Financing limitations impedes success of African tech startups- report

November 11
8:01 AM 2013

The lack of financing impeded the growth of tech startups in Africa. According to a Reuters report, financing was not only scarce but expensive. It cited an example in lenders in Ghana, of which levied business loans with an interest rate of up to 28%.

Churchill Mambe Nanje, the founder of Cameroon-based job search engine Njorku, told Reuters that tech startups found themselves in a Catch 22 situation. He said, "To hire the best talent to develop a startup, you need capital. Finding capital is hard because you need to have a track record and a viable product but to get those, you need capital." Forbes Magazine had featured Njorku as one of the best startups in the region.

Venture capital companies would reportedly provide funding to African ICT companies on occasion. For example, Intel Capital, JPMorgan, Rocket Internet and Summit Partners had offered funding, but this, said Reuters, was not enough. Wider sources of financing were needed, business leaders said.

The system of private equity, angel investors and venture capital companies, popular sources for startups in Silicon Valley, was apparently absent in Africa. This was revealed by Intel Capital Regional Managing Director Marcin Hejka.

TLcom Capital Founder Maurizio Caio said the reason for the lack of the financing was that investors faced a lot of risks. He said most of the entrepreneurs of tech startups in Africa did not have enough track record to incite interest in investors. Because of the underdeveloped capital markets in Africa, investors which had exited investments through a sale or initial public offering were rare. TLcom Capital is a UK-based venture capital firm.

Caio said there were companies in Ghana, Kenya and Nigeria of which investors could be interested in. However, he said, "It's earlier stage. It's smaller stuff, which means riskier, which means even less capital for these guys and even more of a gamble."

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