Katherine Tai, the US trade representative, has revealed in the 2024 National Trade Estimate Report on Foreign Trade Barriers [pdf] that US firms have expressed concerns over the opaque nature of the procurement processes in the two countries, which has slowed foreign investments.

“Corruption remains a substantial barrier to trade and investment in Nigeria. Corruption and lack of transparency in tender processes have been great concerns to U.S. companies. U.S. firms experience difficulties in day-to-day operations as a result of inappropriate demands from officials for ‘facilitative’ payments,” Tai said in the report about Nigeria.

In Kenya, the report noted that foreign companies willing to bend the law and have local connections were faring better than US companies scouting for opportunities in East Africa’s biggest economy.

“U.S. firms continue to report challenges competing against foreign firms that are willing to ignore legal standards or engage in bribery and other forms of corruption. Corruption is widely reported to affect government procurements at the national and county levels,” the report said.

The assessment of Nigeria, which is the biggest economy in Africa, noted that the country’s effort to root out corruption was being hampered by internal wrangles in the government and partisan politics.

Nigeria and Kenya are considered among the world’s most corrupt nations, ranked 145 and 126 respectively, out of 180 countries by Transparency International.

While the report raised questions about Nigeria’s judicial system’s ability to convict and sentence corruption-related crimes, the US trade representative noted that political interference in the judiciary is encouraging the vices in Kenya’s case.

“While judicial reforms are moving forward, bribes, extortion, and political considerations continue to influence court cases. As such, foreign and local investors risk lengthy and costly legal procedures,” Tai noted.

The report, however, observed that Nigeria has made modest progress in opening government tenders to foreign firms and levelling the playing field.

Enforcement of intellectual property (IP) rights and data protection laws in the two countries have also been cited as a barrier to US investments. However, Nigeria has made some remarkable progress on this front, passing legislation to combat idea theft.

“In 2019, Nigeria enacted the Federal Competition and Consumer Protection Act, which includes provisions designed to combat trademark counterfeiting, and in 2021, Nigeria enacted the Plant Variety Protection Act, creating a legal framework and administrative structure for the protection of plant varieties. In March 2023, the Nigerian President signed the Copyright Act 2022 into law,” the report remarked.

Auto finance companies enable consumers to buy cars from dealers and be able to pay over a period of time. 

However, experts say shifts in vehicle pricing due to the FX crisis and market dynamics have significant implications for vehicle financing. 

Three companies that TechCabal spoke to said they are prioritising financing vehicles in areas of preference. This means measuring the demand for a particular vehicle, deciding whether the vehicle serves a commercial purpose, and assessing how affordable it is for consumers. 

“Ultimately, these changes reflect a dynamic adaptation within the vehicle financing sector to accommodate shifting market conditions and consumer preferences,” said Ojurongbe Damilola, head of technical services, Cars45.  

Max, for example, which historically financed motorcycles, bicycles, three-wheelers, and mini-buses (four-wheelers), said it has recently done more three-wheelers and motorcycles in the 11 Nigerian states where it operates. It has financed 33,000 vehicles so far. Max plans to finance 70,000 vehicles in 2024. 

For Carima, a B2B marketplace that allows dealers to make requests from other dealers for cars they don’t have in their lots, financing dealers is the better route to profitability. The company said it has financed dealers’ requests worth N400 million since January this year and has received back 100% of the loans. The platform has 3,000 registered dealers and overall access to 30,000 dealers. 

“We are financing dealers because they see cars as an asset while the normal individual sees cars as a liability. The dealer is buying a car because he wants to resell and make a profit,” Adebayo Tomiwa, CEO of Carima, told TechCabal. With 100% repayment done so far, Carima is now looking to expand the service. 

While prices of cars are on the rise, experts say the factors driving consumers towards vehicle financing include the ability to access a wide range of vehicles that financiers can now provide. Ojurongbe Damilola of Cars45, told TechCabal that this variety now allows individuals to select vehicles that meet both their preferences and financial realities. 

