 2017. She graduated from ESSEC Business (via venture capital), support young
at a chain of resort hotels in Costa Rica, rising School and began her career as an analyst in entrepreneurs and accelerate start-ups
to become head of operations, finance and the Structured Finance Department of BNP in Europe and the Mediterranean.
development. Andrea holds an MBA from Paribas CIB, in export finance in Paris and
Cambridge University and a BSc in Economics subsequently in project finance in New York.
from the London School of Economics.
Eric Zontsop
Investment Officer, Proparco
Eric has been an Investment Officer at Proparco for 2 years,
where he structures financing for projects in the venture capital,
banking and insurance sectors. He began his career in 2008
at Aurige Finance as a mergers & acquisitions analyst, then
at Amethis as an associate. Eric holds a Master’s in Financial
Engineering and Tax Strategy from the University Paris 1
Sorbonne.
5
OVERVIEW
Venture capital in Africa:

the long-term opportunity
for investors
Andrea Traversone, Partner at Amadeus Capital Partners
With a high population growth rate and a significantly rising GDP between 2007 and 2016, Africa
undoubtedly represents a strong potential for investors. And despite some gaps, the venture capital
market has a bright future on the continent.
Cape Town, Nairobi and Lagos [are] It takes much more than one clever idea to
create a tech culture. Since M-Pesa, few ideas
seeing the first significant generation of or businesses have enjoyed similar success. A
growing start-ups. shortage of funding and support networks for
T
entrepreneurs, as well as relatively shallow pools
en years ago it was easier to of people with spending power, has historically
pay for groceries via a mobile held back new tech businesses in Africa. But
device in Nairobi than it was in the situation is improving as start-up clusters
New York. M-Pesa, the mobile develop and the middle class grows. Today,
money system set up by Vodafone Amadeus Capital Partners is having discussions
for Kenyan telecoms group Safaricom and its with entrepreneurs in Cape Town, Nairobi and
Tanzanian peer Vodacom in 2007 revolutionised Lagos that resemble the talks it had with business
small money transfers in Africa and put the people in London, Berlin, and Stockholm two
continent at the cutting edge of mobile pay- decades ago. And it is seeing the first significant
ments processing. Within six months, 1 million generation of growing start-ups (those achieving
Kenyans were using M-Pesa – and today 30 mil- later stage Series B funding) emerging from
lion people across Africa make over 10 million those cities ready to take on the rest of Africa
transactions per day. and beyond.
6
HUGE OPPORTUNITIES WITH SIGNIFICANT CHALLENGES
Africa presents a huge long-term opportunity

for investors. Its population grew by about 25%
Today, more than 60% of the population
between 2007 and 2016 to 1.2 billion while GDP
expanded at over twice that rate to $2.3 trillion, has a mobile phone, from which they
according to African Development Bank (ADB) frequently access the internet.
statistics. ADB estimated that the continent’s
middle class – those earning between $2 and
$10 a day – numbered nearly 350 million as far
back as 2011 (although critics have questioned Yet the reality is complicated. The country’s
those figures). Today, more than 60% of the middle income bracket is not growing as quickly
population has a mobile phone, from which as previously forecast, nor is the term “middle
they frequently access the internet. But there are class” a clear indicator of prosperity – NCAER
significant challenges too, such as weak physical reported in 2014 that only 40% of the middle
and digital infrastructure, as well as volatile class had a piped water connection. In fact, it’s
currency markets that can take a significant the wealthiest that have been capturing the
chunk out of investor returns. lion’s share of economic progress, with the
top 10% of earners now accounting for 55%
Venture capitalists have seen this movie before of national income, versus 40% at the turn of
and know how the story goes. It is known the millennium, according to the 2018 World
that economic progress is no guarantee of Inequality Report. That is ultimately holding
venture capital (VC) success, nor is economic back consumption growth – ecommerce sales
development a smooth path. Take India as an were virtually flat in 2016 and just a little better
example. On paper, it ticks many of the right than the global average of about 20% in 2017,
FOCUS
boxes. The World Bank predicts it will be the AMADEUS CAPITAL
data compiled by The Economist showed. There PARTNERS
world’s third largest economy within 10 years are undoubtedly opportunities to invest, but the Amadeus Capital Partners is
and its population of 1.3 billion is expected market is competitive and valuations in some
a global technology investor.
Since 1997, the firm has backed
to overtake China’s by 2024, according to UN sectors can be high. more than 130 companies and
estimates. It too has a burgeoning middle class, raised over $1bn for investment.
Amadeus Capital Partners
which Indian think tank National Council of So might venture capital dollars be better invested invests in consumer services,
Applied Economic Research (NCAER) believes elsewhere? financial technology, artificial
intelligence, cyber security,
could hit 547 million people in 2025-26. Add medical technology, digital
to the mix its university pedigree in enginee- As a region, Latin America is probably the health and digital media.
ring and its recent history as an outsourcing wealthiest and most developed of the emer-
destination for global technology firms and ging markets. From a VC perspective, it’s so
there are clear attractions for VC investors. far the only region to have created technology
As a result, more venture capital was invested start-ups that have grown to be very large scale
in start-ups in India than in the UK in 2017. businesses, eventually exited successfully via
Success is coming too. A number of companies IPOs or M&As. Brazilian online travel agency
have achieved multi-billion-dollar valuations, Despegar.com, marketplace Mercado Libre and
including ecommerce marketplace Flipkart, as Argentinian IT and cloud computing firm Glo-
well as mobile payments group Paytm, and these bant are among those to have gone public on
are attracting large technology investors like the Nasdaq and NYSE exchanges.
Japan’s Softbank into the market.
7
V E N T U R E CAPI TAL I N AF R I CA:
T H E LO N G -TER M OPPORTUNI TY
F OR I NV E STOR S
Some 150 companies have emerged than 17,000 islands, as many as half of which
are inhabited. But it is producing a very strong
pipeline of start-ups, mainly in Singapore and
from Silicon Savanah, centred on the Kuala Lumpur, and the net is widening. And there
Kenyan capital of Nairobi. is a growing cohort of early-stage funds, as well
as interest from corporate investors particularly
the large Chinese internet players. As yet, there
Southeast Asia is also coming up rapidly on are no large-scale exit successes that prove the
the rails. The region does have its challenges, market, but they are expected to emerge in the
such as logistics in Indonesia, which has more next three to five years.
OVERVIEW OF AFRICAN VENTURE CAPITAL HUBS
So where does that leave Africa? The continent to South Africa. The capital injection Amadeus
is starting from a lower base but is catching up made is enabling the company to consolidate in
in terms of economic development and start-up South Africa and build scale in countries such
culture. When Amadeus set up the Digital Pros- as Nigeria, Kenya and Egypt.
perity Fund, it established a presence in Cape
Town to capture opportunities in Africa’s largest Other African markets show potential but lag
tech hub. The Silicon Cape, as it is affectionately behind. Some 150 companies have emerged from
known, is responsible for more than 400 start- Silicon Savanah, centred on the Kenyan capital
ups, over 60% of the continent’s total. Moreover, of Nairobi, but none have yet replicated the
the Universities of Cape Town and Stellenbosch success of M-Pesa. There are entrepreneurs and
are world-class institutions that are breeding active investors, but the local market is relatively
grounds for plenty more bright ideas. small, which makes it hard for companies to
reach scale quickly. And without scale in their
The companies being created in Cape Town home market, businesses struggle to secure the
have a strong entrepreneurial pedigree and funding needed to become pan-African players.
international ambitions. Travelstart, into which
Amadeus invested $40 million alongside MTN Contrast that with the most youthful hub, Yaba
in 2016, was founded by Stephan Eckbergh, in Lagos. While home to a relatively modest 50
who previously built and sold a leading Swedish start-ups, the sheer size of the Nigerian market,
online travel agency before turning his attention combined with locals’ hunger to consume and
adopt technology, has propelled some companies
The Universities of Cape Town and far a very short time. Jumia, founded in 2012
and which spans ecommerce, jobs and finance,
was the first to pass the $1 billion valuation
Stellenbosch are world-class institutions mark. Within ten years – the lifespan of a typical
that are breeding grounds for plenty venture capital fund – Lagos is likely to become
another leading technology hub in Africa.
more bright ideas.
8
AFRICA, ONE OF THE FINAL FRONTIERS FOR VENTURE CAPITAL
INVESTMENT
Although ecommerce, fintechs and online mar-

ketplaces are prevalent investment themes and
Where there are opportunities,
reflect global technology trends, there are start- there are also challenges. Often the
ups that address uniquely African issues. “Solar
as a service” is giving millions of Africans in delivery infrastructure for ecommerce
remote locations access to electricity via por- does not exist.
table solar panels, controlled – and paid for
– via mobile phones. M-Kopa, backed by the
entrepreneurs behind M-Pesa, has connected For investors like Amadeus, it is a question REFERENCES
more than 600,000 homes across East Africa to of balancing the risks with the undoubted Laure Broulard, Mark
solar power and placed an order with a domestic long-term opportunities. Africa is beginning Anderson, “Mobile banking :
une success-story nommée
manufacturer for 500,000 photovoltaic panels to produce world-class start-ups and its growing M-Pesa”, Jeune Afrique,
to help meet demand over the next two years. population is hungry to adopt technology and avril 2017. Available at:
http://www.jeuneafrique.com/
It’s one of about a dozen companies in the space consume – often bypassing fixed-line internet mag/421063/economie/
already generating significant revenues. and going direct to mobile. Yet the evolution mobile-banking-success-story-
nommee-m-pesa/
will take time, and there will be setbacks and African Development Bank,
The opportunity for financial investors will challenges along the way. Nevertheless, Africa African Statistical Yearbook
be in potentially consolidating the market to represents one of the final frontiers for venture
2017, 2017.
National Council of Applied
create a leader with the scale to appeal to a large capital investment and that’s why we are getting Economic Research,
strategic acquirer or float on a stock market, in ready now for what promises to be a very large,
“Only 40 per cent of middle
class has piped water
turn paving the way for the next generation of long-term opportunity. connection: survey”,
start-ups in the sector. avril 2014. Available at:
http://www.ncaer.org/news_
details.php?nID=55
Where there are opportunities, there are also The Economist, “The elephant
challenges. Often the delivery infrastructure for in the room. India’s missing
middle class”, janvier 2018.
ecommerce does not exist, so successful online Available at: https://www.
retailers need to establish their own networks. economist.com/news/
briefing/21734382-multinational-
Moreover, in many emerging markets, items businesses-relying-indian-
consumers-face-disappointment-
that are considered small purchases by developed indias-missing-middle
market standards – like training shoes – are
paid for over 12 months. Where people don’t
have credit cards or bank accounts then cash
payments need to be collected in person at time
of delivery. Investors also need to be aware of
the macro risks. Sharp local currency move- The opportunity for financial investors
ments are capable of wiping out a significant
portion of annual earnings when translated back will be in potentially consolidating the
into dollars or euros. Over the typical five-year market to create a leader with the scale
investment term, double-digit annual earnings
growth should more than compensate for cur- to appeal to a large strategic acquirer
rency fluctuations, but shorter term investments or float on a stock market.
may be disproportionately affected.
9
OPINION
Why are there so few unicorns in Africa

and what are the key factors for success
to help them emerge?
Maurizio Caio, Founder and Managing Partner, TLcom Capital
VC-backed African companies have just completed their first life cycle. The prospect of Africa generating
unicorns is optimistic but achievable: it offers giant underserved markets, its companies and
entrepreneurs are comparable to their peers worldwide, and the supply of capital and related business-
building support is increasing. Unicorns need sufficient local capital and business-building capacity,
which come with VC. The imperative is to invest capital and discipline to create a sizeable and
professional local VC industry.
M
FOCUS any factors are conspiring to for products and services, and the innovative
TLCOM CAPITAL establish a vigorous ven- solutions African entrepreneurs are bringing
Launched in 1999, TLcom Capital is a
VC firm based in Nairobi, Lagos and
ture capital (VC) market to vast, underserved markets.
London investing in technology- in Sub-Saharan Africa. A
enabled fast-growth businesses
growing number of ven- Yet, is mobile technology the key to solving
across Europe, Israel and Africa.
Recent investments on the Continent ture capital teams have recognized investment Africa’s problems? Will start-ups scale up fast
include Upstream (acquired by Actis),
Movirtu (acquired by Blackberry), opportunities, driven by large underserved Afri- enough to serve local markets? Is there enough
Andela, Terragon and mSurvey.
can markets, the ability of entrepreneurs to design talent? Do investors, entrepreneurs and VC
innovative business models that leverage the investment teams have realistic return and time
high penetration of mobile technology, a lack horizon expectations? And why the lack of Afri-
of legacy infrastructure and increasing spen- can unicorns – VC-backed start-ups that reach
ding power. Development finance institutions a valuation of $1 billion in a financing round
(DFIs) and private capital, including family offices or exit – for many the evidence of a quality,
and high net worth individuals (HNWIs), have functioning VC market?
started to support this asset class. A maturing
The answers require a data-driven perspective
technology and entrepreneurial ecosystem is
of African VC markets and a knowledge of the
emerging in Nairobi, Lagos and Cape Town,
key factors and behaviours of stakeholders that
fuelled by mobile money, growing demand
are most conducive to generating value for VCs.
YOUNG AND SMALL VCS
A maturing technology and Many regard 2010 to be the beginning of the

