Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job…
Capitalizing on the boom of Africa’s entrepreneurial revolution, official development assistance (ODA) actors are increasingly taking on the challenge of supporting new generations of entrepreneurs willing to contribute to job creation and the emergence of more inclusive growth on the African continent. It is in this context that programs, initiatives and structures claiming to “accelerate” businesses have emerged in recent years.
Note: Part 2 of this article, spotlighting an Ivorian company supported by an acceleration program, will be published next week.
Acceleration: A promising concept for African startups
When it comes to entrepreneurship, acceleration is defined as a service that provides mentoring, networking, and sometimes funding, to growing companies. However, the term is used to refer to a wide variety of very different programs. These include “accelerators” and start-up studios (such as GSMA Kenya and Flat6Labs Egypt), which are often physical or virtual structures that focus on digital economy (1) start-ups and are typically located in English-speaking countries, as well as investment funds that define themselves as booster programs (such as Catalyst Fund and Janngo) and/or that develop a range of acceleration program services to diversify their portfolios.
These programs are mainly funded by international organizations and private donors (e.g., West African Trade Investment, funded by USAID; Orange Corners, funded by the Netherlands Enterprise Agency).
In a globalized context where virtual support is widely available, international accelerators, in the US, Latin America, and Europe, are assisting more and more African startups. Before 2020, the renowned North American Y Combinator had only provided on-site support to 12 African startups—a figure that has tripled in the last two years.
An insufficient offering given the needs of entrepreneurs
This apparent plethora of acceleration programs gives the impression that the needs of African early-stage companies have now been met. This misleading impression is strengthened by the growing numbers of venture capital fundraising exclusively targeting IT startups in a limited number of African countries (Kenya, Nigeria, South Africa, Egypt.
The number of start-ups across the continent that need assistance in the acceleration phase or upstream during the incubation phase is significant; whereas the range of seed financing (pre-seed/seed) is almost nonexistent if we look at the ratio of funds to the number of entrepreneurs. The financial and non-financial support granted must cover both general and specific needs, and therefore requires time, locally rooted expertise and a personalized calibration/analysis of a business’s needs. Accelerating a company’s growth does not mean accelerating the time required for its development.
Unfortunately, most programs funded by ODAs are not properly structured to overcome the gap between the time/support required for each entrepreneur and the number of targeted beneficiaries. Often these programs are unwilling or unable to assume the real cost of coaching each company and therefore take the risk of acting only superficially/provide only superficial assistance. Implementation resources are limited since there are inexhaustible reserves of new entrepreneurs to support whose scaling up problems cannot be solved exclusively by a generalist approach.
The apparent profusion of acceleration programs is misleading: the number of startups that need support across the continent is considerable and the supply of seed funding is still largely insufficient.
Draw inspiration and deploy good practices
Since there is still a lot to do to guarantee the development of African entrepreneurship, the experience accumulated in recent years by acceleration program actors make it possible to identify a few “good practices” that could be deployed on a larger scale:
(1) The segmentation of programs is an added value
Every acceleration program must consider the fact that the term “start-up” includes companies that have nothing in common, either in terms of their business or location, and as such, require differentiated support. Segmentation adds significant value as it allows acceleration/support programs to more quickly identify issues and address challenges common to a particular business/company; a Sahelian SME in the agribusiness sector, for example, will have different support needs than a Nigerian e-commerce startup. Segmentation benefits also to programs that favor a virtual and grouped approach but which have difficulty obtaining the expected results with audiences that are too diverse.
Sectoral programs, such as those dedicated to agribusinesses (e.g., the PCESA financed by Danish cooperation in Burkina Faso) or initiatives focused on gender (Access Bank Nigeria’s W Initiative…) are more likely to identify the particular challenges of businesses and better understand regional equity issues (urban, rural, etc.). In the same way, results are achieved when the support continuum has been well thought out. Incubation in particular is not interchangeable with acceleration, as the needs of companies may differ from one phase to another (2).
(2) Greater impact is achieved by training local intermediary actors essential to the development of entrepreneurs
Entrepreneurship support structures (SAE) in particular, independent experts and consultants be able to find their market beyond punctual aid from donors (3) . It is by contributing to the local skills development of African professionals that a greater number of companies will be able to scale up. In addition to Afric’innov, whose primary mission is in French-speaking African countries, a few financial players have recently attempted to fill this blind spot in their program offerings. Examples include the collaboration between Argidius and Village Capital, who have been working since 2020 to help structure SAEs in Uganda (Uganda Ecosystem Builders), and the work of mentoring and then financing SAEs carried out by Triple Jump and its experts in Sub-Saharan Africa.