Another factor attracting consumers is expanded financing options due to more financing companies entering the market. This means that customers can now make their choices from a broader range of car loan providers. This also has led to more people embracing the concept of financing vehicles as they are more willing to consider vehicle loans as a viable option for buying cars due to the financial burden it takes off them. 

“This increased competition among financiers has made financing more accessible to a larger segment of the population,” Damilola said. 

However, there are concerns as to how the Central Bank of Nigeria’s Monetary Policy Committee (MPC) will affect loan interest rates, including car loans, if they continue to increase the benchmark interest rate. On March 26, 2024, the MPC hiked the benchmark interest rate by 200 basis points to 24.75%, from 22.75% recorded a month ago. Most of the financing companies often collaborate with financial institutions to access the funds they disburse as loans; an increase in base interest rate can also necessitate an adjustment in the rates offered by these companies. 

Access Holdings recently made its biggest play in East Africa with the acquisition of the entire issued share capital of National Bank of Kenya Limited. 

“This partnership encompasses more than a convergence of capabilities; it signifies the fusion of collective expertise, resources, and an unwavering commitment to drive financial inclusion, empowering millions throughout Africa,” Aig-Imoukhuede said.

Nigeria and Kenya are the first and third largest recipients of diaspora remittances in sub-Saharan Africa, data from the World Bank’s Migration and Development Brief report shows. In 2023, remittances to Nigeria accounted for 38% of the total $58 billion remittance flows to the region, growing by 2%, while Ghana and Kenya, posted estimated gains of 5.6% and 3.8%, respectively. 

As the largest consumer bank in Africa with over 60 million customers in 21 countries, Access Bank will significantly boost its remittance business by tackling the challenges customers face in making remittances within and outside the continent.

The collaboration, which is subject to approval from the Kenyan financial authorities, will see the players connect more than 60 million customers and 5 million businesses across 8 countries and process more than $1 billion a day in transaction value. Access Holdings which has a presence in 14 African countries and is the largest consumer banking institution, is expected to provide technology-infused financial services and Coronation Group will bring its technology expertise to the deal. 

M-Pesa, the mobile money platform of Safaricom, currently dominates the mobile money market in Kenya with a 96.5% share of the market. Another report has shown that 32% of remittances in Kenya are through mobile money operators. But M-Pesa is facing a future separate from Safaricom. In December 2023, Kamau Thugge, governor of the Central Bank of Kenya, said plans to split M-Pesa from Safaricom were ongoing to minimize shocks.

“African countries trade more with nations outside the continent than within themselves. Initiatives such as the African Continental Free Trade Area (AfCFTA) seek to address the lack of intra-continental trade. This partnership with Safaricom, Coronation Group and Access Holdings seeks to explore remittance corridors between East and West Africa, bringing alive the AfCFTA spirit,” said Sitoyo Lopokoyit, managing director, M-Pesa Africa. 

The first phase of the collaboration will concentrate on the biggest markets along the East and West African corridor, including Nigeria, Kenya, Ghana, and Tanzania. 

Car dealers who spoke to TechCabal said her best bet, given her budget, was a Nigerian used Toyota Corolla. A combination of foreign exchange volatility, customs duty, and shipping costs are putting the prices of cars beyond the reach of many Nigerians.

“I bought a car worth $600 and got it shipped for $1600. When it got to Nigeria, I had to pay about N3 million ($1,886) to clear the vehicle. This has never happened in the history of our business,” Kolawole, a car dealer, said. 

It now costs at least ₦5 million to buy a foreign-used sedan and ₦3 million for a Nigerian-used one. That is more than double the cost from 2023, according to data supplied by Pankaj Bohhra, co-founder of Fixit45. 

The rise in prices coincides with a decline in imports. The number of cars imported through the Tin-Can Island port, the entry point of choice for many Nigerian imports, dropped from 32,000 units in 2018 to 4008 in 2023, according to Dera Nnadi, the Customs Controller of the Command. 

