Slides from my recent talk at Rollins College in Winter Park, Florida
Archives For africa
We recently completed the first part of a research project that aimed to test whether or not real-time mobile data could be used as a means to predict future macroeconomic trends like interest rates, inflation and GDP per capita in African countries. While the paper itself makes no definitive conclusions, it is the first in a series of long-needed experiments that will test the statistical reliability of mobile population sampling as a means for financial analysis and forecasting in countries where infrastructure is unstable.
This research was conducted on behalf of one of our portfolio company Market Atlas and supported by a grant from the Knight Foundation’s Prototype Fund.
In 2000, the CIA made many predictions about the world. One of them was this: “Aids, famine, and continuing economic and political turmoil means that populations in many [African] countries will actually fall.”
While most of their predictions were fairly prescient, this one was way off. Not only is most of Africa more peaceful and politically stable, the population is booming as are many African economies. Foreign direct investment is way up as is sovereign investment. Africa in aggregate is growing way faster than Europe in aggregate right now. The continent is truly booming.
Despite what you’ve heard this year through the media about ebola, the African story is one that is still unfolding positively.
In a post about Africa’s growing tech hub community, researcher Dan Evans (whose work we’ve covered previously), writes:
“Based on the maturity and business viability of many of the small tech firms that we have met with over our data collection visits, and the modification of many incubators’ business models, we completely understand the thought-process behind this “pivot” in strategy. For example hubs that we have previously visited like iceaddis and iLab in Liberia, andHiveColab in Uganda have all scaled back their original lofty aspirations. These hubs originally planned for a multi-tier membership model, charging rent for office space, and acquiring equity of the companies that were the most mature. Based on these assumptions, they thought they could be self-sustaining in a short period of time. All have scaled back their expectations and operate more as collaboration spaces for the local tech community and offer technical training and mentorship.”
In a tweetstorm response, I argue the following:
— Jon Gosier (@jongos) August 13, 2014
— Jon Gosier (@jongos) August 13, 2014
— Jon Gosier (@jongos) August 13, 2014
To expand on this, most hubs really overestimate the ability and desire of what the market will bear. While cheap/fast internet, nice furniture, recreational areas, and a stimulating environment of peers and mentors is a nice value prop, it’s not a business model that subsidizes the cost of running the actual hub itself. This is because the overhead of a hub (rent, staff, electricity bills, internet bills etc.) is high enough that to charge a rate that actually covers the bills is inversely proportionate to what startups and entrepreneurs can afford. The better the space, the more attractive it becomes to people want to pay but can’t. The cheaper the space, the less attractive it becomes to people who can afford to pay but don’t want to.
So if the market can’t bear the price of hubs, who can? How can we fix the African tech hub model? People don’t realize this but HiveColab in Uganda (the hub we seeded and still advise) was operating as a tech hub for about a year and half prior to adopting the current branding.
At that time it was fully sustainable because it also doubled as Appfrica’s home base. It was our office and we shared it with anyone who wanted to come in and use the space. This was well before ever accepted any grants or donor funding. We were, thus, operating under a cross-subsidy model which means one thing pays for another. In our case, we offered technical consulting services to earn a profit and a portion of those profits were used to subsidize activities that were inherently unprofitable (giving away desks and free internet to entrepreneurs). Running a profitable company created the opportunity to carry-out unprofitable activities for social benefit without hurting our ability to survive.
If you look at the handful of hubs that are working, they are employing similar cross-subsidy models. MEST in Ghana survives on such a model given the success of software company Meltwater. The iHub in Kenya has iHub Research and its mLab for testing and other initiatives, that are producing revenue. However, given the size and scale of the iHub, from what I can tell, though it is producing revenue, I doubt its broken even from revenue when you exclude all grants and corporate sponsorships.
Both of their models work because they understand that donors are only a part of who pays, but not the only customer who pays. In tandem, donors/funders are being encouraged to give more to initiatives that are working towards sustainability versus not.
@danevans87 6 – I think so, donors have be more discriminate about why they are funding hubs and propping up a broken ecosystem
— Jon Gosier (@jongos) August 13, 2014
The biggest risk to the first wave of tech hubs is that they will implode under their own weight as soon as donors start to realize that the hub model will never be sustainable without some creative thinking about business models. This is already happening, in fact. Many donors like Indigo Trust and Hivos already have started to ask more of hubs in the area of business development. They and other donors don’t want to have account for 90% of any project’s revenue. Will they continue to be the ‘angels’ for the select hubs that have achieved notoriety? Possibly, but at some point that’s not sustainable and therefore, not attractive. One hard lesson many hubs learn is that running a non-profit or community oriented services does not equate to having no business savvy whatsoever.
