Local tech startups just received another boost with American Venture Capital Savannah Fund‘s arrival on South African shores. The seed capital firm made its first move into South Africa by buying into two Cape Town-based startups.
The Nairobi-based fund, operating out of Kenya’s iHub, specialises in $25 000 to $500 000 tech investments in Sub-Saharan Africa, and already has investments in East Africa and West Africa. It has invested in e-commerce site BabyGroup, an online shop and information service for new parents, and Wyzetalk, a social business platform developer.
Wyzetalk CEO Gys Kappers says he hopes the Savannah Fund will assist with his startup’s expansion into African as well as introducing them to the very large and lucrative American market.
The founder of Savannah Fund is Mbwana Alliy, who is also its managing partner. According to Alliy the reasons behind the Fund’s expansion into South Africa was the country’s local talent being the most educated on the continent, a middle class that act as early adopters, its promise in the financial tech space and the fact that South Africa remains an important trade and exit market for African companies that want to go public.
“We are not a traditional VC in the sense that we have a big fund and have to deploy lots of money. A smaller fund means we are able to focus on smaller seed deals which is what feeds the bigger rounds later on,” Alliy says in a blog post.
Born in Tanzania, Alliy says the design of the fund stems from its observation of the ecosystem, as well as the plummeting cost of launching internet startups. “We also do deals that enhance the infrastructure for other innovators and startups in Africa.”
Looking for winning entrepreneurs
Savannah Fund has invested in 15 start-ups in five countries: Kenya, Uganda, Ghana, Nigeria and South Africa. Start-ups are on average two years old and together have raised more than $8 million and provided over 100 jobs.
With hundreds of young tech entrepreneurs seeking funding and mentoring, Alliy says while he would like to live in a world where everybody can be a Zuckerberg, the reality however is that not everyone is going to build a really high-growth startup.
According to Alliy, there are three kinds of entrepreneurs in Africa. The survival entrepreneurs, who just make enough to support their families; the lifestyle entrepreneurs, who run barbershops and restaurants for instance, that are neither high-growth nor attractive to investors; and the third kind – which Savannah is looking for – are entrepreneurs who run high-growth, high-impact and high-risk businesses.
“We are trying to look for the winners,” he says.
Connecting African startups to Silicon Valley
Alliy says he thinks tough love will pay off. The tech revolution has come to sub-Saharan Africa, and Kenya, with east Africa’s most developed economy and infrastructure, is at the centre of it.
Alliy, who moved back to Africa in April 2012 after four years in Silicon Valley and three years as a product manager for Microsoft in Seattle, USA, is convinced he can make money by schooling local tech entrepreneurs ins and outs of venture capitalism.
“We want to connect the best startups we fund to Silicon Valley because we believe that global tech companies still might need connecting to the ecosystem there,” he says, adding that the likes of Google, Facebook and Apple who have their roots in Silicon Valley, however, what is changing is where these companies can come from.
“Such startups come from all over the globe and we want to include Africa.”
Bridging the skills gap of entrepreneurs
The fund also runs an accelerator programme that seeks to bridge the skills and experience gap of entrepreneurs in Africa. The programme gives entrepreneurs management advice and a small amount of cash in exchange for a 15% equity stake. The three month programme includes hands-on mentoring and startups are given $25,000 to prove their ideas. When they graduate they receive support finding more investors.
The accelerator programme has helped launch three companies: Ahonya.com Ltd., a Ghanaian enterprise that aims to be the Amazon.com of Africa; Kola Studios, a mobile-game developer in Uganda; and Kenya-based SafariDesk, which helps plan African vacations.
Only seven startups were admitted in the programme out of more than 200 applications, with the highest number of applications coming from Ghana, Nigeria, Egypt, Kenya and Uganda.
“We want to focus very heavily on helping the startups,” Alliy says. “Our style is getting more involved with the startups so I think four or five [per class] is enough to get investors excited.
“I don’t want [Savannah Fund] to be the accelerator that has 20 startups that investors won’t even remember.”