Savannah Fund looking for ‘the winners’ among Africa’s tech startups

When considering entrepreneurs for funding or admission to the accelerator programme, Alliy looks for a “twinkle”.

“Most of the times the startups are really far away, the Skype call drops a lot [and] the accents can be very hard to understand. I try to look for something that really gives me confidence that this is a good startup. Even when I look at an application and I see some potential and there is some weirdness that I may not like, I still try to search for something or a twinkle in the eye.”

He cites the case of Ghana’s online shopping site, which has turned out to be the “most successful” startup from the accelerator programme. Alliy says the founders of Ahonya impressed the fund with their approach to gaining traction and commercialisation. The business made $500,000 in revenue in the first year and is currently raising follow-on funding.

“Startups are very risky… entrepreneurs are not perfect but we want to take them from where they are to a place where they are going to be stars,” says Alliy. “I don’t have to remind you that revenue and growth is what we are about. We are not about winning competitions.”

Savannah’s startups employ a total of 50 people. Of the 10 startups, five have raised $6m in total in follow-on funding. With the exception of mobile app biNu which was founded in Australia and now operates an office in Cape Town, South Africa, the other nine companies have at least one African co-founder.

Despite the success stories, Africa’s “rich uncles” have not yet bought into the potential of the technology industry.

“Part of my mission is over time to try and educate local investors. The local investors think that it is all play and [tech startups] can’t make real money and they [investors] can make quicker money elsewhere… in easier options [like] bonds, buildings, mines. Startups mean dealing with all the dramas… and it takes a long time to get your money back. It could be 10 years. I think [this attitude] will only change when we have a high-profile exit that is local.”

Too early for exits

However, Alliy adds that it is “too early” for major exits.

“People are not happy that I invested in biNu but that is probably the most likely at the time to have an exit.”

While currently most buy-outs are likely to come from global firms, Alliy says local companies should also consider buying out innovative startups instead of copying them.

“We have to teach local corporates how to buy companies. If you are a [telco] you probably think the best way to innovate is to do it in-house in lab coats while the rest of the world knows that the best way to innovate is sometimes to buy companies. Was YouTube part of Google at the beginning? Android? You want me to go on?”

Entrepreneurs also need to do their part by building quality startups and looking beyond their countries for growth.

“[You have] to think multi-regional and global unless you are in Nigeria or South Africa.”

Local startups also need better management, corporate governance, marketing and distribution.

“I think their benchmarks right now are relative to each other and what we need them to learn is that their benchmark should be relative to the rest of the world. So I think the challenge is getting them to understand what their competition looks like,” says Malaika Judd who manages and mentors the accelerator startups at Savannah Fund.

It’s now or too late

Alliy points out Ethiopia and Nigeria as very attractive markets owing to their large populations.

“South Africa is interesting because it is a big market and we have seen good companies come out of there in the past and had exits. So you can’t ignore it,” he adds.

While Tanzania, where Alliy is originally from, is still lagging behind, he is hopeful that the country’s technology industry will pick up.

Alliy is bullish about Africa’s technology industry and notes that now is a good time to invest. He warns that investors who wait until everyone is making money before they come in risk missing out on the prize.

“Getting in early means you are able to make returns later.”