In my opinion, any hub or accelerator struggling with financing has to think about a cross-subsidy model in order to survive. They also need to follow the iHub model of inviting corporate parters to the table as key stakeholders. But more importantly, they need to stop thinking about what they do as being justified because what they do is inherently ‘good’ or ‘needed’. Anything that is needed is invaluable to someone, and by definition will be supported by the stakeholders that can’t afford to lose the resource. Things that are ‘good for the community’ may well be that, but if they aren’t critical to the community, they are simply nice-to-haves. Unfortunately, most hubs haven’t yet found their ability to become need-to-have versus a nice-to-have.
The donors also have to get smarter about what they fund and why. The old NGO/Donor model allowed for the indiscriminate spending of money whether it was on solutions that worked or didn’t work. The new NGO/Donor model demands data, accountability, and sustainability. Increasingly the philanthropic community is moving from that old world and into the new. This puts any hub that primarily relies on grants in the precarious position of risk due to not having enough impact or being able to demonstrate enough impact to justify their survival. The only answer to that (other than having undeniable impact) is to have an undeniable sustainability model. This also makes the hub more resilient even if donors pull-out.
It also seems that donors should focus more on the infrastructure the hubs require to exist versus funding the hubs themselves. Organizations like AfriLabs that support the network of hubs or the recently announced ‘Hub fund’ democratize how resources are spent and build a better ecosystem. Outside of this, donors simply are attracted to the dominant players; which risks propping up ‘monopolies’ in what should be a more merit-based community. Organizations like the United Nations or the Africa Development Bank might do the same, a plan recently put forth by my colleague Bahiyah Robinson was one attempt to encourage their involvement in this network.
Finally, the other thing hubs have to resist is scaling too quickly. Having a large, well-decorated, and high-tech space is not a good thing if you haven’t yet figure out how to pay for it all. In fact, all of those assets then also become your biggest liabilities. Overhead is the inescapable common denominator of any organization, business, or non-profit. Scale should come when you truly understand your own business, it’s working, and you have to grow to meet demand. Scaling prematurely is the kiss of death.
Fundamentally, all of this stems from a gross misunderstanding of what a tech hub or accelerator is and why they work elsewhere. When you look at the hubs and accelerators in other markets, like YCombinator, 500Startups, The Hub Network and others they all have realized that the community they serve is not what keeps them alive as businesses. In the case of YCombinator the accelerator can be thought as cheap R&D for an investment fund. It’s a loss-leader. The fund invests money up-front to get the best companies in its doors, they take equity, and then as the companies mature they reap the benefits of their early investments. The first few exits (when a company they’ve invested in sells) offset the cost of running the accelerator. From then on the accelerator essentially pays for itself and the cycle repeats.
Africa’s tech hubs misunderstand this because they assume that simply having access to companies is the critical component. It’s not. You need the best companies. Only the best and only ones that will exit. YCombinator essentially sells the best companies in the the most mature market in the world (The United States) to its audience of venture capitalists and corporate acquisition departments. If you aren’t doing the same thing in your own market, you aren’t like them. This is particularly a problem in most African markets where there simply aren’t enough mergers and acquisitions going on to justify a reasonable expectation of such a model (which is dependent upon exits) in the first place.
Does that mean you can’t have companies that aren’t going to exit? No. But not having companies that exit means you’re in the business of selling something else. I’ve already pointed out that expecting the companies to pay enough to offset the costs of running a hub/accelerator is pointless. Expecting VCs or acquisitions to offset the cost is also pointless. So what works? Cross-subsidy. Figure out some other service the compliments the unique skills or offerings of your hub’s team and get profitable from that, use those resources to maintain your hub, use your newfound success and sustainability to invite other partners to the table to help you scale.
So if it’s that simple, why is this so difficult for hubs to implement? There are many reasons but ultimately boils down to the lack of experience in business development from people who fail to prioritize a working business model versus accolade and attention grabbing activities. This is usually a mistake of many first-time entrepreneurs (as hub managers often are) who mistake ‘attention’ for success. It’s a type of success, but it’s not necessarily the type that leads to sustainability.