African VC ecosystem. In 2014 significant
entrepreneurial ecosystem is emerging exits of VC-backed companies were realized.
in Nairobi, Lagos and Cape Town, Until recently, African VCs were sporadic and
unmeasured: metrics became available only in
fuelled by mobile money. 2015, when it was estimated that $185 million
10
to $277 million of capital was invested in 55 to
125 start-ups (Disrupt Africa, 2016).
The average holding period of
Estimates of the size of VCs in Africa in 2017 a VC investment in the developed world
varied between $195 million and $560 million is between five and seven years, often
of capital invested in 128 to 160 deals (Partech
longer for investments resulting in high
Ventures, 2018). In the same period, the US VC
market generated $72 billion invested in over returns.
5,000 deals; China, $71 billion in over 2,800
deals; Europe, $18 billion in about 2,500 deals. just started to complete their first life cycle from
seed to exit. Hence, the African VC ecosystem
The average holding period of a VC investment
is young and small, and it is unsurprising that
in the developed world is between five and seven
it has not yet resulted in a string of positive
years, often longer for investments resulting in
exits, the basis for predictable returns.
high returns. VC-backed African companies have
AFRICA’S YET-TO-BE-GENERATED UNICORNS
Unicorns indicate a VC ecosystem that is ripe for in food and beverages, South Africa-based
investment. In Q4 of 2017, CB Insights (2017) Promasidor; and in telecom services, South
published its most recent report on unicorns, Africa-based Cell C.
recording a global total of 214, with 106 outside
the US: 52% were in China, 9% in India, 8% in Compared with their US, Asian and European
the UK, 4% in Germany, 3% in South Korea, counterparts, these companies have not followed
with the remaining 24% in other countries. traditional VC paths: funding has come primarily
from public companies and private sponsors,
Africa has generated three unicorns: in e-com- which tend to back mature companies, with
merce, Nigeria-based Africa Internet Group; typical private equity expectations.
Key drivers of value for VCs

What is the basis for the expectations of the African VC ecosystem, and how can it support
the development of unicorns on the Continent? And what are the common features of value
generation in the global VC industry?
Unicorns are world-class companies that scale up quickly in large, underserved markets,
based on competitive advantages that translate into high margins, high growth and that
generate significant cash flow, with financing and business-building support from competitive
VCs. When valuations and minority protection rights are aligned with global standards,
normalized for the stage of the company, the result is value generated for founders and
management, VC teams and their fund partners.
When evaluating companies for investment and assessing their unicorn potential, VCs
should ask the following. First, is the market underserved and attractive in terms of size and
growth?; could technology and innovative business models enable success?; are the capital
requirements aligned with those typical of VCs; does the market indicate material prospects
of exits? Second, is the company comprised of a world-class team?; is it based on solid
business fundamentals and a unique competitive advantage? Third, is the investment
attractive in terms of valuation and key terms relative to the expected exit scenarios?
VC teams should invest only where the answers to all these questions are yes.
11
W H Y A R E THER E SO F EW UNI CORN S
I N A F R I CA AND W HAT AR E THE K E Y FACTORS
F OR S U CC ESS TO HEL P THEM E ME RG E ?
AFRICAN UNICORNS ARE POSSIBLE
[In Africa] entrepreneurs live in a less or to adjusting or giving up on their business

models. Also, less guidance from angels, VCs,
consultants and repeat entrepreneurs can result
mature and supportive ecosystem, resulting in business models that are less market-driven
in longer times to financing. and business fundamentals-oriented, and more
focused on brilliant tech. Management and
technology talent is also scarce. However, these
With these questions as a framework, the pros- obstacles are balanced by advantages peculiar
pect of Africa generating unicorns is optimistic. to Africa. The technology risk is lower because
There are three reasons for this. entrepreneurs tend to create business models
that leverage proven technologies and there
First, Africa offers gigantic underserved markets. is a more predictable exit path associated with
Most of the demand is low-income, necessitating large private equity funds.
business models based on low-cost positions.
Technology can enable these. A similar oppor- Third, there is a growing supply of early stage
tunity exists in the B2B space. Low-productivity and growth capital, and related business-buil-
SMEs need affordable technology solutions, ding support. Sources of capital for African
while value chains can also benefit from tech- entrepreneurs include seed-stage financing
nology-enabled solutions. Consumer-facing rounds of up to a few hundred thousand dol-
corporates also need mobile-based enterprise lars; for mature companies looking for growth/
software to better segment, serve and increase expansion, rounds of $10 million or more are
their customers. typically served by mid-market and private
equity funds. The gap is in the $500,000 to
Second, African companies and entrepreneurs
$10 million range, which is typical of series A
are comparable to other countries. The ratio
and B venture capital financing. Companies
of investable companies to the total deal flow
such as Andela and Twiga demonstrate that
in Africa is similar to other regions. However,
fast growth in large, underserved markets via
entrepreneurs live in a less mature and supportive
tech-enabled business models is taking root in
ecosystem, resulting in longer times to financing,
Africa. But these companies have tapped the
global VC market in the series A to B range.
The gap is in the $500,000 to $10 million Africa has attractive markets and companies
that can scale, but unicorns need sufficient local
range, which is typical of series A and B capital and business-building capacity, which
venture capital financing. come with VC.
12
INCREASING THE ODDS FOR AFRICAN UNICORNS?
The imperative is to invest capital and disci- Local governments can also make a difference
pline to create a sizeable and professional local by creating a supportive environment through
commercial VC industry. This is the responsi- regulation, tax incentives for VC investment,
bility of limited partners who recognize the and building economic stability to attract more
Africa VC opportunity or who have room for a capital.
less-proven asset class in their global allocations,
and VC teams who need to build high-risk, Ultimately, the key value generator is the entre-
high-return portfolios validated by subsequent preneur. It is up to VC teams to fulfil capital
financing rounds at growing valuations, and by market expectations by serving the needs of
value-generating exits. the entrepreneur for business building, talent
support, and guidance, from financing to exit.
Also, a business fundamentals culture driven If we can nurture a new generation of African
by an understanding of industry dynamics must VCs focused on these values, Africa will generate
be embraced by VC teams and entrepreneurs. her share of unicorns.
African entrepreneurs and their start-ups must
be held to the same rigorous standards as their
worldwide counterparts. Declining an investment
in – or unplugging from – a failing company is
Africa has attractive markets and
as critical as supporting a winner. Attracting
more capital to African VC involves genera- companies that can scale, but unicorns need
ting success stories. Even with investment only sufficient local capital and business-building
in potential winners, there will still be failed
capacity, which come with VC.
investments.
Business fundamentals should be adopted early in

the lives of companies, creating realistic expec-
tations in young teams about the availability of
capital, investment requirements and valuations.
REFERENCES
Disrupt Africa, “African Tech Startups
Funding Report 2015”, 2016. Available
here: http://disrupt-africa.com/2016/01/
african-tech-startups-raised-funding-
in-excess-of-us185-7m-in-2015/
T
ypical funding amounts raised in Series A and B Partech Ventures, “In another
venture capital rounds record-breaking year, African Tech
Start-ups Raised US$ 560 Million in
VC funding in 2017, a 53% YoY
Growth.”, 2018. Available here: https://
www.linkedin.com/pulse/another-
record-breaking-year-african-tech-
start-ups-raised-collon/?trackingId=6n
csYxVeIpYLqWvU8n6CNg%3D%3D
CB Insight, “Unicorns Abroad: The
Creation Of Billion-Dollar Startups Is
Shifting Out Of The US”, 2017.
FROM $500,000 TO $10,000,000 Available here: https://www.cbinsights.
com/research/global-new-unicorn-
companies-us-china/
13
A N A LY S I S
Start-ups and digital innovation:

fertile ground for social transformation
A N A LY S I S
in Africa
Karim Sy, Founder of Jokkolabs
Social innovation in Africa is currently closely bound up with the digital revolution. To generate economic
development that benefits as many people as possible, the digital sector must conserve all of its
innovation potential – especially prevalent among FOSS communities1. Innovation spaces help young
entrepreneurs to structure their approach while keeping all of their social transformation potential intact.
T
FOCUS he transitions currently spearhea- All over the world and especially in Africa,
JOKKOLABS ding change – with the digital the transforming power of new technologies
Jokkolabs is a network of innovation
spaces created by Karim Sy in 2010 in
transition in the vanguard – are is revolutionising how we live, work and inte-
Dakar to foster the emergence of leading to a global paradigm shift. ract. The sea changes taking place at all levels
start-ups. At the time, it was the first
network of its kind in French-speaking The world is entering a different (i.e., technological, economic and social) raise
Africa and it has grown around a era and Africa is no exception. The Continent questions concerning the conditions that are
community of independent hackers
and free and open source software has surprised everyone with the spread of mobile most conducive to fostering the emergence of
(FOSS) advocates that now covers phone technology, the deployment of broadband innovative start-ups in Africa today, particu-
around a dozen spaces in nine
different countries (Côte d’Ivoire, and the emergence of a multitude of start-ups larly in the digital sector. What trajectory has
Cameroon, Mali, Morocco, Burkina that help unlock all of the untapped creativity been followed by these business leaders who
Faso, Benin, Gambia, France and
Senegal). of its young people. frequently harness innovation to a specific need
or context for the benefit of the greater good
and the development of the Continent?
All over the world and especially in Africa,
the transforming power of new technologies
is revolutionising how we live, work
and interact.
1 Communities that promote free open source software (FOSS)
14
YOUTH AND MOBILE PHONES: FERTILE TERRITORY
In terms of innovation, Africa has two key advan- ups), has designed an irrigation system that can
tages: its young population and high mobile be switched on remotely via a mobile phone.
phone penetration: by 2050, it will count close on
So telephones are a constant in all of these trans-
one billion, well-connected young people under
formations – nearly everyone uses one, even
18 years old. This young population is helping
in the remotest areas – and telephone-internet
to drive the transformations that are gradually
convergence is increasingly important, especially
changing the face of Africa, particularly through since the advent of 3G and 4G broadband. Young
the creation of digital start-ups. For example, African entrepreneurs have got the picture: digi- 1 BILLION
in Niger, one of the world’s poorest agrarian tal is the new country from which they intend AFRICANS UNDER
countries, farmers are being connected by an to conquer the world. Ulrich Sossou, a young
18 YEARS OF AGE
BY 2050
e-irrigation and e-assistance system set up by entrepreneur from Benin is another example.
Abdou Mamane Kane’s Tech-Innov enterprise. He has launched an innovative and profitable
This young entrepreneur, winner of several real estate management solution that targets the
awards (Orange Social Business, the Hassan II US market – even though he’s never actually
water award, 3rd prize for young African start- been to America!
LEARNING WITHIN DEVELOPER COMMUNITIES
Digital innovation – the lifeblood of solutions greater good of the community and are only too
tailored to African problems – is the raison d’être willing to share their knowledge with others.
of the communities that are developing these The communities may have inspirational or
open source apps. These communities are there- charismatic leaders but they do not accept any
fore the structures in which future Pan-African hierarchy, especially one imposed from the
entrepreneurs are learning their trade. outside.
The communities are not hierarchical and func-

tion in a very informal manner. Consequently,
Telephone-internet convergence is increasingly
recognition is conferred by merit and by one’s important [...]. Young African entrepreneurs have
peers, and not by virtue of diplomas, social class
or networks of influence – and this is a new got the picture: digital is the new country from
thing for Africa. All members contribute to the which they intend to conquer the world.
INNOVATION UNDER THREAT?
At the same time, with the help of development So community members are turning into pro-
institutions, especially within the scope of the ject-focused entrepreneurs and they don’t share
World Bank-sponsored InfoDev programme,2 like they did before – they may even be in com-
the first digital incubator projects are begin- petition with other members. When incubation
ning to come on stream. Enterprise support is structures are designed in a too conventional
starting to become more structured. way that disrupts digital community culture,
2 http://www.banquemondiale.org/fr/results/2013/04/05/supporting-new-technologies-and-entrepreneurs-infoDev-network-of-business-support-centers
15
STA RT- U PS AND DI GI TAL I NNOVAT ION :
F E RT I L E G R OUND F OR SOC I AL
T R A N S F OR M ATI ON I N AF R I CA
unfortunately, horizontal, peer-based learning to ensure their survival. This is often a hard-
dynamics can disappear leading to a depletion of nosed, unsentimental process and if it is not
expertise. In Africa, one of the trickiest places properly regulated, innovation could suffer in
in the world to do business where informal the long run. For entrepreneurs, the “Holy Grail”
practices are very important, it is vital for young no longer consists in building up a business but
entrepreneurs to maintain collaborative links in selling off their start-up to a big corporation
that keep them in touch with peer-based lear- within a couple of years. Under this approach,
ning dynamics.
instead of taking on a big group, the start-up
Community leaders and young entrepreneurs seeks to integrate one. It is as if Uber tried to
are snapped up very quickly by businesses in sell its structure to the big French group Taxis
need of scare human capital. Multinationals are G7 instead of trying to completely revolutionise
deploying programmes to acquire start-ups just the sector.
INNOVATION SPACES FOR INVENTING THE FUTURE
But there is an alternative approach to getting with different approaches to try to come up with
bought out and merged into a big corporation: solutions to societal requirements in healthcare,
innovation spaces seek to provide young entre- agriculture, education, the new media and good
preneurs with a forum in which they can meet governance. It is the first structure of this type
and exchange experiences with their peers while in French-speaking Africa and has helped foster
preserving links and a similar mindset to FOSS the emergence of numerous start-ups (Coin
communities (particularly in terms of peer- Afrique, Niokobok, Afri Malin, etc.).
based learning). In a nutshell, these spaces are
created specifically to maintain and reinforce
their innovation potential. Jokkolabs has also paved the way for a number
of African “tech hubs” (i.e., these spaces that have
For entrepreneurs, the “Holy Grail” been fostered by tech communities). In 2014,
the World Bank estimated that there were 174
no longer consists in building up a business tech hubs (World Bank, 2014); in 2016, the GSM
association identified 314 (GSMA, 2016) such
but in selling off their start-up to a big corporation spaces of various different types: coworking
within a couple of years. spaces, incubators, tech hubs, mobile labs, etc.
All of these terms describe the same basic idea:
Jokkolabs is an independent, not-for-profit orga- spaces that were originally closely bound up
nisation offering innovation facilities focused with, and provided a forum for members of
on social transformation. It has emerged out of FOSS-type communities. These forums organise
hacker and FOSS communities and Jokkolabs’ their own events: BarCamps (open, tech-focused
philosophy is a naturally inclusive one. For its and user-generated conferences), hackathons,
members, innovation is a bottom-up pheno- bootcamps and other novel forms of exchange.
menon and any local innovation – whether it
Some network members have launched social
comes from the North or South – can have a
impact projects such as Ushahidi3 in Kenya or
global impact. Jokkolabs’ members experiment
SIG Santé in Senegal, both of which are health
16
mapping initiatives. These types of projects are
blurring the distinction between enterprise and
So digital innovation can drive
social activism. So digital innovation can drive
development but for this to happen, we need an
development but for this to happen, we need
approach underpinned by the notion of “digital an approach underpinned by the notion
commons” (Wikipedia is a good example), i.e., of “digital commons”.
harnessing a resource (knowledge) to a commu-
nity and a specific set of rules. Such innovative
initiatives pave the way for a new approach to
development.
THE ROLE OF POLICY MAKERS
Political decision-makers do not always fully

