There Is A Big Misconception In Africa That If You Are A Tech Startup, You Need VC Money – Says Investor Zachariah George

By  |  February 14, 2019

Zachariah George is a well-known personality of the African startup Landscape, but for those who are yet to know him, he is an Angel Investor and advisor to numerous African startups and SMEs. He founded Cactus Advisors – an Angel investment fund and business advisory firm based in Cape Town, focused on high-impact, high-growth, early-stage African businesses.

From 2011 to 2014, Zach led the Africa operations of U-Start – a Swiss-based global investment advisory firm specialising in direct and indirect venture capital investments in the tech and digital sector for private/VC funds, corporate ventures, and wealth management institutions. He was formerly an investment banker at Lehman Brothers and Barclays Capital New York. Currently, Zach is a Partner and Chief Investment Officer at Startupbootcamp Afritech.

Being an early-stage startup, especially one without revenue or funding is quite a difficult place to be in the African ecosystem, or in any ecosystem for that matter. Though the growing numbers of this ecosystem seem very attractive to the investors and peer startups, the challenges associated with growing the startups are far too many. In most of the saturated or the developed economies, the support systems (incubators & accelerators) have been just as involved as any enabler in building the ecosystem, whereas, what we observe here in Africa is a somewhat cautious approach.

In a conversation with WeeTracker, Zach takes us through the realities of an early-stage startup in this ecosystem and what is going to help them.

The 442 hubs for startups, as published by GSMA, sounds almost soothing to the ears, but how are these hubs preparing startups for the next level? Do these places provide a table and a chair to the budding entrepreneur to sit and operate or end-to-end support and handholding is given to the entrepreneur? Well, the definitions could vary as we ask different people.

Last year, the number of incubated/accelerated startups, that secured investment stood at 92 out of a total of 458 deals, which obliquely points out that all the ‘hubs’ are not involved in preparing the startups for funding. Zach believes there are several factors at play and merely having a hub for startups does not mean much. In his observation, most of these ‘outlets’ directly provide co-working spaces, some mentorship, a few odd networking events, and a handful of masterclasses or workshops.

He adds,

“Most hubs feature early-stage startups that are still in the pre-MVP or MVP stage, seeking seed funding at best (USD 50 K or less), and those deal sizes do not constitute VC investment. Rather, they fall into the Seed/Angel category. So it is not surprising that the top 10-20 hubs for startups will likely account for the majority of all the deal flow from a VC perspective.”


This raises another point; what does an early-stage startup need – funding, mentoring, technology expertise? Well, all of those. And who are the entities that can help the startups? Usually Angels, incubators and accelerators. The terms ‘incubators’ and ‘accelerators’ have a sea of difference. However, in growing ecosystems like Africa, the words are used interchangeably or often together.

So, what differentiates an incubator from an accelerator? Zach helps us by giving what constitutes the closest definitions of those terms. He clarifies;


Less time pressure, less intensiveIntense 3-4 month program
Smaller Mentor networkLarge Mentor driven- business network
Restrictions: depend on the incubatorAll can apply
Usually less selectiveExtremely selective
No equity stake takenTake 6-8 % equity stake
Usually no seed fundingOffer small seed funding
Peer Support, some resources, no Demo dayPeer Support, ample resources, Demo day with press/investors


So, once a startup is incubated or accelerated, does the life of the founder become easy? Does it make the startup more investible? Also, if a startup has gone through such programs, should their focus be revenue generation or fixing their business models? In Zach’s opinion, it depends on how many incubated/accelerated startups are looking for funding or need funding.

He goes on to say,


“There is a BIG misconception in Africa that if you are a tech startup, you need to raise VC money within the first 2 years of your operations. This is an absolute mis-truth and can create serious pressure for startups that feel that they need to raise money just because their peers are doing so.”


He reiterates that depending on the nature of a startup’s business model, it can look at a multitude of ways to finance its operations without having to raise capital. They can look at securing agreements from clients with pre-payments in place, supplier financing, project financing, paid PoCs (proofs-of-concept), pilots that are funded by corporate clients, etc.