As we move into the second life of Africa’s tech ecosystem, I look forward to seeing the new entities that emerge that embrace some of these core principles.
Slides from my talk at Yale University to current Fellows of the White House’s Young African Leaders Initiative.
The UN Global Compact Conference, held on June 9 + 10, 2014, convened 300 public and private sector players from across the continent to facilitate knowledge sharing for local, regional and continental planning. The organizers did a great job in accomplishing something that is no small feat, bringing together U.N. agencies, NGOs and various companies from the private sector (such as consulting firms, BoP technical assistants and regional financial institutions) to discuss ways to come together to discuss the problems facing small and medium size enterprises (SMEs) in Africa.
The setting was the rather impressive: The UN Economic Council on Africa building is housed just minutes away from the Palace. The building, like much of the city of Addis, was partly under renovation, but that did nothing to take away from the feeling I had once we stepped onto the grounds: the people who worked there meant business. In fact, Addis Ababa is home to other convening bodies in Africa like The African Development Bank and the African Union. The city’s air of power, influence and rebirth is evident by the people who live and work there. And for the first time, The UN Global Compact decided to have their conference in the very place where it mattered the most: on the continent.
It was great to see so many different players committed to exploring how we can strengthen public-private partnerships. As I see it, there are two distinct challenges that have to be overcome to deepen the impact of these discussions.
The Main Challenges
First, we need to be clear about the specific ways our organizations want to support economic development, whether a company or organization has specific country, regional, or Pan-African goal they are trying to accomplish. The goals of a company like Coca-Cola has around investing in a local business will look very different than a local UNDP office trying to bring more services to local entrepreneurs. The question then to ask ourselves and our colleagues is: exactly how do we want to impact the communities we serve? Where are we lacking? How can we partner with an organization that has had success to close our gap? How can we pool resources together to accomplish a single mission?
Second, we need to have the mindset of open and inclusive knowledge sharing with local experts. To accomplish this we need to find more robust ways of working together to create environments to which foster economic growth and equitable opportunities.
Supporting Technology Hubs, Long Term
There were two panels I spoke on. The first was about strengthening public-private partnerships to support SMEs. One of my big points, was that we need a coalition of public and private supporters to pool resources to support entrepreneurship and training hubs. I am convinced this is one of the most overlooked ways to drive economic growth AND job development for youth.
What could this look like?
Think of what could be done if, similar to the Virgin Entrepreneur labs, multinationals committed $20 million USD to fund technology hubs that provide skills and training for youth? With $100,000 committed to each hub, say, in the AfriLabs Network, this could mean 3 years of organizational support for over 60 similar hubs across the continent, with $2 million to spare for a yearly convening event and small M+E team.
There are nearly 100 innovation hubs in Africa most of which are struggling to survive. I’ve spoken with many their managers who share the same concerns and struggles, lack of finance opportunities and their inability to come up with sustainable models. Their fears are often the same: “How many more months can we keep our doors open and provide consistent programming for our communities?”
If a public-private consortium came together with a larger operational grant, similar to but on a larger scale as Hivos and Indigo Trust’s recent TECH HUB INITIATIVE, we could scale up opportunities for youth to have consistent access to vibrant innovation hubs where staff salaries, internet connectivity, and space is stable.
Tech Hub sustainability will rely on committed partners, mentors and managers to determine what services they can provide their market that will add value to local businesses. This doesn’t mean renting desks or holding events. It means harnessing the power of the tech developers and organizers within the hub to provide expertise that companies are lacking. Until those gaps are filled, tech hubs will have a difficult time staying alive.
Strengthen Intellectual Property (IP) resources across the continent
For the second panel discussion, WIPO hosted a trip outside the city to the rather impressive Oromia Coffee Cooperative, where the Ethiopian organization has successfully licensed the use of coffee for the world market. As most of you may know, Ethiopia is the birthplace of coffee. The Oromia team welcomed us with a facilities tour, special coffee ceremony and presentation about the growth of the cooperative and how their model has helped increased economic growth for the region as well as health and training services for the workers (most of those in the factory were women).
The market for coffee globally is massive and it’s Ethiopia’s primary export. Ron’s team assisted the Ethiopian government in receiving a fair share of that profit, and getting fair trade coffee retailers such as Green Mountain Coffee and Starbucks to agree to paying Ethiopian exporters for these licenses. My other panelist, Ilmari Soininen from Sanaa Consulting, spoke on the importance of these type of IP initiatives in strengthening trade relations on the continent.