Local assembly and production have also failed to grow. At a summit in 2020, Yemi Osinbajo, former Vice President, noted that available assembly plants delivered fewer than 14,000 cars.

Prices are forcing many to compromise 

Those prices are forcing adjustments as some companies switch to Nigerian-used official cars or relatively new or unknown brands as cheaper alternatives to Japanese cars, which have always been the preferred option. 

Other companies lease cars or use flexible auto financing for purchases. 

For individual customers, auto loans are still largely unpopular. While many financial institutions offer auto loans, consumers are unaware of them or don’t understand how they work. Ngozi, for instance, believes vehicle financing options have high-interest rates.

Ojurongbe Damilola, head of technical services at Cars45, believes customers are slowly warming up to car loans, citing an increase in financing requests compared to the past year. 

Ultimately, Nigeria’s car market is at a crossroads, and navigating the new normal will cause short-term pains. Local production is unlikely to increase, and as long as macroeconomic conditions remain the same, financing may still not be compelling enough for consumers. 

When tech firms raise huge sums at the Series C stage, it typically starts an 18-month countdown to an initial public offering (IPO). An IPO or Initial Public Offering is when a privately owned company offers a portion of its equity to public market investors on a stock exchange. Listing on a stock exchange, a.k.a going public, is considered the hallmark of mature companies.

Regardless of where it is domiciled or operates, a business is considered ready for a public market when it can show tangible market value and meet the financial standards of whatever exchange it chooses. The business will need to find a lead investment bank to underwrite, i.e., vouch for the company’s credibility and help it find buyers.

“Is the leadership team strong enough to stand up to the public markets?” Asks Aarish Shah, the founder of EmergeOne, a London-based firm that helps startups organize their finances from seed through exit. A company that adds or shakes up its C-Suite is a telltale sign that it is preparing for an IPO. Hiring new top officers, especially in finance, legal and operations, signifies that a business is preparing for the big leagues.  

Eghosa Omoigui, the managing general partner of EchoVC Partners, also agrees with Shah. He said that a strong team, strong financials, [and] solid processes across the company to ensure repeatability of operating performance and forecasts are crucial pieces of IPO preparation.

The IPO begins before the IPO

Companies have to clean up their accounting to prepare for the intense scrutiny of public markets, but even that isn’t enough. “A good business exit happens when the company is bought, not sold,” says Victor Basta, founder and chief executive of DAI Magister, a boutique investment bank. Preparing for an exit involves sowing the seeds early in the minds of potential investors.

Managers of a business preparing for an IPO intentionally cultivate an image and push communications that subtly reinforce the value of the business. Surely, you can think of at least one African tech company doing this right now, yes?

“It’s about using investor relations to build quality relationships for equity analyst coverage,” said Omoigui. This narrative building also helps secure a respected investment bank to serve as lead underwriter and the face of the IPO sales process in the obscure walls of high finance—a lead underwriter—typically an investment bank—vets and vouches for the IPO company. Underwriters privately contact institutional investors and family offices and invite them to bid on the available IPO shares. At this point, the contours of an initial per-share price are determined. 

Unicorns used to equal IPOs

Typically, unicorn status means companies are ready to go public. But in the current climate, founders stay private for longer, even as future funding sources for both VCs and startups dry up. The scrutiny and the unforgiving nature of valuations on the public markets inform the hesitation. Grocery delivery giant Instacart will go public this month at an estimated valuation of $9 billion, a significant discount on its $39 billion valuation on the private markets two years ago. African companies valued at around $2-3 billion will be wary of similar haircuts. Jumia enjoyed a fantastic IPO, offering its shares for $14.60 before experiencing a 200% share price increase in the first few hours of trading; today, the company’s shares trade for $2.87.