appreciate the extent of the digital revolution.
Only 40% of African
Indeed, only 40% of African countries have cur- countries have currently
rently enacted legislation that protects digital REFERENCES
data and there is a chronic shortage of statistics enacted legislation that World Bank, Tech hubs across Africa:
Which will be the legacy-makers?,
on the key aspects of the digital economy, all protects digital data and April 2014. Available at: http://blogs.
of which restricts the possibilities for devising worldbank.org/ic4d/tech-hubs-across-
there is a chronic shortage africa-which-will-be-legacy-makers
appropriate public policies (CNUCED, 2017). GSMA, A few things we learned
of statistics on the key about tech hubs in Africa and Asia,
True, it is difficult to keep up with the sheer August 2016. Available at:
pace of this revolution, the paradigm shift and
aspects of the digital https://www.gsma.com/
mobilefordevelopment/programme/
its systemic impact. We need to foster awareness economy. ecosystem-accelerator/things-
learned-tech-hubs-africa-asia/
among all stakeholders (public, private and those CNUCED, Press release: “IER -
from civil society) of how the digital revolution New Digital Era Must Ensure
Prosperity For All, United Nations
actually works in practice along with all of its Says” 2017. Available at: http://unctad.
multiple facets, opportunities and risks (data org/en/pages/PressRelease.
aspx?OriginalVersionID=429
protection, net neutrality, etc.). We also need
to create a think tank that will reflect upon ways
of controlling (and not just being subjected to)
the digital revolution, and an action tank that
will devise concrete solutions on the ground.
Finally, we need platforms specialised in public–
private partnerships and key resource persons
within the communities themselves – powerful
innovation drivers – focused on all of the major
transitions currently in progress (i.e., energy,
education, agriculture, etc.).
3 https://ushahidi.workable.com/
17
SPOTLIGHT
The impacts of digital credit in Africa:

beware of negative externalities
Isabelle Barrès, Vice President of the Center for Financial Inclusion at Accion, Global Director of the Smart Campaign
Demand for credit in Africa exceeds supply, despite the rise in mobile money. Yet start-ups, growing daily
in number, are at risk of accelerating over-indebtedness, by supplying credit to clients without
conducting appropriate repayment capacity analysis. Digital lenders need to understand the risks of
over-indebtedness from a client perspective, and algorithms need to evolve to take this into account.
Regulation also must guide good practice for fintech digital lenders.
If providers profit while clients are ensure that digital credit is provided responsibly,
for the benefit of clients?
experiencing stress in repaying, defaults Some estimate that digital technologies have
will catch up with the client or the cut the cost of providing financial services
institution, and the client will no longer by 80-90 percent (McKinsey, 2016). Africa
is taking the lead in the rise of mobile tech-
be able to borrow. nology, and the opportunities are promising
D
(figure opposite). Start-ups in this space are
espite the rise in mobile making big strides. Those involved in digital
money in Africa, and glo- credit either deliver digital credit directly or
bally, the gap between supply enable its delivery through downstream product
FOCUS
ACCION
and demand for credit in the servicing. The number of fintechs – start-ups
Accion is a global nonprofit region remains. Surprisingly, offering these services – in Africa is growing
committed to creating a financially in this milieu start-ups are at risk of accelerating daily (Mesropyan, 2016).
inclusive world, with a pioneering
legacy in microfinance and fintech the pace of over-indebtedness in Africa. The
impact investing. Accion catalyzes number of start-ups reaching last mile clients Technology well used offers opportunities
financial service providers to deliver
high-quality, affordable solutions at is rising. The driver of this is fintechs taking not previously available. However, two key
scale for the three billion people who
advantage of a business opportunity, and the issues need to be recognized and addressed
are left out of – or poorly served by
– the financial sector. For more than prospect that if you offer clients much-needed in order to generate long-term benefits for
50 years, Accion has helped tens of
credit at a lower cost than the alternative, they both clients and providers. First, provider and
millions of people through its work
with more than 90 partners in will be better off. client interests must be aligned. If providers
40 countries. profit while clients are experiencing stress
But is this necessarily true? Are these start-ups in repaying, defaults will catch up with the
offering solutions to the credit needs that many client or the institution, and the client will no
small and medium-sized African businesses have, longer be able to borrow. Aligning interests
and are clients better off with these solutions? requires providers to think of client benefits
Or is the fintech digital credit hype attracting as well as their own from the start. Second, a
lenders that offer credit in the wrong places – well-designed loan should match the ability to
and for the wrong reasons? What is needed to repay. Well-designed loans are a blessing, for
18
example, helping a small business; yet loans rates stay low – it can be at the cost of extreme
that do not consider clients’ capacity to repay hardship, making it a poor predictor of over-in-
sets them up for failure. Even if they repay in debtedness. It may take some time before the
the short term – which is often why default debt stress of clients affects providers.
‘INSTANT’: AN OPPORTUNITY AND A RISK FOR CONSUMERS
A key attribute digital lenders advertise is speed Other aspects of digital credit lead to new risks
of access. Where traditional loans could take compared with analog lending: start-to-finish
weeks for approval, with many requirements, digitization; the move from high to low touch
this is a plus from the perspective of clients. processes; small credit amounts that grow;
But the automation and speed raises concerns: short-term loans; reliance on alternative data
are decisions made too quickly, and are risks analytics; and decentralized support workforces.
adequately measured and mitigated, especially
from the clients’ perspective?
WHAT COULD GO WRONG?
With analog credit, prevention of over-in- Financial Inclusion, 2017/2018): Limited – if

debtedness centered on adequate repayment any – debt capacity analysis; Products that do
capacity, and on growth not taking place at not match client needs; Lack of credit repor-
the expense of quality.
ting; Automatic renewals; Aggressive sales and
In the digital context, the following major cate- marketing; Disproportionate consequences of
gories of risk have been identified (Center for late payments that lead to a cycle of debt.
Africa is taking the lead in the rise of mobile technology
MOBILE CREDIT SERVICES M-SHWARI M-PAWA

IN SUB-SAHARIAN AFRICA KENYA* TANZANIA*
2011 2016 Established 2012 2014
6 services 39 services Number of accounts 15 million 5 million
1 country 11 countries Value of loans

disbursed
US$1.3 US$22
billion million
Cameroon
Kenya Ghana Non-performing 1.92% 8.52%
Kenya loan ratio (Kenya : 5.3%) (Tanzania : 8.3%)
Malawi
Nigeria
Rwanda *As at June 2016
Senegal
Tanzania
Uganda
Zambia
Zimbabwe
Source: GSMA, The State of Mobile Money in Sub-Saharan Africa, 2016.
19
T H E I M PAC TS OF DI GI TAL C R ED IT
I N A F R I CA : B EWAR E OF NEGATIVE
E X T E R N A L I TI ES
Providers have a responsibility sacrifices that clients might have to make in

order to repay. Over-indebtedness is not only
reflected in default, it is reflected primarily by
to ensure that their practices do not lead the extent of the sacrifices that the client endures
to an oversupply of credit to clients to avoid defaulting. Algorithms are institution
who are unable to meet their payment centric, not client centric. They are meant to
learn over time, becoming refined and better
obligations. predictors; yet they do so at the expense of early
clients who enabled the algorithm to become
better fine-tuned, as they have a higher proba-
bility of defaulting and suffer dire consequences
Alternative credit scoring methods – often using
(Ngigi, 2016).
elaborate algorithms that predict the probability
of repayment – help to include people who have The promise of well-tuned algorithms saving
thin credit files and who would otherwise have costs and managing institutional risk is unfor-
been excluded. However, these models are a tunately skewing attention away from client
poor replacement for the repayment capacity risks. Over-indebtedness needs to be reframed
analysis previously conducted by lenders ser- from a client perspective: can clients afford the
ving vulnerable excluded populations. While loan? Even if they can repay, what sacrifices
the algorithm may predict whether or not an are they making? Are they at risk of not being
institution will be repaid, it does not consider a client ever again in the future (which would
clients’ situations and needs, and therefore, the hurt both the client and the provider)?
MITIGATING OVER-INDEBTEDNESS IN THE DIGITAL WORLD
Over-indebtedness is a multi-stakeholder issue, credit to clients who are unable to meet their
and is linked to the client protection issues sum- payment obligations, and digital lenders will
marized in the Client Protection Principles1. need to adopt a more client-centric approach
Prevention of over-indebtedness is a particularly to understand the risks of over-indebtedness
tricky one, in that it requires the concerted effort from a client perspective. Algorithms need to
of a wide range of stakeholders. evolve to take this into account.
Providers have a responsibility to ensure that Because only one irresponsible lender is needed
their practices do not lead to an oversupply of in terms of over-indebtedness to negatively affect
Because only one irresponsible lender is needed in terms

of over-indebtedness to negatively affect clients, it is
necessary that financial consumer protection regulation
evolves to guide the practices of otherwise unscrupulous
digital lenders.
1 T
he Client Protection Principles are a list of 7 key principles that financial providers need to abide by. Available here:
https://www.smartcampaign.org/storage/documents/smart_campaign_cpps.pdf
20
clients, it is necessary that financial consumer
protection regulation evolves to guide the prac-
Providers need to move away from
tices of otherwise unscrupulous digital lenders.
a unidimensional definition of over-
Investors can, and should, use their leverage to indebtedness that overly emphasizes
encourage good practices by digital lenders, as
they have for analog lenders. They can reward
repayment as the proxy for whether or not
digital lenders who design and deliver appro- a client is indebted, towards client-focused
priate products, are transparent about terms definitions of over-indebtedness.
and conditions, explain to clients the risks of
over-indebtedness, adopt fair and responsible
practices during repayments, and help clients
who cannot, but want to, repay. to educate and empower clients. Clients have REFERENCES
rights and responsibilities. Informed consumers McKinsey Global Institute, “Digital
Importantly, digital providers can leverage are better able to protect themselves and avoid Finance for All: Powering Inclusive
Growth in Emerging Economies,”
the same technology used to deliver products becoming victims of predatory lenders. September 2016. Available here:
https://www.mckinsey.com/~/media/
McKinsey/Global%20Themes/
Employment%20and%20Growth/
OVER-INDEBTEDNESS IS MULTIDIMENSIONAL AND DYNAMIC How%20digital%20finance%20
could%20boost%20growth%20in%20
emerging%20economies/MG-Digital-
In the interest of long-term mutual benefits for repay. We need to develop ways to monitor Finance-For-All-Full-report-
both providers and clients, providers need to whether clients are showing signs of financial September-2016.ashx
Elena Mesropyan, “63 Companies
move away from a unidimensional definition stress. Responsible institutions should be able Shaping Africa’s FinTech Ecosystem,”
of over-indebtedness that overly emphasizes to identify this, and work with clients until it Fintech Ranking, December 2016.
Available here: http://fintechranking.
repayment as the proxy for whether or not a is resolved. com/2016/12/15/63-companies-
client is indebted, towards client-focused defi- shaping-africas-fintech-ecosystem/
nitions of over-indebtedness. The role of responsible providers goes beyond Alexandra Rizzi, Isabelle Barrès,
Elisabeth Rhyne, “Tiny Loans, Big
providing loans to ensuring that clients are sup- Questions,” Center for Financial
Digital credit providers need to complement ported if necessary. Microfinance Opportuni- Inclusion. September 2017. Available
here: http://www.
credit bureau data with disbursement and repay- ties, in collaboration with Social Performance centerforfinancialinclusion.org/
ment data on digital loans so that a fuller finan- Solutions, has been developing a stress assess- publications-a-resources/browse-
publications/916-smart-brief-tiny-
cial picture can emerge for digital borrowers. ment tool that enables providers to monitor loans-big-questions
whether borrowers are incurring stress after John Owens, “Responsible Digital
Over-indebtedness is not a steady state. As the having received a loan. Such tools are extremely
Credit,” Center for Financial Inclusion.
Forthcoming, 2018. Available here:
lives of vulnerable clients evolve, so do their important to have a full picture of over-inde- http://www.centerforfinancialinclusion.
needs and challenges. A client who may have btedness, and a broader suite of tools needs to
org/programs-a-projects/cfi-fellows-
program/783
received a loan from a responsible lender in be available to responsible providers. George Ngigi, “Pain of Kenyans
the past may suddenly not be in a position to Blacklisted for Amounts as Small
Sh100,” Business Daily Africa,
September 2016. Available here:
https://www.businessdailyafrica.com/
FINTECH PROTECTS AGAINST OVER-INDEBTEDNESS economy/Pain-of-Kenyans-blacklisted-
for-amounts-as-small-as-
Sh100/3946234-3374120-r0r2bfz/
Fintech digital credit providers need to unite through the Fintech Protects Community of index.html
and agree to collective measures to tackle the Practice2 are working together to define and
problem of over-indebtedness. This will entail implement responsible practice. The body of
defining responsible digital underwriting, leve- evidence around risks is growing. Now is the
raging technology while learning from the past, time to define the guidelines of good practice
expanding credit bureau reporting, and agreeing for fintech digital lenders and identify solutions
on common practices for the benefit of clients. that work for clients.
Some fintechs are already taking the lead and
2 http://www.smartcampaign.org/news-a-highlights/whats-happening/1-general
21
A N A LY S I S
What role can DFIs play in promoting