From a technology perspective, I spoke about registering and protecting the IP of young African entrepreneurs- something that WIPO is keen to work on in the coming years. The point here is, if technologists can’t protect their IP, then they cannot reap the type of success and growth that their American and European counterparts have.
As we concluded the conference, there was a strong feeling of commitment to work together to create the type of equitable and stable environment for economic development that other regions have enjoyed.
It’s up to us keep working to make this happen.
Appfrica Founder Jon Gosier will be giving a guest lecture at Yale University on June 25th, 2014. The talk, entitled “Investments in African Entrepreneurship: Managing Risk and Failure” will introduce attendees to opportunities for investing in Africa’s growing ecosystem and how to actively mentor or advise companies through various ups and downs…what investor Fred Wilson calls ‘the trough of sorrow’.
The talk is for students, Yale World Fellows, Yale Washington Fellows, and 25 delegates of President Obama’s Young African Leaders Initiative (YALI) who are at Yale for a 6 week program.
Date – June 25th, 2014
Time – 10:00am to 12:00pm EST
Location – Yale School of Management, Nooyi Classroom 2230, Edward P. Evans Hall, Yale School of Management (165 Whitney Avenue)
Website – http://worldfellows.yale.edu/YALI/week2#25
After five years of funding companies through partnerships like the Apps4Africa initiative (2009-2013) and our own team’s angel investing, we’ve decided to change course. While there are are more competitive funding events like A4A planned, the focus of our funding efforts has shifted over the past five years. We are still very committed to discovering, mentoring, virtually accelerating, and investing in the founders and upcoming entrepreneurs of Africa and we’ll be doing so through our fund.
Why the name change? Partly to reduce confusion. Since we launched, newer brands like Microsoft’s 4Afrika initiative and others playing on the ‘4Africa’ meme have popped up which creates a lot of confusion. This isn’t a bad thing and rarely is this kind of brand confusion intentional, but it is less than ideal.
Primarily, though, it’s because of how our fund will grow moving forward. We will continue to offer seed capital up to $25,000 for companies and grants for social ventures and non-profits. Currently we have about 19 companies in our portfolio across 16 African countries. While we won’t rule out future future competitions and hack-a-thons, they will come under a different moniker.
All our past companies are already members of this fund, so nothing changes for them. Internally, we’ve always done our deals as Appfrica, since that’s our company’s legal name in both the U.S. and Uganda. In fact, we’ve been doing deals quietly since 2008 when we made our first investments in companies coming out of Kampala at the time.
As the fund grows, we aim to do more early stage deals across more diverse countries in Arica, particularly in countries with less interest from early-stage investors. We also have plans to do follow-on financing for our existing portfolio as they grow their respective businesses.
Today’s African citizens are faced with a set of unique challenges: an unpredictable job market and poor global economic conditions. They choose to voice their opinions through social media, or more vocally in the streets. New generations of women and young people throughout Africa are emerging and developing innovative strategies to overcome daily problems at a local and national level, but their combined capacities have not been fully harnessed. And alongside this increased activism is an increased entrepreneurial spirit, a willingness to cross borders to seek opportunities, and an understanding of the increasingly interconnected world. How do today’s leaders (corporate and government) communicate with them? How can we tap the full potential of women and young people?
This panel discussion took place on May 25th in Libreville, Gabon at NY Forum Africa between Jon Gosier (Appfrica, Market Atlas), Akon (R&B Singer), Auma Obama (Writer and Activist), Maggy Berre (2CS), and moderated by Christine Kelly (CSA), Arnauld Engandji (Advisor to the H.E. President of the Gabonese Republic).
This past week I had the pleasure of speaking at the third annual New York Forum Africa in Libreville, Gabon. NY Forum is the brainchild of Richard Attias, who one of the people responsible for the annual World Economic Forum (better known to the world as Davos).
The first question everyone asks when they hear about the New York Forum Africa is why it’s called ‘The New York Forum’ if it’s a conference focused on Africa.
I can’t claim to know for sure, but there are a few things that I can say. The conference was always meant to be for the same types of people who might go to events like Davos or TED: foreign investors, banks, celebrities, media, government officials. It originally took place in New York where the name makes a lot more sense. This particular event included two sitting African presidents (Rwanda President Paul Kagame and President Ali Bongo Ondimba), three former presidents from Latin America (Former President of Peru Alejandro Toledo, Former President of Mexico Vincente Fox, and former President of Bolivia Jorge Quiroga) as well as African superstars Youssou N’Dour, Akon, and Dikembe Mutombo (pictured below).
