Emergent Factors

An entrepreneurship ecosystem can be defined as an interwoven set of characteristics, external to the venture, that create an environment conducive to growth. Kaufman Foundation measures entrepreneurship ecosystems applying 12 metrics, as indicated by Figure 23. Unfortunately, there is a serious lack of data and evidence to measure properly, in a comprehensive way, against these metrics in Africa.

To assist our analysis, we applied a broad lens which broadly considers four prominent characteristics of the African scaling ecosystem, including:

• Structural characteristics: The ecosystem reflects the nascency of scaling in Africa.

• Behavioural characteristics: Here, we refer to prevailing attitudes as well as entrepreneurial culture. We also refer to formal and informal collaboration, including the roles of networks like African Business Angels Network (ABAN), the African Private Equity and Venture Capital Association (AVCA), VC4A, and AfriLabs.

• Supportive characteristics: This includes scaling ecosystem support organisations, such as accelerators (but not incubators, which support startups) and providers of scale support services (from consultants to lawyers). It also includes ecosystem funders, of which philanthropic actors have played a key role in the startup ecosystem, but less so in the scaling arena (thus far).

• Knowledge characteristics: This includes research, data availability and quality, data collaboration, learning, education and knowledge sharing. 

Note that when referring to the ecosystem, we specifically refer to the scaling ecosystem, not the startup one. Whilst there are many similarities and overlaps, there are also many differences, largely because the startup ecosystem is far more mature on the continent.

“The structure of the ecosystem in Africa is pretty young. Prior to maybe 2015, we had a few startups, like Interswitch, but it's really young, I would actually say it's between five and seven years, which is about 10 years behind India and Latin America, and decades behind the US and Europe.” - interviewee

It is common for collaboration to be underdeveloped in nascent entrepreneurial ecosystems, as the pie is still small, and there are many competing for a slice of it. As the ecosystem develops, and the pie gets bigger, stakeholders start to realise the mutual benefits of collaboration. We are now starting to see this in the African scaling ecosystem. As much as it takes a proverbial village to raise a child, so too it takes an ecosystem to nurture and raise a startup.

“The strength or the success of any ecosystem is based on the collaboration of that ecosystem. It's as simple as that.” - interviewee

“I feel like the main driver to growth is collaboration, not necessarily competition all the time.” - interviewee

As Jeffrey C. Walker notes in his article on systems in the Stanford Social Innovation Review, "Greater focus is needed on solving problems through creative collaboration, and less on the establishment and perpetuation of new institutions. We need to develop and employ system entrepreneurs who are skilled in coordinating systematic approaches to addressing the complex, large-scale problems of our time.” Systemic innovation is as complex as it is essential.   

At present, there are limited ecosystem enablers - a few notable actors (Afrilabs, vC4A, ABAN), alongside a handful of influential founders and VCs, which are connected to one another. This observation is important, because patterns of influence shape the development of entrepreneurship communities.

A detailed Endeavor Insights study of the comparative development of entrepreneurship communities in Nairobi and Bangalore in India illustrates starkly how much these patterns of influence (Nairobi top-down, Bangalore bottom-up) can change the course of ecosystem development. This is illustrated in Figure 24.

Successful founders - the best performers working in an ecosystem - are often not sufficiently engaged in ecosystem development, notwithstanding that they are the best barometers of the true constraints of local entrepreneurship ecosystems, because the challenges that they identify as obstacles to the growth of their ventures are less likely to be the result of their lack of experience or other internal challenges.

A large supply of knowledge, social capital, and potential investment funding already exists amongst successful founders of the community’s most successful tech companies. These founders are usually very active, but still underutilised in the community. When leaders of the fastest-growing local ventures connect with entrepreneurs at newer companies, it improves the rates of high-performance of these newer ventures by double or more. The founders of fast-growing companies are small in number, but critically important.  