the development of the African venture
A N A LY S I S
capital ecosystem?
Michelle Ashworth, Venture consultant, CDC Group
Over the past few years, a number of DFIs have announced the launch of venture capital investment
programmes for Africa – initiatives that should help promote start-up activity across the continent, and
drive the development of the African venture capital ecosystem, leading to job creation and economic
growth.
I
FOCUS n recent years a number of develop- way of financing small tech-enabled compa-
CDC ment finance institutions (DFIs) have nies and supporting entrepreneurship. Many
CDC is the UK’s development
finance institution. CDC supports
announced new venture investment of these start-ups are developing technology
the building of businesses programmes for Africa. In 2016, Euro- that can help formalise informal markets and/
throughout some of the world’s
poorest places in Africa and pean Investment Bank (EIB) and African or provide solutions to local problems in areas
South Asia, to create jobs. CDC Development Bank (AfDB) announced the Boost such as agriculture, healthcare, education and
focuses on investing in countries
where the private sector is weak, Africa Initiative, a joint venture that will see up financial services.
jobs are scarce and the to €150 million deployed in the African venture
investment climate is difficult, but
capital industry and is expected to support over More broadly, developed venture markets are
particularly in sectors where
growth leads to jobs. 1,500 start-ups and SMEs across the continent. proven to drive economic growth and promote
job creation. It is estimated that just under 40%
More recently, in late 2017, CDC’s Intermediated of new jobs created in the US in the past 40
Equity team secured approval to commence years have been produced by venture-backed
a programme of investing in African venture companies (Stanford, 2015). Whilst data is less
capital, which initially will entail deploying up readily available for emerging markets, initial
to $75 million in 6-8 African venture funds over indications suggest the impact of venture capital
the next 3-4 years. Further capital is available (VC) will be similarly significant; in China, a
from CDC’s Impact Fund, which will also conti- venture market which has developed in the past
nue to make select venture fund investments. 15 years, venture-backed companies are already
estimated to have created 10 million new jobs.
There are many reasons why DFIs are deploying
capital in African venture capital. Investing in
venture funds tends to be the most effective
22
WHY DFI FUNDING IS NEEDED
Venture capital has the potential to deliver strong

returns, but investing in early-stage companies Venture capital has the potential to deliver
(whether directly or indirectly through funds)
is inherently risky. In developing markets, the
strong returns, but investing in early-stage
risk is further exacerbated, deterring all but the companies [...] is inherently risky.
most experienced private institutional inves-
tors from participating in the asset class. Many
established UK funds struggle to raise capital immature venture capital is in Africa, African
without support from the British Business Bank venture funds would likely be almost impossible
or European Investment Fund (EIF); given how to raise without the support of DFIs.
EVOLUTION OF THE AFRICAN VENTURE CAPITAL ECOSYSTEM
In the 20 years, I’ve been investing in global and then, more recently, Flutterwave. We are
VC funds I’ve had the privilege to follow the also starting to see the emergence of companies
emergence of a number of new venture capital like Movemeback, which are designed to help
markets – first in Europe in the late 1990s, then returnees find new jobs on the continent.
in China in the early 2000s and India in the
mid-2000s. Whilst the African venture capital 2. DEVELOPMENT OF REGIONAL HUBS
market remains nascent it displays many of the In the US a large proportion of venture-related
same characteristics that Europe, China and activity takes place in Silicon Valley. In Asia,
India exhibited just prior to the maturation of hubs have sprung up around key cities such as
their ecosystems: Beijing & Shanghai (China) and Bangalore &
1. REVERSE MIGRATION
Mumbai (India). In Africa, regional hubs are
emerging in North Africa (Cairo), East Africa
Anecdotal evidence suggests an increase in (Nairobi), West Africa (Lagos) and South Africa
returnee entrepreneurs like Iyinoluwa Aboyeji, (Cape Town).
who left Canada in 2013 to first found Andela
F
ive precursors that predict the growth of African venture
capital activity
1 2 3 4 5
Increased
Reverse Development of Increased New market
participation
migration regional hubs deal activity entrants
from US VCs
23
W H AT R OL E CAN DF I S PL AY I N P ROMOT IN G
T H E D E V E LOPM ENT OF THE AFRICAN VE N T U RE
CA P I TA L E COSYSTEM ?
3. INCREASED DEAL ACTIVITY 5. NEW MARKET ENTRANTS
In 2017 VCs deployed $560 million in 124 Venture firms entering the Africa market with
African venture-backed start-ups, a 53% year- new funds in recent years include local VCs that
over-year increase in capital invested (Partech are raising institutional capital for the first time,
Ventures, 2018). established EU VCs launching their inaugural
Africa-focused venture funds such as Partech
4. INCREASED PARTICIPATION FROM Africa and TLCom, and even experienced US
US VCS
venture capitalists launching new funds to target
In China, it was the entry of US VCs that fuelled the continent, such as Raba Capital. This is
the development of the market. In the past two in addition to an increasing number of locally
years, prominent US VCs have financed a number based impact venture funds such as Novastar
of African companies including Andela (Spark Ventures and Energy Access Ventures.
Capital), Flutterwave (Social Capital), Instabug
Whilst Africa’s venture capital market is showing
(Accel) and Zipline (Andreessen Horowitz).
promising signs of growth it isn’t clear how long
it will take the ecosystem to develop sufficiently
In 2017 VCs deployed $560 million to support domestic entrepreneurship and signi-
ficant job creation. China’s venture capital market
in 124 African venture-backed start-ups developed relatively quickly (within 15 years),
but the European ecosystem has taken much
[in Africa]. longer to develop (20+ years). Africa shares
characteristics of both regions and is likely to
take at least 15 years to fully develop.
DEVELOPING A VENTURE CAPITAL INVESTMENT PROGRAMME
CDC’s new Intermediated Equity venture gap in the market. We plan to minimise risk by
programme will initially focus exclusively on diversifying the portfolio by geography, with
investments in venture funds. We believe this exposure to the four key hubs in North, East,
is the best approach for CDC to take at this time West and South Africa.
as it enables us to build a diversified portfolio
to minimise risk and will enable us to leverage Investing in venture funds is similar, but different,
REFERENCES
our existing skillset and team most effectively. to investing in private equity (PE) funds, and we
Will Gornall, Ilya A. Strebulaev,
The Economic Impact of Venture have introduced new processes and procedures
Capital: Evidence from Public
Companies, Stanford, 2015. Available
In Phase 1 of the programme we plan to deploy to execute the programme; we have tweaked our
here: https://www.gsb.stanford.edu/ up to $75 million in 6-8 seed and early-stage due diligence to be more qualitative (to reflect
faculty-research/working-papers/
economic-impact-venture-capital-
Africa-focused venture funds over the next 3-4 the importance of relationships and lack of data
evidence-public-companies years. Given that it typically takes 6-8 years for in venture); we have developed a customised
Cyril Collon, “In another record-
breaking year, African Tech Start-ups
early-stage investments to be exited, we envisage approach to ESG (to reflect the lean management
Raised US$ 560 Million in VC funding the programme will have at least two further teams and limited bandwidth); and we have
in 2017, a 53% YoY Growth”, Partech
Ventures, 2018. Available here: phases, stretching out in total over a 10-year amended our standard term sheet (to reflect the
https://www.linkedin.com/pulse/ period. We chose to target seed and early-stage need for significant follow-on capital).
another-record-breaking-year-
african-tech-start-ups-raised- as this is where we felt there was the biggest
collon/?trackingId=6ncsYxVeIpYLqWv
U8n6CNg%3D%3D&utm_medium=
social&utm_source=twitter&utm_
content=xAe21vGswmsd5fHFmjgxwt-
OyAMYC_j7eUHnzZKEAi4
24
We are also pro-actively working with the DFIs can plug market gaps and anchor key
broader DFI community to share learnings and
expertise as well as due diligence on specific venture funds, ensuring that there is sufficient
funds. As a first step to greater collaboration, capital to fund start-ups across the whole
in December 2017 we organised the inaugural
DFI Venture Capital Forum.
continent.
HOW DFIS CAN ADD VALUE TO VENTURE INVESTMENTS
We believe there is an opportunity for the DFI At CDC we also plan to use our networks within
community to help shape the development of the US/EU venture capital community to raise
the Africa venture market. DFIs can plug market awareness of African VC within the broader VC
gaps and anchor key venture funds, ensuring industry, mobilise follow-on capital for later-
that there is sufficient capital to fund start-ups stage companies and help transfer key learnings
across the whole continent. We can mobilise and expertise from the US to Africa.
capital from within the DFI community and
from institutional investors to ensure that fund
managers are able to meet their target fund sizes.
We believe there is also a significant oppor- Whilst there are experienced individual VCs
tunity for value additionality. Whilst there
are experienced individual VCs in Africa, few in Africa, few managers have experience of
managers have experience of building a venture
firm, constructing a portfolio and dealing with
building a venture firm, constructing a portfolio
institutional investors. This is clearly an area and dealing with institutional investors.
in which DFIs can help provide guidance. We
can help install high standards of governance
within funds, and their underlying portfolio
companies. We think there is also potential to
leverage our networks in Africa to help identify
future employees, advisors and board members.
25
KEY FIGURES
A vibrant African start-up scene,

though still in its infancy
nicorns are concentrated in the United States
U
and China
Africa only has 1 member in the highly
select club of 174 unicorns identified
throughout the world, i.e., Jumia.
1. Based on constantly evolving data

provided by The Wall Street Journal
in early 2018. The above map is
not exhaustive.
All circled amounts are in US$ billion

CANADA
1
105 The figure appearing below the country
name corresponds to the number of unicorns
per country
UNITED STATES NORTH

105 AMERICA
71.4
I nternet penetration rate
by continent
North America 88% COLOMBIA

Western Europe 84% 1
Oceania 68%
Eastern Europe 67%
South America 66%
Middle East 60%
China 57% LATIN
1.9
Central America 53%
AMERICA
Southeast Asia 53%
World average 50%

ARGENTINA
Central Asia 48% 1
South Asia 33%
Africa 29%
Source: Statista, 2017.
26
Unicorns are unlisted start-ups, mainly
operating in the tech sector with a valuation
of at least US$ 1 billion.
EUROPE
26.9
ASIA
UNITED
KINGDOM
6
NETHERLANDS
1
SWEDEN
1 67.8
LUXEMBOURG GERMANY
1 2 CZECH REP.
FRANCE 1 MIDDLE
EAST
3
2 SOUTH
KOREA
3 JAPAN
CHINA 1
31
ISRAEL
1
TAIWAN
INDIA 1
DUBAI
1 9
NIGERIA
1 SINGAPORE
2
INDONESIA
2
0.6
AFRICA
Source: CB Insights; Partech Ventures; Preqin, Global Venture Capital Deal, April 2017; Proparco.
27
KEY FIGURES
V
enture capital Total Average
in Africa: a nascent Number % of value % of investment
sector with a bright Geographic region
of deals total (US$ value (US$
future million) million)
United States 5,104 39% 69.2 40% 14
In 2017, African venture capital
China 1,736 13% 47.0 27% 27
operations only represented
1% of transactions completed Asia (excluding China) and India 1,078 8% 19.4 11% 18
throughout the world and 0.6% Europe 3,772 29% 26.9 15% 7
of total investment in the sector. India 827 6% 7.4 4% 9
Israel 253 2% 2.2 1% 9
Source: Partech Ventures, 2018; Preqin, Africa 128 1% 0.6 1% 4
Global Venture Capital Deal, Avril 2017.
Latin America 224 2% 1.9 1% 8
V
enture capital in F
ocus on 12 African countries
Africa: a large degree
of asymmetry In 2017, African start-ups raised a record $556 million. Nigeria, South Africa
and Kenya have a more advanced support ecosystem (funds, incubators,
Based on available data, there is a accelerators, regulatory environment, etc.) than other countries on the continent.
large degree of asymmetry in terms
of both geography and investments
sectors. 80% of funds raised in TUNISIA
2017 mainly went to three countries 1.5
– South Africa, Nigeria and Kenya.
MOROCCO
3.9
EGYPT
36.9
SENEGAL
10.7
GHANA
th Afric 20.4 KENYA
ou
147
80%
S
a
UGANDA
16
of funds NIGERIA
raised in 114.6
2017
Ni g
er
ny
ia Ke
RWANDA
36.7
TANZANIA
0.4
SOUTH
AFRICA
167.9
The amounts shown
on the map are
in US$ billions
Source: Proparco, 2018. Source: Partech Ventures, 2018.
28
The main sectors financed by venture capital in Africa
In 2017, the three main sectors financed by venture capital in Africa are fintechs, off-grid solar power and e-commerce.
Strongly represented in the United States, Asia or Europe, the artificial intelligence (AI) or biotechnology sectors are still
lacking on the continent.
Source: Proparco, 2018.
Fintech E-commerce Off-grid solar EdTech/ Personal Other