The fintech startup Stripe has delayed its long-awaited IPO to an unspecified future as its valuation sank by almost half from a high of $95 billion. Arm Holdings Plc, a semiconductor firm, cut its valuation by $15 billion, lower than what market watchers expected before its expected IPO. 

Despite possible valuation cuts, a successful IPO can be financially life-changing for everyone involved, especially for underwriters who charge fees and take a share of gross proceeds. According to PwC, underwriters in the US may charge anywhere between 4.1% to 7% of IPO proceeds. Underpricing, a strategy where the issuing company sells shares below its initial offering price to attract investors, can take another 10% to 15% of IPO gains. The greater the value of the IPO, the less gross proceeds will be charged. This excludes lawyer fees, auditor fees, investor relations fees, etc. 

Besides this, the listing fee (paid directly to the stock exchange) for companies with smaller capitalisation, i.e., below $2 billion—where most African tech startups fall in—is between $55,000 and $75,000, depending on the total shares outstanding. Larger companies typically list on the Nasdaq Global Market or Nasdaq Global Select Market and pay between $175,000 and $320,000 as entry fees. 

There are tools and tax instruments that can make it cheaper, but generally, launching and completing an IPO today is a considerable expense. Only the well-funded can afford IPOs. If you have some free time, here’s a PwC IPO cost calculator to play with. But back to the story.

The spectre of cheap IPOs

While 2021 was the year startups attained high valuations due to low-interest rates-fuelled risk-taking, successive years have seen a fall back to earth with businesses priced more reasonably as investors looked to similar but publicly listed companies to guide perspectives on private valuations.

Given how little we know about the revenue of Africa’s most funded startups, it would be a pleasant surprise for highly valued African tech companies that successfully debut publicly not to be repriced in line with the overall trend in falling valuations. But it’s not all bad news to seek an IPO in a lower valuation market or be repriced lower during the IPO process. Arm’s expected IPO  was oversubscribed, but it only happened after Softbank, which owns most of Arm, repriced its stake lower as book building began.

What is more important is how the business performs once it is listed. On the eve of a possible global recession, it is one thing to list on a public exchange, but, as David Messan of First Founders Inc. says, it takes some deep resilience to stay on the stock exchange.

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The belief that Africa is a unified market must be corrected. It is not. The sheer size of the continent is massive, with the ability to accommodate China, Europe, the continental United States, and a significant portion of India within its borders. This expansiveness is not just geographical, but cultural, too. It is home to more than 1.2 billion people—not far shy of China’s populace that speaks more than 2,000 languages. By comparison, Europe houses a little over 200 languages and dialects.

The truth here is simple: Africa is a region, not a market. We must understand that Africa is not a homogeneous entity but a diverse continent consisting of 54 markets, each with distinct political dynamics and economic climates. Africa is a region of diverse nations. As such, the argument stands firmly that we cannot logically “invest in Africa” because it is not one country with a single currency, government and regulatory framework, social system or business ecosystem.

From a business point of view, companies do not operate “across Africa”—they instead have the opportunity to win a share in specific national markets. Without a doubt, over-generalisation cannot win in the region as operating in our context requires a tailored approach for each specific national market, and trying to extrapolate trends for consumer app adoption generically will only produce an inaccurate and dangerous conflation of no value.

There’s wisdom in the opportunity of complexity

The technology, media, and telecommunications (TMT) industry serves as a prime example of the intricate dynamics that make it challenging to adopt a one-size-fits-all approach to doing business in the region. As providers of connectivity and essential services, telcos play a significant role in building trust among consumers as they enable them to connect with others anywhere in the world and make and receive payments. Looking at the sector, even from a basic perspective, we realise the depth of variations and nuances in market dynamics as there are extensive and innovative ecosystems.