But, he also isolates the difference for tech startups by adding; “If you are a tech startup that has come from a world-class accelerator program, have shown sufficient traction and product-market fit, are solving a key challenge for business (B2B or B2B2C preferably), it is quite likely you will not find it too hard to raise follow-on funding.”

Is it only those companies who have some tech involved that stand a better chance of succeeding since past investment trends suggests a tendency for VC investments to primarily gravitate towards tech companies?

As per Zach’s thoughts, the startups most likely to succeed commercially are the ones that are solving critical business challenges that large corporations (banks, insurance companies, retailers and telcos specifically) have either internally or their corporate/retail clients have. He makes this remark based on his observation of the 20 companies that Startupbootcamp Afritech has incubated so far.

Most businesses that involve solving problems around data analytics, process automation, platform solutions for the sharing economy, etc. tend to do well irrespective of the actual product solution (A.I., cloud-computing, e-commerce, mobile wallets, etc.). He sums the secret sauce of success beautifully, In his words;


“when startups focus on falling in love with their clients’ problems and not necessarily the solution to their clients’ problems, they tend to have better traction. Fintech/Insuretech, e-commerce/marketplaces and big data/IoT solutions continue to be the most dominant choices of businesses in our experience.”


Circling back to the earlier question of what an early-stage startup needs for the hyper-growth that Africa is experiencing in terms of the number of startups do the number of these ‘incubators’ and ‘accelerators’ offer sufficient support to the growth of those startups? Now, since we see that the startup hub is just terminology for any facility where an entrepreneur is sitting, do we need more avenues that work as incubators/accelerators?

To which Zach responds very clearly by adding; “We don’t necessarily need more incubators or accelerators in the already established markets of South Africa, Kenya, Uganda, Rwanda, Ghana, Nigeria. We need more in the ‘less active’ countries on the continent. However, what is needed is more quality in the programs – more international support, better mentors, better participation from corporations in Africa and more active participation from the investing community.”

Touching upon investments in Africa which have been soaring through the years, how much exactly goes into equity transactions? As per WeeTracker’s report on VC Investments in Africa for last year, 42% of the deals by number were either in the form of Grants or Prize money, whereas, incubation/acceleration accounted for about 20%. Is it healthy for startups in the early-stage category to keep scouting for grants and prize money?


“I’m not a big believer in the long-term efficacy or benefit of grants, awards and prize money for early-stage tech startups. I understand and appreciate that they are a vital part of how many tech startups stay afloat for the initial period of their operations. The reality though is that this is not sustainable at all, and inevitably drags out the time before they need to start self-sustaining through operating cash flow and/or capital raised from serious investors”, added Zach.


He points out that it requires a mind-shift, in essence, a cultural/anthropological shift in founder’s thinking and the industry as a whole to appeal to the investors to stop or reduce the amount of free money being given away as grants and prize money. The focus should be on more equity-based investments like convertible notes and SAFE. But how soon will it take for the thinking of the startup community to shape up and realise that instant gratification in the form of prize money can be a hindrance to the growth?

To which Zach replies by saying, “I can’t see this changing any time soon unless the providers of this kind of capital make a serious decision to stop or drastically reduce the amount of free money being doled out to SMEs. My best guess is 3-5 years. But I sincerely hope it happens a lot quicker than that!”

It will be easier to deduce that the incubators and accelerators would probably need to put a lot of focus on educating the young startups in making judicious calls related to funding apart from imparting quality programs. What can be heard as feedback from the startups is that they expect such support systems to also equip company founders with the legal know-how related to the term sheets.

For an early-stage startup, the process of incorporating, taxations and stakeholding are equally important to understand than just understanding the business. And the association of these incubators/accelerators should not merely end at the passing-out-program.

Zach concludes by saying that under Startupbootcamp’s programs, once the startup has passed out, the organisation provides access to investors and dedicated support with the fundraising process, term sheets, and pitches. They also give the startups an opportunity to attend industry and product-specific events, summits, and expos all over the world where they get preferential access. Along with external exposure, they assist in quarterly post-program monitoring, evaluation, and portfolio management.

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