power HealthTech Services
24% 19% 21% 15% 13%

7%
T
he financing life cycle of a start-upd
SEED
Revenues
EARLY MID/LATE EXIT

Acquisition /
IPO
Series C, D, E,
Late etc.
stage
VCs
• Business Angels
• Friends and Serie B
Family
VCs
• Venture Capitalist
Funds(VCs) • Private Equity
Serie A Private Funds
Equity • Financial Markets
Funds • Corporates
Seed round
Time
Foundation Emerging Growth Expansion Maturity
Funder type Financing round Growth stage Revenues
Source: Proparco; Vernimmen; Wikipedia Commons, 2018.
29
A N A LY S I S
Supporting digital innovation

ecosystems: what role for DFIs?
A N A LY S I S
Christine Ha, Digital & ICT Project manager, AFD
When it is properly supported, digital innovation can act as a powerful catalyst for achieving sustainable
development goals (SDGs). Innovation dynamics are very important in Africa and play a key role in
devising sustainable inclusive solutions tailored to the context of these countries that provide people with
access to basic goods and services that are currently of a poor standard, such as energy, education and
healthcare. But digital innovation needs to be nurtured in a continent where support structures and seed
financing are very rare commodities. In this context, development institutions are in a position to stimulate
investment, bolster support structures and support human capital development in specialised areas.
T
FOCUS he digital transition is a gilt- and “mobile health” can help deploy remote
AFD
edged opportunity to achieve diagnosis solutions inter alia.
AFD is an inclusive public
financial institution and the main sustainable and inclusive deve-
actor in France’s development
lopment. Innovative digital apps In many domains, these digital solutions are ena-
policy. It makes commitments to
projects that genuinely improve can provide vulnerable popula- bling sectors to develop by leapfrogging some of
the everyday lives of people, in
tions with access to essential goods and services. the stages they had to go through in developed
developing and emerging
countries and in the French For example, “mobile money” enhances access to countries. These innovations are frequently
overseas territories. AFD works in
financial services, “pay as you go” can facilitate deployed by start-ups who have been able to
many sectors – energy, health,
biodiversity, water, digital the purchase of such things as solar energy, transform the constraints specific to their operating
technologies, training – and environment into value-creating opportunities.
supports the transition to a safer,
more equitable and more
sustainable world: a world in
common. Its action is fully in line SHORTAGE OF SUPPORT AND ACCESS TO FUNDING
with the Sustainable
Development Goals (SDGs).
Through its network of Nevertheless, these successes mask the challenges by investors – that support and seed financing
85 agencies, AFD operates
in 109 countries and is
facing the vast majority of entrepreneurs, par- are crucial for transforming an innovative idea
currently supporting over ticularly in Africa. According to a study carried into a marketable product.
3,500 development projects.
In 2017, it earmarked EUR 10.4bn out by the firm of Roland Berger for Agence
to finance these projects. française de développement (AFD/Roland Berger, In order to develop and grow, start-ups generally
2017), start-up momentum in Africa is weak need structures that can partner them in each phase
when compared with elsewhere. There are only of their development. The support structures in
0.3 start-ups per million people in Sub-Saharan question, just like coworking spaces, are gradually
Africa, 9.6 in South Africa, and 1.3 in Morocco emerging across Africa, however the incubators
– versus 43 in France. This discrepancy is due and accelerators that offer more comprehensive
to the dearth of support structures and seed support are not nearly up to speed yet. They are
funding for start-ups. It is during this key phase struggling to get off the ground due to a lack of
(diagram opposite) – considered highly risky both public and private sector support.
30
D
evelopment lifecycle of a start-up and meeting
needs on the African Continent
Phase IDEA START-UP DEVELOPMENT MATURITY
Enterprise support Incubators Accelerators Mentors

structures
Support
structures Coworking spaces Technology parks
Organisations offering training to entrepreneurs
Love Money Seed capital funds Venture capital

& corporate venture capital funds
Business angels
Sources
of funding
Crowdfunding platforms Banks
Government grants
Financing
requirements €0 €100 k €1 M €5 M
Extent to which « DEATH VALLEY » Scarce funding

needs are met
Relatively developed offering Insufficient offering Weak or non-existent stakeholder involvement

Source: AFD/Roland Berger, Étude sur l’innovation numérique en Afrique et dans les pays émergents, 2017.
However, aside from the dearth of support struc- Development institutions can be catalysts here
tures, the number one problem facing African and encourage governments to set up digi-
entrepreneurs is scarce funding: 87% of pro- tal investment programmes for example, or
ject backers consider this to be very difficult to spearhead initiatives to finance start-ups and
obtain. The collateral required, coupled with help structure the various stakeholders and
the high interest rates charged by African banks initiatives while continuing to strengthen the
are often insurmountable barriers. Alternative sector, especially in terms of human resources.
sources of finance such as crowdfunding, business
angels, venture capital or seed funding remain
very limited in their scope and concern very
few projects. Private equity in Africa is often
South Africa, Nigeria and Kenya absorbed
focused on growth capital, mostly for well-es-
tablished SMEs, and specialised seed or venture 80.3% of investment, followed by Egypt, Ghana,
capital funds are virtually non-existent outside Morocco and Rwanda.
of South Africa.
31
S U P PORT I N G DI GI TAL
I NNOVAT I O N EC OSYSTEM S:
W H AT R OL E F OR DF I S?
ENCOURAGING PRO-DIGITAL INVESTMENT
Broadband access and 3G or 4G mobile coverage Africa, Nigeria and Kenya absorbed 80.3% of
– which make it possible to distribute digital investment, followed by Egypt, Ghana, Morocco
services – will be one of Africa’s key challenges and Rwanda. Nevertheless, the portion of start-
over the next 10 years. According to the Interna- ups that are being funded remains small: only
tional Telecommunication Union (ITU, 2017), 3.6% of African tech start-ups that looked for
only 22% of Africans currently use the net. As seed or venture capital funding in 2015 actually
well as boosting network coverage, Africa also managed to raise any, even though the funding
needs its own resources – particularly servers – potential should reach US$ 1 billion by 2020
to cut network access costs and develop local (Partech forecast). Furthermore, the business
content and services that are adapted to the angels who are present in very small numbers
needs of local populations. Investing in digital or in an unstructured form only concern very
infrastructure is the first step in placing Africa on small numbers of projects and crowdfunding
the road to more inclusive and sustainable social is struggling to take off due to an ill-adapted
and economic growth. These capital-intensive regulatory framework.
projects could be co-financed by development
institutions. Better access to funding for African start-ups is
therefore a key imperative. As a development
In addition to developing digital infrastruc- institution, ADF needs to support conditions
ture, innovation funding needs to be diversi- that open up and enhance market attractiveness
fied and made more accessible. To be sure, the and financial backers can do this in a number of
number of African start-ups that have managed different ways. They can for example participate
to raise seed funding (for the start-up phase) in seed or venture capital funds or encourage
and venture capital (for the development phase) investment through risk pooling mechanisms
grew by 17% between 2015 and 2016. They that benefit funds and finance institutions. They
managed to raise US$ 129 million in 2016, of can also deploy enterprise support initiatives
which more than 24% went into fintech start- like interest-free loans, similar to those provi-
ups (i.e., financial technology start-ups). South ded by the Afric’Innov fund supported by AFD.
BRINGING STAKEHOLDERS TOGETHER AND SUPPORTING HUMAN

CAPITAL DEVELOPMENT
As proof of the dynamism of the sector, nume- more conducive to enterprise and research. This
rous innovation initiatives are taking off across support, which can take the form of funding
the Continent with the backing of a whole host or technical assistance, is absolutely indispen-
of institutional and private stakeholders and sable for unlocking the full potential of digital
REFERENCES associations. However, these stakeholders, often innovation.
Agence Française de working alone, are struggling to get start-ups
Développement/Roland Berger, off the ground and it is absolutely essential to Human capital development is also essential
Étude sur l’innovation numérique
en Afrique et dans les pays bring innovation ecosystems together in order for digital innovation. By 2025, it is estimated
émergents, 2017. to structure them and consolidate their action. that Africa will need 30,000 IT engineers and
International Telecommunication
Union, Facts and Figures, 2017. And here again development institutions can 120,000 developers so there is a big need to
be of help by facilitating exchanges and sha- boost under-graduate expertise in computer
ring best practices between different players technology. Development institutions can help
and by structuring networks of mentors and out in a number of ways: supporting higher
business angels. They can also help create an education institutes that wish to develop enter-
environment and regulatory framework that is prise programmes, creating technical learning
32
programmes (i.e., web and mobile development, The digital economy is one of the few sectors
UX and UI design, data, architecture and cloud in which Africa has succeeded in bridging the
computing), or setting up coding schools (similar gap with developed countries and African deve-
to French schools such as Simplon, École 42 or lopment is now intrinsically bound up with this
WebForce3). sector. The digital innovations being deployed
by start-ups have transformed business models
A number of institutional funds have launched and value chains while also fostering greater
digital innovation support programmes in Africa: inclusiveness through innovative tailored
“Boost Africa” (African Development Bank and solutions. Based on its strong market growth
European Investment Bank), “Startup Catalyst” potential – e-commerce contributed US$ 18
(World Bank), and “Challenge Funds” (Swedish billion to African GDP in 2013 and this is set
international development agency). In a simi- to top US$ 300 billion by 2025 – the digital
lar vein, AFD Group has launched the annual economy is synonymous with hope, particularly
“Digital Africa” awards (box below) which for African youth. Partnering digital innovation
single out African start-ups that have come up across the Continent means providing Africa
with innovative pro-development solutions, with the resources it needs to tackle economic
and “Fonds Afric’Innov” which gives support to challenges for years to come.
entrepreneurs in the start-up phase. AFD is also
throwing its weight behind several operators
and stakeholders in development infrastructure
and digital solutions and investing in a number
of venture capital-type projects through its sub-
sidiary Proparco.
The Digital Africa Challenge

Since 2016, “Digital Africa” has been awarding an annual prize • Ville Propre (Morocco): Ville Propre (or Clean City) is a mobile
to African or French start-ups that make a significant social app that aims to help clean up polluted urban areas and
contribution to African development by coming up with maintain them to the standards expected by local inhabitants.
innovative solutions. It is organised jointly by AFD, BpiFrance
and FrenchTech and it showcases the best digital innovation • Tuteria (Nigeria): Tuteria is an online platform that puts people
talent in Africa – or working for Africa. The competition is open wishing to learn into contact with local experts who have been
to African and French entrepreneurs with projects in the “peer-verified” by their communities.
start-up or creation phase that are targeting the African
Continent. Every year, it rewards a short-list of 10 start-ups (five • LishaBora (Kenya): LishaBora provides inputs and practices
African and five French) by showcasing their projects and giving and co-manages products for Kenyan smallholder dairy
them access to the support of the French and international farmers. This start-up also provides fodder management and
digital ecosystem to help them get their solutions to market. general farming services and helps unlock access to bank
With nearly 550 applicants in 2016, and more than 750 in 2017, loans and credit.
the awards are an unqualified success. Here is the list of the
• Volkeno (Senegal): Volkeno is developing a distance learning
winners for 2017:
device for studying new technologies, even when there is no
• Etudesk (Côte d’Ivoire): Etudesk is an e-learning platform that internet connection, for the ultimate purpose of facilitating the
provides students, job-seekers and workers with business- professional integration of young people.
type courses that enhance their professional skills.
33
CASE STUDY
Why and how does Orange finance

innovation in Africa?
Grégoire De Padirac, Investment manager, Orange Digital Ventures (ODV)
Africa, which has already experienced some entrepreneurial success stories, is powering up and seeing
the emergence of a new generation of entrepreneurs in innovation. However, digital Africa still focuses
on a few epicenters, which receive the bulk of venture capital finance. The challenge will lie in repeating
the Nigerian, Kenyan and South African successes in other regions on the continent.
A
FOCUS frica is on the move”, stated Jumia, Interswitch, M-Kopa Solar, Andela, etc.
ORANGE DIGITAL Barack Obama during his This is precisely the gamble taken by Orange in
VENTURES AFRICA
Orange Digital Ventures Africa
(ODVA) is a EUR 50m investment fund
that finances innovative start-ups in
“ visit to Kenya in 2015, poin-
ting out the spectacular digi-
tal revolution in the country
making Africa a real growth driver. The Group
today operates in 21 countries, has over 121
million clients, a turnover of EUR 5.2bn and
Africa. The fund was launched in 2017
and targets strategic sectors for of his ancestors. This revolution in Africa is a headcount of 20,000. More than one African
Orange in the zone by leveraging the
Group’s African client base and
mainly mobile. These major changes are based in ten benefits from Orange’s services.
distribution network: fintech, eHealth, on mobile phones and their most simple tech-
energy, agritech, govtech, edutech.
nologies (SMS, USSD, etc.). It is commonplace While this revolution is based on the invest-
to mention this “leapfrog”, which makes it pos- ments made by operators, it is especially the new
sible to bypass shortcomings in infrastructure generation of entrepreneurs which is giving
with mobile services for financial inclusion, the continent all the momentum it is currently
energy supply, education, healthcare, etc. This gaining. An operator is a special player in this
has already resulted in success stories, such as ecosystem. It is central to the process. Beyond its
network, it is the gateway to the market, whether
via its communication and billing interfaces (its
It is especially the new generation of API, or application programming interface) or,
more simply, its network of retail outlets. Few
players in Africa have a distribution network as
entrepreneurs which is giving the continent extensive as an operator like Orange. Indeed, we
all the momentum it is currently gaining. have over 700,000 retail outlets on the continent.
34
BUILDING CLOSER TIES BETWEEN THE TELECOM OPERATOR AND THE
STARTUPPER: A STRUCTURAL CHALLENGE
To reinforce its position as the African leader in