In East Africa alone, consider some of the giants in digital payments and mobile money solutions: Safaricom’s M-Pesa in Kenya, MTN Network’s Mobile Money in Rwanda and Uganda, and Airtel Money in various countries. Within renewable energy and green technology spaces, there are companies such as M-KOPA Solar, BBOXX, and Powerhive which offer affordable and clean renewable energy solutions using solar power and battery storage, leveraging the Internet of Things (IoT) and cloud technology for monitoring and management. Artificial intelligence (AI) is also leaping ahead with the likes of Twiga Foods, Shield, and Flare utilising AI and machine learning algorithms to optimise supply chain logistics, combat financial fraud, and optimise emergency response systems.

In terms of mobile technology, East Africa has witnessed remarkable mobile penetration, with this technology becoming the primary means of communication and internet access. Mobile money services and mobile applications are now widely adopted, with efforts being made to expand broadband coverage by deploying 4G and 5G networks. Network infrastructure is also progressive with significant investments made in submarine and national fibre optic cables, improving international connectivity and broadband coverage—this is just a glance at the full picture of the advances taking place.

There’s no x-factor in entrepreneurship

Another common misconception is the belief that all African startups can be categorised as “X for Africa”. In reality, the startup ecosystem of the region has evolved in three waves. Initially, these businesses emulated ecommerce models like Amazon, followed by drawing inspiration from Asian counterparts. A third wave emerged with them adapting to the realities and requirements of local environments. This showcases the distinct entrepreneurial spirit and solutions that originate from within the African ecosystem.

Assuming that global values apply to startups on the continent is another fallacy. In reality, valuations in African countries differ significantly, challenging the preconceived notions of Western investors. African deals are now valued at all-time highs, reflecting investors’ growing confidence and willingness to support these fast-growing businesses. Importantly, this discrepancy necessitates a more detailed appraisal method, considering the factors at play in each market.

To achieve more, the right grasp of the continent is needed globally. Africa cannot be treated uniformly, and acknowledging and understanding the complexities of this is crucial to enabling a powerhouse of inclusive impact across the region.

This article was contributed to TechCabal by Bernard van der Walt and Roy Kinoti Nkandau. Van der Walt is head of audit in Cape Town and leads the TMT sector for BDO South Africa. He is also a member of the managing committee in Cape Town. He has extensive experience in the media and technology sector, from start-ups to listed entities. Nkandau serves as the director of audit & assurance at BDO Rwanda. He has more than a decade of professional experience under his belt working across a plethora of industries ranging from NGOs, manufacturing, tourism, service, trading, energy, and health.

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We reported last week that AltSchool Africa, the US-based ed-tech startup was offering equity to members of its “community” for as low as $500. In the LinkedIn post, which featured a 4-minute video, Adewale Yusuf, CEO of AltSchool Africa, said his firm had partnered with Fast Forward, a US-based venture studio and Hoaq, an angel syndicate to allow AltSchool students and community, to invest in the company.

According to Yusuf, the company decided to open up part of the round to “communities”—including AltSchool Africa students. But the decision to let students and an undefined community invest in the Delaware-registered company raises the question of whether AltSchool Africa is in violation of United States Securities and Exchange Commission (SEC) rules. But AltSchool Africa’s chief, says the move to raise capital from its community is perfectly legal. “It’s a valid option globally”, he told TechCabal. 

Per rule 506 of the US SEC’s Regulation D, private companies cannot solicit funding publicly.  “Under Rule 506(b), a “safe harbour” under Section 4(a)(2) of the Securities Act, a company can be assured it is within the Section 4(a)(2) exemption by satisfying certain requirements, including the following: The company cannot use general solicitation or advertising to market the securities. The company may sell its securities to an unlimited number of ’accredited investors’ and up to 35 other purchasers,” the rule reads in part.

On his part, Yusuf says raising money is not the primary goal for the crowdfund, “We did not do this to raise, but to get our community to be part of it,” Yusuf told TechCabal via text echoing what he also said in the video message posted on LinkedIn. “We’re a community-oriented organisation, and we always keep it that way. We want our students and supporters to own a fraction of us,” he said in the video. But despite Yusuf’s claim, the ultimate beneficiary of any investments is AltSchool Africa.

