For many startup founders in Africa, one of the biggest challenges they face is raising early-stage capital because most local and institutional investors exercise caution when investing in African startups that are not at the growth stage.
These startups are perceived as risky due to a lot of uncertainty and unpredictability of the market that they operate in. Investors prefer startups with enough data and traction that they can use to predict the potential of a startup. And most startups need a seed investment to achieve this kind of traction and data.
The role of accelerators in the African startup ecosystem
Accelerators are increasingly playing the role of a “nursery”, where startups fine-tune their business models and find a product that is market-fit. They also provide funding to the startups to navigate these early days before the institutional investors can take over.
Over the past 3 years (2018-2020), startups in Africa have raised USD 2.8bn across 1,363 deals according to WeeTracker data. Accelerators and incubators account for just 0.3% of this amount. This is mainly because they invest small amounts of money in startups. But their impact is mainly felt across the number of deals. They account for 17% of all deals during that time period. In 2019, they accounted for a peak of 22% of the 427 deals recorded that year.
One of the earliest and still the biggest accelerators in the world is Y Combinator. The San Francisco-based accelerator has funded over 40 African startups including Paystack, Flutterwave, Instabug, Tizeti and Kobo360 among others. The success of Y Combinator has led to various attempts to replicate this model across Africa.
500 Startups is another global accelerator that funds African startups. Together with Y Combinator, they operate a hybrid support model and invest USD 125,000 and USD 150,000 in return for a 7% and 6% equity stake.
Egyptian accelerator Flat6Labs also invests USD 65,000 to USD 120,000 in its portfolio across Egypt and Tunisia. Other programs that fund early-stage startups include the Catalyst Fund, Jack Ma Foundation’s African Business Heroes and the GSMA Innovation Fund which offer grant financing between USD 80,000 to USD 300,000.
Big Tech has also jumped on board with Google launching the Google for Startups Accelerator targeting African startups and Facebook Commerce Accelerator Program to take advantage of Facebook’s Shops.
What is the Accelerating the Future series about?
At WeeTracker, we set out to feature the accelerator programs that are building the next generation of Africa’s great startups. From Egypt to South Africa to Kenya and Nigeria, we are going to run an 8-part series talking to the people behind these startups and the entrepreneurs who have had the privilege of graduating from them.
Our purpose is to find out the work that is involved in starting an accelerator, how these accelerator programs ensure that they equip the startups with what they need to succeed after graduation and the effect that the accelerator has had on the wider ecosystem.