the digital transformation, it was essential for
Innovations have gathered such a pace
Orange to include partnerships with innovative
start-ups in its DNA. Innovations have gathe-
that the myth of the almighty power of large
red such a pace that the myth of the almighty groups has been largely debunked,
power of large groups has been largely debunked, including on the continent.
including on the continent.
But being a natural partner of entrepreneurs is

not a matter of course and requires two major
changes, which the Group has made. Firstly, the Group’s APIs and, recently, investment in
remedy a certain mistrust on the part of entre- start-ups. Indeed, investment is a particularly
preneurs for which the operator appears to be effective tool for improving the Group’s capacity
an inaccessible contact, yet is sometimes key to to “connect” with innovative actors. This is both
their scaling up. Secondly, the corollary is to because it meets a simple and practical need
overturn the culture of partnerships with start- of companies, and because they are decisions
ups in-house, via initiatives which facilitate the which can be made rapidly, as long as there is
establishment of relations and decision-making. appropriate governance. Finally, it is often a
More generally, it involves taking a less defen- sound basis from which to build sustainable
sive approach that is more open to co-creation. partnerships.
All this has been done in the context of the
Group’s various Open Innovation programs. It
is a challenge faced by all large companies and
especially in French-speaking Africa, where
there is still the widely predominant feeling that
The positive dynamics for investors on
strength is measured by the rigor of procedures.
the continent are continuing, in particular
Consequently, to address these issues, Orange has
managed to build up a series of Open Innovation
with the announcement of the creation
initiatives over the years. To name but a few of new funds, like Partech Africa [...] or
flagship initiatives: training (Sonatel Academy Tlcom Africa Fund.
with Simplon in Dakar, a Master’s to train data
scientists in Abidjan in partnership with the
polytechnic school and INP-HB), acceleration
with the four Orange Fabs in the MEA zone,
the social entrepreneur award, the partner
incubators (CTIC, CIPMEN, etc.), the Orange
Partner and Bizao programs to open access to
35
W H Y A ND HOW DOES OR ANGE
F I NA NC E I NNOVATI ON I N AF R I CA?
CREATE A FUND FOR INNOVATIVE AFRICAN START-UPS
This is what the initiative of Orange Digital Consequently, ODVA is investing up to EUR
Investment (ODI), the Group’s strong arm in 3m for a first round, following the start-up
digital investment, is all about. Indeed, Orange rounds, with the capacity of following in the
Digital Investment covers three types of activities: subsequent rounds. The investment themes are
Orange Digital Ventures (ODV), which directly in line with the Group’s strategic priorities in
invests like a venture capital fund in minority the zone: fintech, eHealth, energy, agritech,
tickets in early-stage start-ups in the context of govtech, edutech, etc. Our investment strategy
appropriate governance, with a presence in Paris, is to leverage our assets in Africa (client base,
London and, since recently, Dakar; investments distribution network, API, Orange Money…) in
in funds of funds: Iris Capital, Partech Africa, order to support start-ups which have already
Paris Saclay Seed Fund, etc.; and more late-stage experienced strong growth in their domestic
corporate venture investments (strategic digital market and aim to rapidly go international.
monitoring and equity investments, such as
Jumia, Deezer and Dailymotion). It all involves becoming, through investment,
a fully-fledged player in the digital revolution
by being a partner of the future pan-African
Our investment strategy is to leverage champions of tomorrow, whether they are based
in Africa or elsewhere. The presence of the fund
in a French-speaking country makes it possible
our assets in Africa [...] in order to support to reach territories where there are a wealth of
start-ups which have already experienced opportunities and which are often neglected by
international investors. Orange Digital Ventures
strong growth in their domestic market and
aims to combine the best venture capital with
aim to rapidly go international. the best assets of a large group like Orange.
Consequently, as an investor, ODV has the
objective of maximizing the financial return,
In June 2017, during the Afrobytes conference, but also aims to create strategic value for the
Pierre Louette, Deputy Chief Executive Officer Group, to accelerate sustainable partnerships
of the Group and Chairman of Orange Digital with innovative actors or, more simply, the
Investment, announced the launch of Orange learning process for new economic models, new
Digital Ventures Africa (ODVA), a EUR 50m products or technologies. For ODV, it is a way
fund based in Dakar dedicated to African start- of providing strategic value to the entrepreneurs
ups. Through this new initiative, Orange has it supports. ODV also ensures that it maintains
completed its system with a specifically African a barrier between the investment team and the
program. Investments in start-ups with activi- rest of the Group in order to avoid conflicts of
ties related to the continent (or adapted to this interest, the circulation of sensitive information,
market) had already been made by ODV, such as etc. Finally, ODV is an evergreen fund which
Afrimarket, Afrostream and PayJoy. However, styles itself as a long-term financial partner,
given the opportunity offered by Africa and unlike other more traditional investors.
our ever-increasing commitment to support its
digital emergence, it was necessary to scale up
in order to fully grasp the opportunity related
to this African digital revolution.
36
AFRICA AS A NEW FIELD FOR INVESTMENT IN INNOVATION
The positive dynamics for investors on the to be entrepreneurs in innovation, monetary

continent are continuing, in particular with stability, previous entrepreneurial success stories
the announcement of the creation of new funds, (Intouch, Wari, Afrimarket, etc.), and a genera-
like Partech Africa (of which Orange is one of tion of “repats” (a population from the diaspora,
the partners) or Tlcom Africa Fund (TIDE). educated in Europe or the USA, which settles
An instructive comparison with India clearly on the continent) with a wealth of expertise,
illustrates Africa’s potential: a relatively similar international networks and enthusiasm for
population (for Africa and India, 1.2 and 1.3 achieving its “African Dream”.
billion inhabitants, respectively) and a GDP
equivalent to USD 2,300bn. Yet Africa’s mobile
penetration rate is double that of India (46%
against 22%), but in comparison Africa’s start-
ups only raised EUR 366m in 2016, according to
Partech, against EUR 4bn for Indian start-ups C
omparisons between India and Africa
over the same period. This clearly illustrates
the growth prospects we could expect for the
Africa India
continent’s digital ecosystem. Pending the confir-
mation of these dynamics by emblematic “exits”,
it is today that we need to support the “gazelles”
1.2 bn 1.3 bn
of tomorrow. POPULATION
INHABITANTS = INHABITANTS
However, this optimistic description should

not hide the fact that digital Africa remains
very scattered between just a few hubs mainly
based in English-speaking Africa. One of the
=
USD USD
main questions that remains is how to repro- GDP 2,300 bn 2,300 bn
duce the Kenyan, Nigerian and South African
digital dynamics in other regions, in particu-
lar in French-speaking Africa which is sorely
lagging behind. The example of the Kenyan
model underscores the role that the traditional
operator played in the emergence of its digital
ecosystem. Indeed, the successful launch of a
MOBILE PHONE
PENETRATION RATE 46% > 22%
mobile money range of services and the ope-

ning of its APIs played a key role by giving
entrepreneurs the means to invent new services.
Orange has taken this route with optimism.
There are still just a few ingredients missing for
the digital French-speaking Africa to actually
emerge (seed funds and business angels, accele- €7.4
rators, proficiency in languages, etc.), but there
FUNDS RAISED
BY START-UPS IN 2017 < BILLION
are sound bases: a huge market of 120 million €560

people in 24 countries, connected and well- MILLION
trained young people who increasingly aspire
37
CASE STUDY
Supporting start-ups in Africa:

Schneider Electric’s approach
Christophe Poline, Sustainable Investment Director, Schneider Electric
In Africa, Schneider Electric implements a strategy based on supporting innovation, by taking a

commercial approach tailored to people’s needs, managing two specialized impact funds which focus
on social innovation, and supporting local capacity building.
A
FOCUS frica will have two billion Consequently, if we expect to resolve global
SCHNEIDER ELECTRIC inhabitants by 2050, i.e. energy problems, specific action is required in
Schneider Electric, a leader in the
energy transition, aims to give
a quarter of the world’s Africa. There is a need to increase the energy
companies the capacity to address population. Half of them supply, a prerequisite for its development, wit-
the energy and climate challenge,
while taking action to make energy will be aged between 15 hout exacerbating climate change, which already
accessible to all. For example, the and 30. The continent will need to address a seriously affects the continent. Achieving this
Group has undertaken to promote the
implementation of lighting solutions number of challenges, including climate and requires both developing renewable energies
and means of communication for energy challenges. In 2016, out of the 1.06 billion and deploying energy efficiency solutions.
50 million poor people over the next
ten years, while supporting – via the people who did not have access to electricity,
Schneider Electric Foundation1 – over half (588 million) lived in Sub-Saharan Working for the development of a sustainable
access to high-quality education
Africa (IEA, 2017). This figure could reach economy in Africa by promoting innovation
for all.
645 million by 2030. also allows Schneider Electric to position itself
in an expanding market. By supporting local
entrepreneurs and taking part in the development
1 Under the aegis of Fondation de France. of innovative projects, the Group is seeking to
P
eople without access to be at the forefront of social and technological
electricity innovation, while contributing to building new
economic models. Schneider Electric’s objectives
in Africa are implemented in the context of its
energy access program, which comprises three
1.06 BILLION PEOPLE complementary areas.
throughout the world
including
588 MILLION
PEOPLE
in Sub-Saharan Africa
38
DEVELOPING A SELF-FINANCED COMMERCIAL APPROACH
In Africa, Schneider Electric markets products price. This “inclusive business” component also
and solutions which primarily target rural com- contributes to the deployment of innovations
munities. This range of services comprises thanks to the payment terms it grants, which
individual solar systems (portable lamps to allow pilot projects to be prefinanced or dis-
recharge mobile phones), individual electri- tribution grids to be created.
fication solutions (solar home systems – SHS)
or collective systems (decentralized micro solar
power plants, water pumping and solar lamps)
to meet the needs of households, public services
and companies.
Cooperation between
The development of this commercial part of telecommunications companies and energy
Schneider’s activities in Africa is based on its start-ups today allows mobile payments,
self-financing capacity. Trade margins are cal-
culated to allow all the costs to be covered,
microinsurance and access to weather
while providing consumers with an affordable forecasts for farmers.
SUPPORTING INNOVATIVE START-UPS VIA IMPACT FUNDS
To support innovation in Africa, Schneider Elec- While social innovation determines the choice
tric initially created impact financing tools. In of the projects supported by the fund, their
2009, the Group set up one of the first impact economic dimension is, of course, taken into
funds led by an industrial group, Schneider Elec- account. For example, SEEA was one of the
tric Energy Access (SEEA). In 2015, it continued first investors in Fenix International (box
this policy with the creation of Energy Access below). The fund also supports technologi-
Ventures (EAV), the first impact fund including cal innovation. The funded companies have
an industrial group and development banks (EIB, spearheaded the deployment of Pay-As-You-Go
CDC Group, PROPARCO/FFEM, OFID, and models, for instance. A number of start-ups are
recently joined by FMO). seeking to exploit these innovations. For exa-
mple, cooperation between telecommunications
The SEEA fund supports companies that fight companies and energy start-ups today allows
against the energy divide in Europe, Africa, and mobile payments, microinsurance and access
now in Asia. This EUR 7m vehicle is today sup- to weather forecasts for farmers.
porting eleven innovative companies, generally
in the start-up phase, and provides them with
financial support and technical assistance to
allow them to successfully scale up. The EAV
fund, for its part, is specialized in access to elec-
tricity in Sub-Saharan Africa with much more
substantial resources for operations (EUR 75m),
Fenix International
allowing it to contribute to the development of
the six companies supported since it was set up. This company is today one of the main players on the domestic solar
systems market in Uganda. It is currently expanding its business to Zambia
and Côte d’Ivoire. Fenix has a significant social impact. For example, over
100,000 solar systems have been sold and benefit one million people, which
has allowed them to “avoid” USD 8.8m of spending. With the takeover by
Engie, Fenix is going to be able to continue its development. The SEEA fund
has played the role of an “accelerator” for this company by investing right at
the start of the project.
39
S U P PORT I N G START- UPS I N AFRICA:
S C H N E I D ER EL EC TR I C ’ S APPR OACH
BUILDING SKILLS BY SUPPORTING TRAINING
A training program completes the strategy to in vocational training for energy activities and
support innovation in Africa. While only three entrepreneurship: marketing, sizing, installation,
million young Africans a year find a job (out maintenance, operation of electrical installa-
of 10 to 12 million who enter the job market tions. Over 140,000 people have been trained
every year), activities in the energy sector offer in electricity activities and 950 entrepreneurs
them stable opportunities. have been supported since the program was
set up – the objective for 2025 is to reach one
Consequently, to address the current lack of million people trained and 10,000 entrepreneurs
resources and technical skills at local level, the supported.
Schneider Electric Foundation supports actors
INNOVATION IN AFRICA: WHAT PROSPECTS?
Finally, the local reinvestment of financial flows