Startups in Africa and globally, are struggling to raise money from investors as investing outfits pull back on writing cheques to tech companies. In Africa, the result has been a decline in how much funding tech firms disclosed in the first three months of 2023. In April for example, less than $130 million was disclosed by tech startups, representing a 350% decline when compared to April 2022, data from Africa, The Big Deal shows. 

While Yusuf describes his latest fundraising as giving their community the opportunity to own part of the company, that AltSchool Africa is adopting a crowdfund to raise all or part of $3 million, is only part of a trend where founders use alternative capital raising structures in an attempt to find cash to run their businesses. But the rules about crowdfunding are complicated. In May 2022, the US Financial Industry Regulatory Authority (FINRA) fined Wefunder and StartEngine Capital $1.4 million and $350,000 respectively, in part for, “ improperly sent emails to hundreds of thousands of investors recommending and soliciting investments being offered on its portal in violation of a rule that prohibits such solicitations; included misleading communications on its funding portal website.”

Generally speaking, companies that engage in general solicitation or advertising to promote their securities offering can sell securities only to investors who are accredited. But to qualify as an accredited investor, an individual must meet certain income or net worth thresholds (have a net worth of over $1 million or an income of more than $200,000), or have certain professional certifications, designations, or other credentials. But there is an exception to the SEC’s rule 506(c).

In 2012, former US President, Barack Obama signed the Jumpstart Our Business Startups Act (JOBS Act) into law. The new law created Regulation CF and Regulation A+ as two exemptions to the SEC’s restrictions on private companies soliciting investment from the public. Because of these amendments, for example, startups that opt to offer their shares under Regulation CF instead of a traditional 506(c) offering may raise up to $5 million from non-accredited investors.

Regulation crowdfunding is also subject to conditions. For example, while general solicitation is permitted upon filing a Form C with the SEC, there are rules which guide how the offering is advertised, according to Bill Clark, CEO and founder of MicroVentures, a US venture capital firm. For example, issuers are not allowed to advertise the terms of the offering, including the nature and price of the securities. Some information about AltSchool Africa’s deal terms is publicly available on the Hoaq link in Yusuf’s post.

AltSchool Africa doesn’t specify who should not invest or the criterion it will apply to decide who it takes money from or under what rule it is running this crowdfunding campaign. The post calling for investors simply invites them to either complete a form on Sydecar, a deal execution platform. Or commit to investing $500 or multiples of $500 through this form, managed by Hoaq, an African angel investor community.

TechCabal is unable to independently establish if additional checks are imposed on would-be investors who indicate their willingness to invest. As such the question about the legal standing of AltSchool Africa’s latest attempt at fundraising is still up in the air.

Editors note:
Comments attributed in error have been removed.

Via the LinkedIn post, Yusuf listed procedures for participating in the round, intending investors can participate in the fund round through any of the two websites provided in the LinkedIn post. Per one of the websites for the deal, the target for the funding round is pegged at $3 million with a minimum contribution of about $500 from each participant. The investment round runs until May 15, 2023. 

A notable investor in this funding round is an unspecified “biggest bank” in Nigeria. The website also contains other deal terms, which include AltSchool’s pitch deck and a commitment form which is to be filled by intending investors. 

The second website for investing is straightforward and contains a form to be filled by intending investors. After intending investors fill out the form on the website, they will receive approval via email and be notified about the deal. “We’ll email you as soon as you’re approved to view the deal!” the website read.

Equipping the next generation of African tech Giants

Africa has a young population with a huge digital skills gap, which is diluting economic opportunities and development. According to a study by the International Finance Corporation (IFC) [pdf], some 230 million jobs across the continent will require some level of digital skills by 2030. AltSchool Africa is solving this problem by providing a platform where Africans can learn in-demand skill techs to access opportunities across the world.  AltSchool Africa strongly believes that the key to unlocking Africa’s potential is to equip its growing population with the skill and tools they need to succeed in the digital age.

