Hong Kong-based start-up accelerator, Nest Investments, is seeking to invest in globally scalable African technology start-ups. Nest has invested in dozens of start-ups in Asia, the US and Europe. With its Nairobi office, Nest becomes the first Hong Kong-based venture capital firm to set up in Africa.
Aaron Fu, the Africa managing partner for Nest, says the company will offer African start-ups funding, linkages with global mentors and market opportunities – and share with them knowledge and experiences it has gained working with start-ups in other markets.
“What makes Africa really exciting is the opportunity to enable start-ups here with all the tools and support that we have seen work for us in Asia. I think there are a lot more similarities between start-ups in emerging markets than between those here and in Silicon Valley. And I like the fact that start-ups here are solving real problems,” says Fu.
Building sustainable businesses
Nest will invest between $50,000 and $200,000 in return for equity. Its operations in Africa will focus on Nairobi, Lagos, Accra, and Cape Town where the start-up scene is already vibrant. Although it is seeking “brilliant, globally scalable ideas”, Nest is even more interested in the quality of entrepreneurs and teams behind the start-up. After funding, Nest will be actively involved in its investees, says Fu, adding it will put its own finance officer in each of the start-ups.
“The start-ups we have spoken to are quite happy that someone else will be handling the receipts and bookkeeping. The entrepreneur can then focus on growing the business.”
Whilst start-ups in Africa have “great ideas and some good teams”, Fu says many lack exposure to entrepreneurs who have grown revenue-making sustainable businesses.
“What I have seen in a lot of the entrepreneurs here is they tend to be surrounded by other entrepreneurs that have only managed to stay alive by winning the next competition or getting the next grant. The focus tends not to be making sure this revenue is sustainable. We want to show them there is a different way. What we have in our portfolio, and in Asia, are start-ups in the early stage that are sustainable.”
Accessing the Asian market
Nest also plans to help the start-ups it invests in to scale globally, and more so to Asia. Africa and Asia have lots of similarities says Fu, and solutions start-ups build here could easily apply in Asia. He cites the example of a Kenyan SMS education start-up.
“It is a perfect way of reaching out to highly displaced communities that have access to very basic technology. [But] having conversations with [that start-up], they don’t really think about moving out of Africa, they want to grow regionally. My assertion is that it’s easier for them to move to Cambodia, Indonesia and Vietnam, where their solution is also applicable, than it would be for them to move to Ghana.
“Sure, flight time to Ghana might be slightly less, but from a cultural point view I think there is as much difference between East and West Africa as there is between Nairobi and Indonesia.”
Local start-ups might see expansion to other African countries as more comfortable, says Fu, since many that have been in business for a while have built contacts with other entrepreneurs and potential partners in neighbouring countries. On the other hand, expanding to Asia appears “scary” due to the lack of connections to that market.
Nest hopes to bridge this gap by developing partnerships between Asian and African entrepreneurs and businesses.
“A lot of the start-ups that I have been speaking to in Asia would also never consider the consumer market in Africa as a potential next step. [Expansion] is often about relationships and having a soft landing pad. If you step into some parts of Shenzhen (China), where everything in the world is made, and you don’t know anyone there and do not speak Mandarin, it can be really daunting,” he says.
Fu says many local start-ups seem excited by the prospect of working with an Asia-headquartered investor. For many hardware manufacturing companies in Africa, having partnerships in Asia – the world’s factory – is an attractive proposition.
“We have had positive responses from start-ups especially the hardware ones [because] we can actually help them build their products… I have been speaking to them about the potential market access in Indonesia, Hong Kong [and] China, and many find that exciting,” says Fu.