Finally, the local reinvestment of financial needs to be promoted. Today, the financial flows
from developing countries which are directed
towards industrialized countries far exceed the
flows needs to be promoted. Today, the amounts earmarked for development assistance.
financial flows from developing countries Since 1980, the equivalent of GDP in the USA
which are directed towards industrialized – i.e. USD 16.3bn (The Guardian, 2017) – has
circulated from the South to the North and the
countries far exceed the amounts earmarked financial interest related to the debts of South
for development assistance. countries stands at USD 200bn a year. The fact
that the investments made by countries in the
North are profitable is not called into ques-
tion, but certain reforms could, nevertheless,
To strengthen innovation in Africa, beyond reestablish a more equitable balance for Africa,
the support for training and the action of the by promoting the local reinvestment of finan-
impact funds, Schneider Electric promotes new cial flows. Indeed, financing for innovation in
strategies and new ways of working. For exa- Africa – a need given the challenges mentioned
mple, if energy players located their production above – should also be financing for innovation
in Africa rather than in China, the continent for Africa.
would have new sources of income, which would
strengthen its autonomy. Indeed, the sustainable
development of Africa necessarily requires its
empowerment.
REFERENCES
International Energy Agency, Energy Furthermore, priority needs to be given to social
Access Outlook, 2017. entrepreneurship (where economic efficiency
Jason Hickel, Aid in reverse: how
poor countries develop rich countries, is at the service of a social mission), impact
The Guardian, 2017. Available on investment (where both financial and social
Internet: https://www.theguardian.
com/global-development- returns are sought) and training, so that local
professionals-network/2017/jan/14/ expertise can take ownership of technological
aid-in-reverse-how-poor-countries-
develop-rich-countries innovations.
40
PERSONNAL ACCOUNT
From the dream of a cashless Africa

to a constantly expanding start-up:
the Zoona story
Mike Quinn, CEO, Zoona
Founded in 2009, the Zambian start-up Zoona is now in full expansion. Like all venture capital-backed
start-ups, Zoona has been through its fair share of ups and downs. Its founder Mike Quinn gives us his
personal account of these decisive steps.
I At this time, it was common to see

n February 2012, I wrote a lengthy essay
called “My Mobile Transactions Story”
which detailed my start-up journey from
stumbling upon founding entrepreneurs
trucks full of cash with armed guards
Brad and Brett Magrath to closing a $4 carrying AK-47s driving down horrible
million Series A venture capital investment. I rural roads.
shared many of the challenges we overcame to
achieve that milestone. It’s now six years later
and that story is due for an update.
In the beginning, there was Brad and Brett, two

after quitting his cushy job at JP Morgan in
entrepreneurial brothers from Kitwe, Zambia,
London, while Brad, several years older, was
who dreamt of a cashless Africa where companies,
married in Zambia and looking to get off the
small businesses and consumers conducted all
corporate ladder. They tried a few ventures
of their business via mobile transactions. Brett
that all started out promising but left them both
was in his early thirties, married in Cape Town
broke and nearly broken.
THE DREAM OF A CASHLESS AFRICA
One night in Lusaka, Brad was out with an cotton sector. At this time, it was common to see
American colleague from USAID talking about trucks full of cash with armed guards carrying
his vision when the spark occurred. He sent AK-47s driving down horrible rural roads. An
Brett the ‘now-famous’ text message that he international cotton company invested in the
had an idea for their next venture and that it brothers, they applied for and received a Bank
was going to be big. A few months later, the of Zambia payments’ license, and they set up a
brothers had a $200k grant from USAID to company called Mobile Transactions.
launch a pilot to digitize cash payments in the
41
F R OM T H E DR EAM OF A CASHLE S S AFRICA
TO A C O N STANTLY EXPANDI NG START-UP :
T H E ZO O N A STORY
While this was happening, I was completing wire $100 thousand dollars into a Zambian bank
my MBA at Oxford where I was a Skoll Scholar account to save the company from bankruptcy
for Social Entrepreneurship. I had previously and become a partner in the business. With
spent 2.5 years as a volunteer in Ghana and an ultimate leap of faith, they said yes, after
Zambia with Engineers Without Borders Canada which Brad and Brett made me CEO to lead the
and completed a MSc in international develop- company into its next phase. My first move was
ment at the London School of Economics. I was to convince my MBA colleague Keith Davies
FOCUS hungry to get back to Africa where I wanted to to quit his investment banking job and cash in
ZOONA
be an entrepreneur and have an impact but I his pension to join us as our CFO. The future
Zoona is an African FinTech business
that helps communities thrive. Since too was broke and saddled with student debt. was bright.
launching in 2009, Zoona has grown
I first convinced my fiancé to take the plunge
to an active customer base of 2
million consumers with 3,000 agents and move to Zambia with me on a whim, and Only it wasn’t – not yet, at least. A few months
in Zambia, Malawi, and Mozambique
then an early stage investment fund to buy me a later we had burnt through all of our cash (again)
and has processed over $2 billion in
transactions. In 2015, the Nike plane ticket to search for entrepreneurs to invest and lost a major contract that was the source of
Foundation and Unreasonable
in. I sent one email to an American colleague most of our revenue. We were left scrambling
Institute selected Zoona as one of the
world’s top start-ups for helping girls from USAID I knew from my volunteer days again but managed to raise some convertible
out of poverty based on a micro-
(thankfully the same one who knew Brad!) and debt to survive a little longer and also buy out
franchise model that empowers girls
and young women to become the day after I arrived in Zambia, I was face our corporate shareholder. We finally had some
entrepreneurs.
to face with Brad and Brett and hearing their runway and took advantage of it to raise a Series
inspiring vision. A investment. We signed a $4m term sheet
with Omidyar Network and Accion at the end
A year later I found myself asking my retired of 2011 and closed the deal in February 2012
parents in Canada to mortgage their house and with feelings of great relief and accomplishment.
“WE WERE INSPIRED BY THE EXPONENTIAL RISE OF M-PESA”
As Nelson Mandela once said, “After climbing receive money within the country. But unlike
a great hill, one only finds that there are many M-Pesa, we didn’t have a customer base, a dis-
more hills to climb.” He couldn’t have been more tribution network or a brand to launch from,
correct. If the beginning was about not running and had to start from scratch.
out of cash, the middle was about how to build
a business. Our agriculture payments’ product What we did have, though, was purpose and
had failed as the demand for cash was too high perseverance. We selected young entrepreneurs
from small scale farmers and we had not yet as agents, treated them as our core customers,
cracked the supply side. Meanwhile, we were and invested in the most promising ones to
inspired by the exponential rise of M-Pesa in expand to more outlets. We also rebranded
Kenya and pivoted into building a franchise from the functional “Mobile Transactions” to
agent network to allow Zambians to send and the meaningful “Zoona”, which translates to
“It’s real” in Zambia. Our model spilled into
A year later I found myself asking my retired Malawi while we built a customer service and
technology centre in Cape Town to support
parents in Canada to mortgage their house and both markets.
wire $100 thousand dollars into a Zambian bank
account to save the company from bankruptcy
and become a partner in the business.
42
The results started to show. We started achieving led to a difficult period of consolidation, but
exponential growth with new customers tur- we managed to pull through it and raise a $15
ning into repeat users and agents expanding to million dollar Series B investment led by the
more and more outlets. Some of our top agents IFC in 2016 to start growing again.
grew to employ dozens of people and transact
with over a million dollars per month. We also Since then, we have scaled up our team, invested
achieved the milestone of a million active cus- in preserving our entrepreneurial and purpo-
tomers and turned profitable as a group. Once se-driven culture, and expanded our agent
again, the future was bright. network. We have also developed new products,
including payouts of international remittances
But then came the great Zambian currency from South Africa with Mukuru as a partner,
crash of 2015. The copper price slid downwards airtime and utility payments, and our own mobile
following a sharp reduction in demand from wallet and digital storage product for customers
China, which hit the Zambian economy hard. to keep their money safe. Our customer base
The currency depreciated by half in a three- has reached 2 million active users who transact
month period, and so did our revenue while over $60 million per month at our 3,000 agents,
our expense base in Cape Town was fixed. This and we are poised for our next phase of growth.
“I’M MORE PASSIONATE THAN EVER TO FULFILL ZOONA’S MISSION”
Where will my Zoona story end? Once the Zambia and Malawi are our starting points where
problem is solved. There are currently three we want to go deep and fully prove our model.
billion people in the world who lack access to Once we do, we plan to expand to achieve Brad
or who are underserved by the formal financial and Brett’s original dream of a cashless Africa.
service sector. I’m more passionate than ever As we say at Zoona: Let’s make it real.
to fulfill Zoona’s mission of helping commu-
nities thrive and achieve our wildly important
goals: build products and services that improve
people’s financial health and well-being of one
billion people; unleash emerging entrepreneurs
to create profitable businesses that create one
million jobs; prove that a purpose-driven business
can be a global model for growth and impact.
43
PERSONNAL ACCOUNT
“I’m hopeful about emerging companies

entering the world of venture capital-
backed start-ups”
Grant Brooke, Co-founder and CEO of Twiga Foods
Twiga Foods is a B2B marketplace platform that sources produce – initially only bananas – from farmers
at above-market prices and delivers them to retailers at below-market prices, accomplished through
technology and economy. Core values have provided guidance in building this business differently and
in its context. Today, Twiga is Kenya’s largest logistics-serviced seller of fresh produce.
T
hree years ago, on the stage of products, at lower prices, to their doorsteps.
an international pitch compe- Farmers can stock their products on Twiga,
FOCUS
TWIGA FOODS tition, I stood in front of judges and have a persistent and predictable market
Twiga Foods, based in Kenya, is a and a thousand entrants with partner. We accomplished this through tech-
mobile-based supply platform for a single PowerPoint slide of a nology and some economics rules. The reason
Africa’s retail outlets, kiosks, and
market stalls. Twiga Foods allows banana, which simply stated “This is a Banana”. prices were high is that the retail sector is very
grocers to access better-quality
products, at lower prices, delivered
Its simplicity got a big laugh. fragmented – 96% of African commerce occurs
directly to their shops. The solution in SME shops. The way to solve this was to get
gives vendors simple mobile-based A few months prior to this event, Peter Njonjo a number of retailers onto a single platform for
ordering platforms to purchase their
stock, and provides farmers with and I had launched Twiga Foods: a B2B mar- just one product to start: bananas. For farmers,
predictable pricing for their crops. ketplace platform that sources produce from this meant a reliable market in an agricultural
farmers at above-market prices and delivers them sector that is rife with market uncertainty.
to retailers at below-market prices. Vendors
no longer have to walk to large-scale open-air The service proved extremely popular, and has
markets at 4 am; instead, we deliver better-quality now scaled beyond bananas. Today, Twiga is
Kenya’s largest seller of fresh produce, as we
have become the digital commodities market
The reason prices were high is that the we set out to build, with logistics as a service
beneath. In a country where 42% of consumer
spending is on food, it’s a massive problem to
retail sector is very fragmented – 96% of tackle.
African commerce occurs in SME shops.
44
I’ve always wondered what a venture capital opportunities are remote from the realities of
LP meeting would be like for a VC when they most VCs and LPs: thus, these could look strange
explain that they are investing in a Nairobi-based to the world’s venture capitalists. Bridging this
company that, on the outside, looks like a tech- gap is the core job of an early-stage CEO.
based banana distributor. Africa’s challenges and
TACKLING PROBLEMS
Not only do Africa’s venture-backable challenges

Entrepreneurs cannot easily satisfy
look different from what many VCs are used too, preconceived notions of venture-backed
its most successful venture companies also look
strange to many VCs. Entrepreneurs cannot easily
businesses, while solving problems in a
satisfy preconceived notions of venture-backed scalable and sustainable (and profitable)
businesses, while solving problems in a sca- way.
lable and sustainable (and profitable) way. This
is why so many international companies and
well-funded cookie-cutter models have failed So, I would like to explain how our core values
on this continent: these businesses have been – Own Your Your Problems, We Sell Bananas,
removed from their contexts. and Be Good – are guiding us in building a
business differently and fully in its context.
OWN YOUR PROBLEMS
“Own your Problems” is fundamental to the Buy assets: When we started, finding a lorry
Twiga business design: we do not outsource to lease in Nairobi meant walking down the
core business functions. That would simply be highway, picking them out of a queue and nego-
too risky at this point. We do not easily trust tiating. Over time, we learned that it was easier
outsiders, consultants, brokers, contractors: and more capital efficient for us simply to buy
in our experience they will let you down more vehicles. We have found as we have scaled that
often than not. While it is great to have eco- more options have emerged to take them off
systems where you can outsource 50% of your our balance sheet. Fadi Ghandour, founder of
work to preexisting providers, I have a giant Aramex and one of our board members, gave
list of examples showing that is not the case me some good advice on this: ‘Whatever the
here. Hence, if you can control it, control it. finances say, you’re going to be the one mana-
ging the vehicles.’
45
“ I ’ M HOPE FUL AB OUT EM ER GI N G COMPAN IE S
E N T E R I NG THE WOR L D OF VEN T URE CAP ITAL-BACKE D
STA RT- U PS”
The “buy high, sell low philosophy”: We made a Make oneself redundant: For Twiga there is
commitment early on to pay farmers more and not a preexisting talent pipeline. Nobody had
sell to vendors for less. This meant customer built Twiga before. We are one of the few orga-
acquisition was not a challenge, but our ability nizations where making oneself redundant is
to execute on our promise was. Choose your a key performance indicator. We try to grow
battles carefully, and be sure of winning them. people into new layers of management that are
Know your unique selling point (USP), and use it. always ready. Making oneself redundant is how
to grow the organization.
BE GOOD
Where the easy thing to do is the wrong thing business. As your business grows, your reputa-
to do, do the right thing. While we have faced tion will grow for being a good actor, you will
challenges in the near term, I am thankful we get friends in high places who support your
have stuck to this. The first few years of a start-up vision, and ethical challenges will become less
can be an experience of dodging ethical bullets of a problem.
concerning who invests, who you hire and how
you work with government. The company you Create trust: I was once asked whether Twiga was
decide to be when you are small is the company not just the biggest “broker.” Reflecting on it, I
you will be when you are big. realized our biggest USP is being a trusted, good,
formal, actor in a market full of informality and
Get arrested: This does not have to be literal, uncertainty. What separates us from brokers is
but for us it has been. Several of our senior we are only interested in the farmers and buyers
managers, myself included, have been arrested who want to build long, lasting relations with
for defending our staff when they do what is us, and we design our products around them.
right, generally in refusing a shakedown or a In a market full of traders, we are the only ones
bribe. Take the opportunities to stand for what waking up every day asking how we can make
is ethically right, and that way of working will food cheaper.
stick as one of the core cultural stories in your
Kenyan-only hiring: While at times contro-
versial with investors, this principle has been
I realized our biggest USP is being a essential in building Twiga. It is hard to call
yourself good when you are allowing global
inequalities into your business. Foreign develo-
trusted, good, formal, actor in a market full of
pers earning more than locals is not only unfair,
informality and uncertainty. but it also creates resentment in your company,
and resentment is the single biggest corroder
of culture. As we prepare to go international,
we will necessarily become international, but
the principle of not reflecting inequalities that
breed resentment will not.
46
WE SELL BANANAS
When in the African eCommerce space players