At some point a partnership was forged with the country of Gabon to bring the event to Libreville. The benefits of having such a high profile event in Libreville is obvious: it’s a boost to tourism. it attracts investors, it encourages multinational partnerships. In other words, it puts Gabon on the map for people who tend to overlook it for better known countries on the continent like Kenya, Nigeria, South Africa, or Ghana.
This is a really smart move by Gabon’s President Ali Bongo Ondimba. By investing in partnerships like this, he’s quite literally presenting Gabon as ‘open for business’ to the very people who have the desire, positions, and capital to actually do business.
WHERE NY FORUM DIFFERS
There has been some critique of the very idea of a ‘New York Forum’ Africa. But the forum is so unique and diverse in its offerings, it’s hard not to find it compelling. In my experience doing business on the continent over the past six years conferences in Africa tend to fall under the following archetypes:
- Small local events that discuss important subject matter usually organized by NGOs, local Government or Civil Society
- Larger pan-African events that discuss the same subjects, but with participants from across the continent
- Africa industry specific events (think multinational organized banking, telecom, and mining conferences)
- Events focused on social entrepreneurship
- Events focused on tech startups
These are events are fine, and are more than exceptional for those close to the issues discussed. Most of these events are dominated by discussions around developmental aid, to the point that the conversation never moves past what I call ‘naval gazing’ at what new NGO programs are working or aren’t – while forgetting there are other things to give thought to. For instance, what do we do for the individuals living on the continent that aid has actually helped to move out of poverty and into the middle class?
But there are few, dare I say no, African events that are trying to position themselves like a World Economic Forum or TED. Both conferences are smartly composed: part entertainment, part industry insider event, part corporate retreat, and part marketing. The goal of NY Forum is to get people to come to the continent, to learn about opportunities, and the develop either a personal or professional affinity for Africa’s Markets. Why does this matter?
I think back to how important TED Africa in 2007 was for changing the awareness of African issues for some. Though I wasn’t there, it was a talk from the event that I saw by Andrew Mwenda that inspired me to invest on the continent.
Those who challenge the content of events like NY Forum Africa and TED Africa, I argue, miss the point. There have been leaders, intellectuals, and writers exploring the state of the continent for as long as Africa has existed. And for as long as they have done so, they’ve been followed by those wh know of them, but oblivious to most because they are too far removed from the problems or the solutions. So how do we get the World to care? You present the same ideas in a package they are more likely to find compelling. Conferences like TED, WEF and NYF are diplomacy in disguise. Good PR to help open people’s eyes just a little bit, and to expose Africa’s own movers and shakers to the otherwise oblivious world.
This, New York Forum Africa does better than most conferences on the continent. Hands down. While development is important, making it the complete focus of discussions on Africa isn’t progress. We know of the challenges, we’ve discussed the solutions, as Rwandan President Paul Kagame said at this year’s conference, “what matters now is implementation”.
SO, WHAT DIDN’T WORK?
The whole conference was incredibly productive and, as always, it’s the people who come, and the side-conversations that really make things worth while. Rarely is any anything said from the stage at a conference like this ground-breaking or different from what has been said before. That isn’t the point of such events. The point is is to convene the people who will actually do what Kigame alluded to: execute.
That said there was one thing about the conference that just didn’t work. ‘Taskforces’ which were held in smaller breakout rooms that were one part panel, one part workshop. Each was focused on discussion and ‘problem solving’ around topics like Improving Education, Entrepreneurship, and other matters. Around 30 minutes was reserved for the discussion, while 20 minutes or so was reserved for the workshop portion. Nothing done in 15 minutes is really going to be accomplished around such issues. Clearly not enough time.
I, as did many others judging by the side-chatter, felt these workshops were a complete waste of time. To come up with anything tangible, it would require almost an entire day or more to capture all the complexities of the issues and to explore what could be done, and that’s before coming up with an action plan. It would have been way more practical to just make these conversations more intimate discussions and skip the ‘tasking’ altogether.
The other thing that was made clear was that there were too many all-male panels. I personally thought NY Forum did a better job at not falling into this trope than other conferences on the continent. Still it’s a valid concern and one that will hopefully be addressed in the future.