With over 17,000 applications processed from over 76 countries in 2022, AltSchool Africa’s CEO says they are just getting started. He believes that with the current funding round opened to communities, AltSchool Africa can make a real difference in the lives of young Africans.  “As a community-oriented company, we are opening up a part of our round to communities. We believe that with your investment, we can make a real difference in the life of young Africans and help them access the opportunities they deserve,” Yusuf concluded.

The announcement was made during the fifth South Africa Investment Conference (SAIC) on April 13th, in support of SA President Cyril Ramaphosa’s initiative to drive investment into the country.

Through the investment, Cassava, which has operations in Africa, the Middle East, Europe, USA, and Latin America, will continue to bring internationally recognised services and products to South Africa through the group’s renewable energy, cloud & cyber security, data centres and broadband connectivity business units. 

“South Africa accounts for the largest proportion of Africa’s industrial GDP with a sophisticated and growing ICT sector. The country’s unique combination of highly developed first-world economic infrastructure and a stable macro-economic environment affords businesses like ours a conducive investment environment in which we can partner with government to drive economic development and create jobs,” stated Hardy Pemhiwa, President & Group CEO of Cassava Technologies. 

Cassava’s investment pledge comprises key projects, including the expansion of the Liquid Intelligent Technologies fibre network, the extension of Africa Data Centres capacity and footprint, enhanced cloud and cyber security capacity, and the rollout of clean, renewable energy by Distributed Power Africa in South Africa.

According to the company, the investments will contribute towards positioning South Africa as an attractive investment destination and enable greater inclusion of all South Africans consistent with Cassava’s vision of a digitally connected future that leaves no African behind.

Gone are the days of idly arguing about how racism manifests in lower (but still high) valuations for African startups compared to their US and European peers. Gone is the “tech is the new [insert natural mineral/commodity]” vibe. And gone are quite a few of the companies born (and which blossomed) at the beginning of the roaring Twenties.

Almost three months ago, I wrote “There was nothing special about raising $5 billion” for the September 11 issue of Next Wave. By now it should be clear why—brace yourself for it. There was nothing special about raising $5 billion because there is nothing special about how venture capitalists (VCs) funded African tech/tech-adjacent companies. Context is the differentiator, the “special”. As the stream of capital made its way into Africa from celebrated US and European funds, context was mostly lacking.

I mean, there is always something special about making investment decisions if you’re on either side of the table. And there are certainly a lot of unique opportunities in Africa. But the advent of venture capital, that distinctly American flavour of private equity, with legendary offspring like Genetech, Apple, and Microsoft, has not found its African palate.

Outside of the PR and media spotlight, people are only now asking hard questions more often and openly. As a journalist, I cannot help but notice the flood of second-guessing that trails the announcement of a formerly well-funded startup shuttering its doors, or a new one opening shop. It seems like everyone, from the investment committee to journalists and even users, are asking, “What is the business?” with more earnestness than was common in the heady days of 2021.

It is the Great Sobering. The realisation that technology won’t change much if you remove the nitro-boosters. And how little we understand (and pay attention to understanding) what scaling ventures beyond VC means. There is enough hangover to go round—journalists, tech bros, VCs and of course, the annoyingly ever present, regulator-incumbent class.

Checkpoint financing

It was bound to happen. Local VCs helped catalyse foreign investment into the space. Founders took advantage of the momentum to float their boats. And when venture capital, a tiny (relative to global PE holdings) but loud asset class combines with the obscure nature of private markets, you have a good recipe for entrepreneurial inebriation.

The bill of the thrill is expectedly high. Like the drunk Nairobi boda (motorcycle) driver who, with me riding pillion, sped recklessly for 15 minutes, collected 1000 Kenyan shillings, (instead of 200 Kes) and dropped me at the wrong address (my fault), when I first visited Nairobi.

