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Africa's startup scene ripe for investment by corporates

Africa's startup scene ripe for investment by corporates

Insufficient investment in Africa's budding startup scene requires that corporates pay greater attention to why they have not been able to exploit the opportunities presented by the continent's startup community.

ICT experts recommend a renewed approached to take advantage of opportunities while lowering risks when backing homegrown startups.

Floris Buys, Founder and Executive Director of Telkom's new Innovation Ecosystem SpliceWorks says corporates find it challenging to capitalise on the innovations provided by startups.

"The question is how do you know what is happening in different countries and how do you absorb the innovation into a corporate environment? It is difficult because anything that comes into a well-oiled machine like the corporate environment is dispelled if it seeks to change the status quo. Traditionally corporates have followed three approaches of funding, buying or partnering when it comes to startups, but they are really struggling to keep up as the startups innovate faster. Everybody realises we need to tap into the startup ecosystem."

Buys says the best way to find the right startup for a corporate is conduct a thorough needs analysis through a selected team of individuals who are responsible for innovation for the corporate.

"If you just shoot in the dark it is going to be very difficult. The trick is to identify what your customer needs or what you need internally or what is needed by one of your departments. Identify that need and then make sure that you understand exactly what it is that you require and go and look something like that and you will probably find a solution from a startup. There are lots of platforms, incubators, hubs and accelerators in the ecosystem. They have databases of startups."

Frank Rizzo, ‎Technology sector leader for Africa at KPMG agrees with Buys' recommendation of a matchmaking exercise between startups and corporates.

He refers to a South African startup called Matchi which specifically focuses on this business matchmaking exercise.

"In the fintech world there are many little startups needing to get in touch with corporates. According to their business model, Matchi gets institutions like banks signed up and then they put together a database. They then run a process to match the problems with solutions provided by some startup somewhere in the world."

Lunga Siyo, head of e-commerce for individuals at Standard Bank SA adds that while a corporate needs to be clear about its 'pain point' before finding a matching startup, they should give startups space to function separately from corporate processes in so far as this is necessary.

"Many corporates fail dismally when they try to copy what startups are doing because they come laden with their inherent challenges like corporate politics. They then realise that they need to find a way of funding the startups. They then create an environment for supporting startups through venture capital funding, connecting them with mentors who can advise them with commercialisation and then give them a platform. About two out of ten startups the corporate hosts will succeed and then it (the corporate) will buy fifty percent of them."

Siyo says this approach can help to overcome challenges faced by startups such as job satisfaction for young founders and cash flow issues.

Findings in a report released by Disrupt Africa show that more than 300 fintech startups are active across the African continent, disrupting the financial services landscape with innovative solutions that are attracting the attention of banks and investors.

The report titled Finnovating for Africa: Exploring the African Fintech Ecosystem Report 2017 shows fintech startups are spread across the African continent, with South Africa, Nigeria and Kenya featured as the top three hotspots for fintech startup activity - although a number of other markets are emerging as vibrant fintech destinations.

Of the nine fintech categories covered by the report, payments and remittances startups dominate the market, with 41.5% of all startups focused on this space. Lending and financing also proves a popular priority for Africa's fintech innovators according to the report.

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