(3) Acceleration programs that provide a complementary set of tools are more effective
First, appropriate seed funding tools, which specifically take into account a company’s lack of financial management skills and habits, can take the form of a repayable advance, as currently practiced by I&P Acceleration in the Sahel (IPAS). An advance lays the groundwork for a relationship with a financier and will probably make it possible to financially support more SMEs through the effect of recycling money (4).
Secondly, we can use skill-building tools that alternate between generalist support (to aim at disseminating entrepreneurial skills as widely as possible) and targeted support (venture building, technical assistance). The technical support provided to a company is just as determinant as the financial support. Y Combinator’s alumni agree that their growth is more due to technical support than to the initial financing, even if the financing gives more weight to the advice given.
Although the scarcity of seed funding is a significant obstacle, support, through skills building and technical assistance, is just as crucial as seed funding.
General skill building (group trainings, bootcamps and workshops, webinars, etc.) is often valued by funders, but technical assistance is largely absent from many acceleration programs. Technical assistance, i.e., contracting with local sector experts (legal, commercial, technological, managerial, etc.), is critical to improving the performance of companies during the absorption of seed financing and the development of traction. Technical assistance is an eminently relevant tool when it is implemented by an investor who wishes to strengthen the enterprise where he perceives risks that would not be detected by other types of actors. Most acceleration programs that include the deployment of technical assistance produce net results: this is the case, for example, with GreenTec Capital’s Boost Digital, which offers technical assistance in business and digital strategy and significantly increases the revenues of its beneficiary startups.
Some traps to avoid
Program funders still face many challenges to increasing the impact of their programs. It will inevitably be necessary to move away from the “all-startup” scheme to support “brick and mortar” SMEs as well and to rethink the establishment of support over time, taking into account that the phases of increasing skills are costly but necessary in order to meet demanding results indicators. It is also important to recognize that high failure rates at the outset are normal given the high initial risks involved, during the time when a company must deploy its offerings, prove itself and find its market. If the company survives, thanks in part to acceleration, then the risks, the need for liquidity and the need for competence (…) all decrease simultaneously.
We must also avoid the model of ephemeral competition and challenges, unless we are clear about their purpose (brand testing, visibility, etc.) and encourage a little more in-depth research work for “nuggets” and summoning patience and local relays in the process of selecting companies outside the circuits known to “serial pitchers”. The implementation of programs designed in Africa, involving African public and private stakeholders, favoring local financial risk-taking (e.g., business angels, African entrepreneurs, especially alumni of acceleration programs wishing to invest) is becoming essential.
In conclusion, we can hope that the enthusiasm of DFIs, international donors and African private actors for acceleration programs will continue and lead to the realization of ambitious aspirations: to strengthen young companies and create intermediary bridges/pathways to capital investment for those with clear development projects. Such a dynamic is inseparable from a broader reflection on the programs that exist further upstream from acceleration (ideation or incubation programs). The quality of our tools must be continually questioned in order to adapt them as closely as possible to the changing issues that growing African companies face.
(1) An overview of the so-called gas pedal structures is available on the Afrikan Heroes and CrunchBase websites https://afrikanheroes.com/2021/05/29/a-list-of-startup-accelerators-in-africa/ https://www.crunchbase.com/hub/africa-accelerators and in the Briter Bridges 2020 & 2021 reports
(2) Cf étude AFD-Roland Berger « Innovation en Afrique et dans les pays émergents » https://www.afd.fr/sites/afd/files/2018-05-05-57-55/etude-innovation-numerique-afrique-pays-emergents.pdf
(3) On this subject, see the studies and experiments currently being conducted in Cameroon, Congo-Brazzaville and Chad by actors such as R.M.D.A or the Agro-PME Foundation to implement the use of service vouchers, a useful tool for training and accreditation of consultants, etc. https://www.rmda-group.com/project/tchad-appui-a-la-maitrise-douvrage-du-projet-dappui-a-la-petite-entreprise-phase-2 https://www.adiac-congo.com/content/pme-le-guichet-cheque-services-bientot-operationnel-32125
(4) The repayable advance and its effects will be the subject of an article in this Acceleration file.