But all of that is changing now. A rising tide lifts all boats, and when it ebbs, it leaves the naked swimmers without cover. Semil Shah, co-founder of Haystack, an early stage investing outfit writes, “For an early-stage founder, it can feel like the walls are closing in. And they are. In previous downturns, startups could still be acquired for modest or great sums; today, these types of transactions feel frozen, and larger-cap acquisitions face regulatory, shareholder, and balance sheet scrutiny.”

Checkpoint financing means founders and VC investors alike will need to prove to their investors that they can clear milestones over and over again. Even if it’s just for show, no one wants to look like a softie, “…the larger the financing, the more checkpoints to clear,” notes Shah. Ask your friends who have raised or are trying to.

Read: AXA Mansard is partnering with Insurtech innovators to disrupt the insurance ecosystem

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Experimentation and data over-replication

Personally, I am growing fascinated with incumbent businesses in Africa. Businesses that have grown through the structural deficiencies that permeate African markets. This is not to ignore that a good chunk of these businesses were built on patronage networks and deals that would be grounds for jail or worse in more organised societies. It is to understand why the few that thrive outside the shady corners do so, where their analogue strengths are greatest, and how they sustain distribution networks across diverse markets.

Going deeper by understudying incumbents and running experiments will become “importanter” as we navigate a changing market. Venture studios and hands-on learning while building should be the focus. It is not a new point to make. This is the point Scott Walker and Belinda Bowling are fixated upon with the African Scalecraft project, a study of the enablers, and future pathways for scaling commercial ventures in Sub-Saharan Africa.

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TechCabal Insights has partnered with Zone (formerly known as Appzone) to release a whitepaper on payment infrastructure in Africa.

In it, they explore the challenges that sit at the heart of innovation within the space, and what stakeholders in the private and public sectors need to do to address these challenges. They also look at the work that’s being done by innovators in the industry. Download your free copy here.

“Many of these opportunities will be discovered through experimentation and exploited through stellar execution. In many cases, large, profitable opportunities in Africa are more likely to be created by deploying well-understood business models in poorly understood markets, rather than relying on frontier technology and innovation,” note the authors of Chasing Outliers: Why Context Matters for Early-Stage Investing in Africa. More than ever, investors and founders will need to immerse themselves in research and education. The payoff will be enormous for people who are patient enough. If this sounds like too much work for an investor or founder, maybe you should reevaluate your approach.

If anything, 2021 opened a door to unlock the entrepreneurial power in a digital Africa. It was never a call to celebrate Africa rising 2.0, but to understudy how a digital revolution in the demography and economies of Africa could create new opportunities. We would probably have been better off for it, if a piece of the capital inflow over the past three years had been devoted to researching and learning about markets over starting new companies with hyper-growth-at-all-costs thinking.

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On the third episode of The Next Wave show, we speak with Buchi Okoro, founder and CEO of Quidax and Marius Reitz, general manager for Africa at Luno. They talk about how Africa’s crypto industry is evolving, what adoption on the continent will look like over the next few years, as well as how stakeholders can effectively balance the gains and risks associated with cryptocurrencies.

If you missed the broadcast on CNBC Africa, you can catch up here.

The Next Wave is brought to you by TechCabal in partnership with Flutterwave. It airs on Wednesdays at 4:30 PM (WAT) on CNBC Africa (DStv Channel 410)

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Dear reader!

2022 has been a wild ride in the African tech ecosystem, and we have played a critical role in covering the players, the human impact and the business of tech in Africa. We have provided the content, reported the data, asked the questions, and organised events to help you understand how tech is changing Africa.

Now it’s time to take stock. Please take a few minutes to share your thoughts on how we did in 2022 and what we should do better in 2023. By filling this survey, you stand the chance to win a $50 gift card!

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Abraham Augustine,

Senior Writer, TechCabal.

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