were aiming for tens of thousands of stock-kee-
We are good at saying no as an
ping units (SKUs), our banana revenue alone organization. Lots of people want to partner
made us one of the largest tech commerce
players in Kenya. While we are doing more with us, use us to distribute their products,
than bananas now, it is worth keeping in mind to build things on our platform, to photo
that the average Kenyan household buys only
op with us, and so on. We are not easily
about 50 different consumer products a month.
To build a unicorn in Africa – a relatively small distracted from our core objective of selling
consumer economy – you had better be in a bananas.
segment with a lot of spending.
Say no: We are good at saying no as an organi-

zation. Lots of people want to partner with us, I do this once a month in a board meeting, and
use us to distribute their products, to build things spend my weeks helping our managers accom-
on our platform, to photo op with us, and so plish their ‘stand and delivers’. It is painful, time
on. We are not easily distracted from our core consuming, often disappointing, but will make
objective of selling bananas. I was once given you a much better company. The job of a CEO
the academic advice, “Early in your career, say is to create pressure, while at the same time
something specific about something specific, creating safety, two seemingly opposed goals.
and once you do that, you can say it all.” The I do this by being rigorous on structure, but
same holds for business, do something specific soft in person. Your board needs to do likewise.
about something specific, and a few years down The repeated check-ins will help to ensure that
the line you can do it all. nobody gets off the core mission; for us, selling
No advertising: We do not make markets, we bananas.
make them more efficient. Eyeballs in Kenya Our pathway is not the only pathway to success,
are extremely expensive relative to user spend. and we have miles to go. Hence, I am extremely
We have focused on keeping our acquisition hopeful about the hundreds of emerging com-
cost low (a direct visit and a crate of free pro- panies in this market who will be entering the
duce), our acquisition rate high (92%), and our world of VC-backed start-ups to both create
payment rate short (one delivery). Your USP value for investors and, more importantly, build
should be evident without massive spend to meaningful things for our communities.
convince people.
Stand and deliver: Every Monday, Twiga mana-

gers send a pre-read on what they accomplished
the previous week, what they will accomplish in
the current week, what help they need to get it
done, and any topics they would like to discuss.
47
LESSONS LEARNED FROM THIS ISSUE
By Johann Choux, Head of Proparco’s Financial Institutions & Innovation division
There is no doubt about it, Africa is enjoying Nevertheless, looking to the long term, Afri-
healthy venture capital-driven start-up momen- can entrepreneurs (and the investors who back
tum. And this impression will be confirmed them) will be able to draw upon the Continent’s
if you read the articles in this issue. Just one considerable strengths. Driven by a young and
statistic is enough to bear this out: in 2017, rapidly-growing population, its market potential
African start-ups raised a record US$ 560 million is vast and largely untapped. The bulk of the
compared with US$ 366 in the previous year. demand focuses on low-cost solutions adap-
ted to poorer populations. Thanks to the latest
technology and high mobile phone penetration
But despite these encouraging signs, rates, these solutions can now be distributed at
an affordable cost.
African entrepreneurs are still faced So we are not all that far away from witnes-
with many problems and it is absolutely sing a real take-off in African start-ups. As
Michelle Ashworth, venture capital specialist
essential that all stakeholders are geared
with UK-based development finance institution
up to helping them overcome these. CDC points out in this issue (pages 22-25), many
of the indicators that were apparent in Europe,
China and India just before their ecosystems
reached maturity are currently present in Africa:
However, the positive dynamic masks a contras- African entrepreneurs returning to the Conti-
ting situation across the Continent where the nent after time spent abroad; development of
three major hubs – South Africa, Nigeria and regional hubs; significant increase in transaction
Kenya – hoover up over 75% of Africa’s total volumes; growth in foreign investment, notably
venture capital investment. And, despite the from the US; and new funds on the market.
strong growth, these figures are still very low
compared with amounts invested in other parts But despite these encouraging signs, African
of the world. The parallels that Grégoire de entrepreneurs are still faced with many problems
Padirac traces between Africa and India in and it is absolutely essential that all stakeholders
his article (pages 34-37) speak volumes: despite are geared up to helping them overcome these.
comparable GDP and populations and African Governments need to put more money into
mobile phone penetration rates that are nearly physical and digital infrastructure and create
twice as high, African start-ups attracted 13 a more conducive legislative environment. As
times less investment than their Indian coun- Maurizio Caio of TLcom stresses, the Conti-
terparts in 2017. nent also needs more venture capital funds like
TLcom Capital or Partech Africa that will apply
48
LESSONS LEARNED
the same criteria to their start-up investees as manager at Agence Française de Développe-
their counterparts elsewhere. As regards access ment, believes that DFIs “can be catalysts […] and
to funds, development finance institutions (DFIs) encourage governments to set up digital investment
such as Proparco are playing a crucial role in programmes for example, or spearhead initiatives
financing the first funds to venture into the to finance start-ups and help structure the various
Continent and acting as a catalyst for private stakeholders and initiatives while continuing to
investment. Christine Ha, Digital & ICT Project strengthen the sector” (pages 30-33).
SP D
Since 2009, Proparco has coordinated Recent blog articles
the Private Sector & Development (PS&D)
initiative, examining the role of the private Regulating African pharmaceutical
sector in southern countries. markets in order to structure and develop
the local economy more effectively
Issued as a quarterly themed magazine - Alexandre de La Volpilière, pharmacist
and public health inspector
and specialist blog, the PS&D initiative
presents the ideas and experiences Agri-businesses must act in a sustainable
of researchers and actors in the private manner to develop African agriculture
sector who are bringing true added value - Anne Pacquet, Vice-Chairman of the Scientific
to the development of the countries. Committee, FARM Foundation
The last five issues of the review Access to quality seeds: the example of local
seed ventures in Malawi - Jérôme Bossuet,
Issue28 agronomist
Improving the quality and accessibility In Rwanda, “hospitals can now use
of African medicine RapidSMS data to get ready for new
Special issue arrivals!” - Samir Abdelkrim, entrepreneur
Private sector and digital innovation: and consultant
catalysts for development
What role for the private sector in
Issue 27 developing a digital Africa? - Jean-Michel Huet,
Vulnerabilities and crises: what role partner, Bearing Point
for companies?
Issue 26 Video
African ports: gateway to development Report: Microfinance in Côte d’Ivoire to tackle
Special issue financial exclusion
Independent power producers: a solution
for Africa? BLOG.PRIVATE-SECTOR-AND-DEVELOPMENT.COM
49
LATEST EDITIONS
Private Sector
Development
MAGAZINE
Private Sector & Development (PS&D) is a unique quarterly
publication that provides analysis and insights into the
mechanisms through which the private sector can contribute
to the development of countries in the Southern hemisphere.
PS&D presents the views of a variety of experts in different
fields, from academia to the private sector, development
institutions and civil society. Each issue includes six
to eight articles on a single theme (e.g., African ports,
the African insurance sector, air transport). In the process,
Private Sector & Development has gradually emerged
as a benchmark publication. SOCIAL BUSINESS: A DIFFERENT WAY
OF DOING BUSINESS AND INVESTING
Social business is creating new ways of responding to
the challenges of economic development. Straddling
economic utility and public interest, the concept has
attracted a large following in both the developed and
the developing worlds.
BLOG
The PS&D blog was launched as an extension of the
magazine to provide a wider forum for debate. It includes
contributions from people in the private sector who recount
their own efforts to overcome the constraints facing
developing countries. The themes covered in the blog
are in part the focal points of the various issues of the
magazine.
AIR TRANSPORT, A VITAL

CHALLENGE FOR AFRICA
Complex journeys, limited connections and coverage
– African air transport faces many challenges. How
they are met will have a major impact on the
continent’s future.
50
THE AFRICAN INSURANCE SECTOR: AFRICAN PORTS: GATEWAY
BUILDING FOR THE FUTURE TO DEVELOPMENT
Major names in the insurance sector have been Between 2007 and 2017, a staggering USD 50 billion
increasingly focusing on Africa, which currently were invested in the African port sector. With growth
accounts for only 1.5% of the global insurance market. of 7% a year in maritime traffic of all types, Africa
This issue explores the opportunities and constraints is the focus of renewed interest.
involved.
VULNERABILITIES AND CRISES: IMPROVING THE QUALITY

WHAT ROLE FOR COMPANIES? AND ACCESSIBILITY OF AFRICAN
Over two billion people throughout the world are MEDICINE
currently living in countries in which development is Providing access to quality medicines still poses
being stymied by situations that are rife with conflict a number of challenges in Africa. Distribution
and violence. Moreover, the future provides no great channels are often fragmented, with a large number
grounds for optimism. of intermediaries or parallel channels, which often
fuel counterfeiting – a real public health issue.
51
PS D 29
1st QUARTER 2018
Private Sector & Development (PS&D) is a quarterly publication that

provides analyses of the mechanisms through which the private sector
can support the development of southern countries. Each issue compares
the views of experts in different fields, from academia to the private sector,
development institutions and civil society. An extension of the magazine,
the PS&D blog offers a wider forum for discussion on private sector and
development issues.
blog.private-sector-and-development.com

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Private Sector

Michelle Ashworth Isabelle Barrès Grant Brooke

Maurizio Caio Christine Ha Grégoire de Padirac

Christophe Poline Mike Quinn

Karim Sy Johann Choux Steven Gardon

Andrea Traversone Éloïse Guillaud Manal Tabet

Venture capital in Africa:

Africa presents a huge long-term opportunity

OVERVIEW OF AFRICAN VENTURE CAPITAL HUBS

Although ecommerce, fintechs and online mar-

Why are there so few unicorns in Africa

YOUNG AND SMALL VCS

A maturing technology and Many regard 2010 to be the beginning of the

AFRICA’S YET-TO-BE-GENERATED UNICORNS

Key drivers of value for VCs

AFRICAN UNICORNS ARE POSSIBLE

[In Africa] entrepreneurs live in a less or to adjusting or giving up on their business

Business fundamentals should be adopted early in

Start-ups and digital innovation:

1 Communities that promote free open source software (FOSS)

LEARNING WITHIN DEVELOPER COMMUNITIES

The communities are not hierarchical and func-

INNOVATION UNDER THREAT?

INNOVATION SPACES FOR INVENTING THE FUTURE

THE ROLE OF POLICY MAKERS

Political decision-makers do not always fully

The impacts of digital credit in Africa:

‘INSTANT’: AN OPPORTUNITY AND A RISK FOR CONSUMERS

WHAT COULD GO WRONG?

With analog credit, prevention of over-in- Financial Inclusion, 2017/2018): Limited – if

Africa is taking the lead in the rise of mobile technology

MOBILE CREDIT SERVICES M-SHWARI M-PAWA

2011 2016 Established 2012 2014

6 services 39 services Number of accounts 15 million 5 million

1 country 11 countries Value of loans

Source: GSMA, The State of Mobile Money in Sub-Saharan Africa, 2016.

Providers have a responsibility sacrifices that clients might have to make in

MITIGATING OVER-INDEBTEDNESS IN THE DIGITAL WORLD

Because only one irresponsible lender is needed in terms

What role can DFIs play in promoting

Venture capital has the potential to deliver strong

EVOLUTION OF THE AFRICAN VENTURE CAPITAL ECOSYSTEM

3. INCREASED DEAL ACTIVITY 5. NEW MARKET ENTRANTS

DEVELOPING A VENTURE CAPITAL INVESTMENT PROGRAMME

HOW DFIS CAN ADD VALUE TO VENTURE INVESTMENTS

A vibrant African start-up scene,

1. Based on constantly evolving data

All circled amounts are in US$ billion

UNITED STATES NORTH

North America 88% COLOMBIA

Eastern Europe 67%

South America 66%

Middle East 60%

China 57% LATIN

Southeast Asia 53%

World average 50%

Source: Statista, 2017.

Source: Proparco, 2018. Source: Partech Ventures, 2018.

Christine Ha, Digital & ICT Project manager, AFD