African Startups Need an Enabling Ecosystem to Succeed

By Gerald Maithya

 Startups Lead, Africa Transformation Office

The vibrant African startup market is well placed to become a cornerstone of the continent’s digital economy, supporting local innovation through relevant solutions to societal challenges. According to research firm Africa: The Big Deal, funding for startups in Africa more than doubled to $3.14 billion in the first six months of 2022. Nigeria, Egypt, South Africa and Kenya are the premier investment destinations on the continent, though funding is also on the rise elsewhere, while Fintech remains the dominant sector. 

Investments into Africa’s startup ecosystem are growing at an exciting pace. The OECD notes that there are more than 640 tech hubs active across Africa, accelerating innovation and creating employment, particularly among the youth. 

However, while the potential is massive for Africa to become a leader on world stage, currently the African startup market represents less than one percent of global venture funding. So, what is holding African startups back from succeeding at a global scale? There are many factors at play, but systematic impediments in the startups innovation ecosystem impact the likelihood of their success.  

The ecosystem must be inclusive and broad

At Microsoft, we firmly believe that one company on its own cannot create the impact needed – it takes a network of companies and organisations collaborating to build consumer and customer solutions appropriate for the market. A report by Accenture, Tech startups will support Africa’s growth, notes the power of ecosystems: “An ecosystem is defined by the depth and breadth of potential collaboration among a set of players: each can deliver a piece of the consumer solution, or contribute a necessary capability”. 

The players in the startups ecosystem are varied – the startups themselves, the market makers, the potential clients whether corporate or individual, governments and regulators, and tech development partners. Not only must the ecosystem have the startup at the centre of it, the right development, financial institutions and government partners must be involved from the beginning to make the journey inclusive and sustainable. 

Startups need not only the technology to sustainably succeed, but the right operations, the right blueprint for their people requirements, and the right kind of business architecture. The ecosystem must address these concerns holistically for startups to manage the growth phase of their business. Experienced mentors from large companies and venture capital boards can play an important role here, along with access to skilling resources. Recognising this need for holistic support, Microsoft launched the Founders Hub, a self-service hub that provides startups with a wide range of resources. Currently, more than 1,000 startups benefit through the platform. 

Startups receive tangible benefits from the ecosystem approach

Artificial Intelligence (AI) technology is one sector with the potential to contribute significantly to the Middle East and North Africa economy by 2030. Synapse Analytics is an Egypt-based AI company that helps enterprises develop, build, manage and scale their AI solutions to optimise and expand their operations and maintain sustainable growth, using Model as a Service (MaaS). Working with Microsoft ATO, Synapse was able to greatly expedite its development and launch its product to market earlier than expected. Microsoft’s support teams and access to technology accelerated the product timeline by almost three months in an 18-month projected timeline.

Sector specificity is crucial

Having a tight sector focus drives the focus for both the startups and the companies and potential investors interacting with them. Companies who are potential partners, customers or funders will find value in startups that align to their business priorities. 

Tech accelerators have an important role to play in providing an enabling environment that helps startups identify and be very clear on what sectors they are targeting, what problems they are trying to solve, and the opportunities there are within the particular sector. Understanding the pivotal role accelerators can play, Microsoft has signed partnership agreements with tech accelerators across the continent with the goal to work together on supporting startups through combined business and technical curriculum.

Health-tech offers potential solutions to Africa’s challenge of a shortage of healthcare facilities and skills, particularly in remote areas. Moroccan startup Deepecho uses AI and deep learning to mimic functions typically performed by a trained sonographer, helping radiologists and clinicians to conduct prenatal ultrasound video diagnosis. These diagnoses can then play an important role in preventing birth defects, addressing preterm birth, low birth weight, and the potentially dangerous outcomes with which they are associated. This is critical in areas where hospitals are generally understaffed and under-resourced. 

The company’s story highlights the critical role that startups continue to play in the African healthcare space, as well as the importance of providing local innovators with access to much-needed financial and technical support. In fact, through its partnership with the ATO, Deepecho has been able to take its product through different stages of development, such that it is now ready to be deployed into hospitals. 

Governments have a critical role to play

Startups who have a viable product in one market may decide to expand to other countries by weighing the potential economic benefits of such moves. Here, governments and regulators have an important assisting role to play by creating business-friendly policies and regulations that are not overly burdensome for startup compliance. 

The Tony Blair Institute for Global Change notes in its report, Supercharging Africa’s Startups, that the cost of unclear and bureaucratic regulatory compliance across 54 countries is high for tech startups that want to scale. Leaders need to develop a harmonised common framework that promotes easy access to the regional markets. Regulators also have a key role in creating transparency and a level playing field within the startups ecosystem.

Governments can further develop a supporting ecosystem through creating and encouraging collaboration networks between large companies and startups, including private sector incubation programmes and joint ecosystem innovation such as that championed by Microsoft through its Africa Transformation Office. 

A supportive environment will reap rewards for the continent

When the ecosystem supports startups that serve SMEs, these micro-companies benefit from the startups who are creating unique solutions that address their challenges, whether it is AgriTech solutions, FinTech or other sectors. In developing solutions for the SME market, startups enable the SMEs to follow a growth trajectory of their own. 

There is no simple, one-size-fits-all silver bullet for supporting startups and preparing more of them for success. However, with key players and drivers within a supportive ecosystem, there is the opportunity to drive significant growth in Africa’s startup sector, which in turn will drive economic growth across the continent.