Peer networks are an excellent means to diffuse knowledge and best practice, especially as regards topics that apply to local ecosystems. They are particularly valuable for scaling businesses. A great example of a formal African community is the Harambean network of 350 young African entrepreneurs. Their mission statement acknowledges that “In the ongoing evolution of Africa’s entrepreneurial ecosystem, the practical experience of our entrepreneurs, investors, and partners is Harambee’s greatest asset. Hence it is the spirit of harambee — Swahili for working together towards a common purpose — that informs our approach to drive the success of Harambeans. By recycling the knowledge, connections, and capital within our Alliance, we can build Africa’s future.” Yet this is a closed, by invitation only, network. 

Endeavor’s membership includes A-Team founders (and it also has a dedicated fund). Again, its resources support the 1 percent of top founders who have raised capital. Few open participatory expert networks exist in Africa. Those which are active appear fairly elitist, with membership limited. One founder told us that inclusion in entrepreneurial networks is often based on factors such as existing social capital and charisma (rather than meritocracy), meaning that some entrepreneurs who could add significant value to ecosystem development are excluded. Researchers have pointed to the Sub Saharan African social milieu being in dire need of cultural change when it comes to the discourse on meritocracy. We point to the need for an innovation reframe.

“Building a really strong mentorship and support network within our community and ecosystem is important. Access to the right mentors, especially those industry specific knowledge, or scale up and market experience is important. It is important to have mentors that really understand local markets.” - interviewee

Mentorship is proven to help business survivability and growth prospects. But expert support still remains in short supply. Based on lessons learnt from their pan-African accelerator programme XL Africa, the World Bank concluded some years ago that mentorship is “a critical blind spot”, and that future pan-African and national programming should catalyse regional ecosystem mentors and the African diaspora.  

Hub network coordinator, AfriLabs, also acknowledges that the business hubs which they support have big mentorship support gaps, as indicated by Figure 25. Focus groups have also revealed that most hubs do not have a structured mentor network.

Within Africa there are excellent contributors, such as the National Mentorship Movement in South Africa. There are also sensible efforts to bridge African entrepreneurs with savvy mentors from outside of Africa - such as the MercyCorps Ventures MicroMentor platform (one of the largest communities of entrepreneurs and volunteer business mentors). But huge gaps remain that need addressing. 

As far as we are aware, there is no coordinated scaling African mentorship strategy currently being designed. Scaling ventures, which require far more experienced and specialised knowledge and expertise than their startup peers, will unquestionably require hands-on help. Far more intentionality is needed to draw in pools of new mentors - from inside and outside of Africa, which requires leadership.

More than 400 companies - including multinationals like Coca-Cola, Nestlé, Unilever and P&G - generate at least $1 billion in Africa-based revenues. According to McKinsey, consumer goods companies that have worn in the African market are those that: 

• Have been careful and selective about the markets they enter; 

• Tailor the offer to local needs and preferences; 

• Create a bespoke route-to-market model by geography and channel; and 

• Build a large, well-equipped sales force. 

Much can be learned from these companies, whose existing capabilities scale-ups could leverage through partnerships and supply chain and distribution network integration. Corporate partnerships could also assist scale-ups in overcoming the barriers inherent in internationalisation, as many of these corporates have the resources and local knowledge required to navigate the stormy regulatory waters of each new country. But corporates are not absorbing scale-ups effectively into their pipelines, nor fast enough.

“Corporates are actually the biggest gatekeepers to consumer purchasing power. How do we get some sense of corporates really willing to share and collaborate for bigger scale gains? Where are they? The support needed is a long way from where it should be. The telcos are slightly better, but most other corporates (like banks) don’t really know what their consumers want, and act as a distribution channel, without actively engaging in innovation.” - interviewee

Areas in which we would expect greater corporate engagement includes corporate venturing, of which there are only a few examples of success on the continent, such as Orange Ventures. Better collaboration design models between startups and scaling ventures are necessary alongside greater experimentation. Our own analysis of African corporate and SME bridge-building, which was developed for Thomson Reuters, is also available upon request.