Why is it worth doing the Savannah Fund Accelerator? Perception vs Reality of Fundraising in Africa

By Mbwana Alliy  |  March 10, 2014


Many startups approach us for funding outside the accelerator , we have only funded 3 outside of the accelerator as part of syndicates and these startup had significant traction, ability and readiness to absorb capital of more than $100k. Two have raised over $1M. The magnitude in effort, traction and skills required to raise risk equity financing  in Africa of $25k, $100k, $500k and over $1M varies dramatically and often leads many startups to drift more into tapping soft financing such as grants and even refocus the business to suit these somewhat easier funding sources- but many avoid the hard challenges required to focus on building a sustainable venture, which I will argue is often best addressed by joining an accelerator, particularly for entrepreneurs that have no track record or trusted network of investors.


First, lets examine the main reasons startups approach us outside the accelerator when we think they could benefit from being in our accelerator program:

  • They think they are “too good for the accelerator”, in terms of skills and fundraising and just need the money:  The reality is that many startups that have participated in accelerators have become major hits from Airbnb to Dropbox. In fact in our portfolio, the highest revenue startup is a graduate of the accelerator not one that raised millions of dollars. The amount of funding a startup raises does not correlate to success in terms of revenue. We have seen many foreign founded startups coming to Africa most resistant to joining the accelerator- as one of the key issues with mistakes ex pat founders make.
  • The plans submitted ask for more capital than they actually need: Sometimes startups make the mistake of asking for more capital than their team can support and expect investors to trust them. The reality is that many 1st time entrepreneurs have never managed budgets half the size of the amount they are asking for, in other words their slide deck/financial model shows a hockey stick like growth that is hard to believe. You know what I mean Year 1=$10,000 revenue, Year 2 is $500,000 yet their team hasn’t even thought about how to scale the marketing and to support that sort of jump in one year- of course expenses remain flat.

Show the market what you can do with $25,000 and then you will be able to raise more if the traction is reflected. Many startups have revenues of about $10-$60k, but never had the cashflow to actually invest both time and money in the things that matter inc. talent, marketing plans and yes, fundraising expertise to allow to scale to 10-100X times this revenue. It is much worse to fail with $500k, if you succeed raising it, because you had misaligned grand goals and objectives you couldn’t hit than to fail with $25,000.

  • They expect one investor to fund the entire seed amount and get obsessed with Valuation: Consultants and Researchers focused on Africa SME financing complain that there is a funding gap of between $100-500k, when in reality early stage startups don’t have access to a network of angel/VC investors that can syndicate the amount and share the risks and help needed to get a startup to the level where they can get a series A. Its much easier for 5 investors to write $50K each than 1 investor to write $250k- the trouble is how does an African startup find 5 investors all aligned on the same mission and valuation? This is made much more difficult given how fragmented the African Angel investing market is and often there is a fundraising literacy gap (including reading deals on techcrunch.com and assuming it applies to them).

This leads to the question of valuation. Many startups in Africa have failed to secure funding or have wasted lots of time fundraising because the valuation startups are asking from investors is too high (I hear this consistently from many investors new and established) . What you read on techcrunch is often not the reality of what is going on in Africa but many try draw a direct comparison. Building a startup for a first time entrepreneur is a lot harder in Africa than the rest of the world with much higher risks for investors. Then there is the question of a startup with a stellar team in located USA with a high burn rate asking for a large valuation attacking an unproven African market yet none of the founders have relocated to Africa, or worse the startup doesn’t quite know whether to label themselves as a social enterprise or fully for profit venture. One easy test I apply is to ask startups what it means to have raised the Series B financing they proudly proclaim yet have not hit profitability or significant customer or scaling milestones. When a founder doesn’t know what the Series letters of each round should mean, they don’t know how to fundraise.


In the accelerator, we take the risk of being the 1st investor and only investor at $25k and expose the startups to a network of venture capital and angel investors over time, all whilst helping the startup prepare for future investment by making sure the startups work day in day night to EARN the valuation step up in future and make investors feel they are getting something for the money they are investing. We have worked to earn many investors’ trust, many have even invested in us to do precisely this work because they can’t invest lower sums of money nor have the geographic or time expertise to hand hold startups from so far away. Of course, this comes at a cost of 15% equity for joining the savannah fund accelerator, but you earn a partner who is invested in your success and we expect to be diluted as new investors come on board- we are not selling of our shares at the first opportunity in less than 2 years.

  • They underestimate the brand value of an accelerator, thinking “money is just money”: When we invest in startups in the accelerator, we spend more time helping the startups than we do outside, we work shoulder to shoulder with them for 3 months focusing on both tactical and strategic problems. Some startups didn’t even have capital and expertise to incorporate their startups, others have achieved some level of product fit but need to assess their strategy to scale their business and reach the next fundraising and business milestone (often that need defining). Of the 7 startups currently that have been through our accelerator, 3 have attracted follow-on funding. Beyond fundraising the real challenge is maintaining focus to hit key customers and revenue metrics to grow the business in the face of a lot of distractions African startups increasingly face once they are on the radar. If only half the noise were legitimate follow on investors or skilled operators willing to take a risk to grow the business, a major challenge in startup investment ecosystem would be solved.

In fact, when we surveyed our latest accelerator graduates, 3 out of the 5 top sessions were related to fundraising (Pitch Practice to investors, Fundraising & Valuation, Term Sheets and Shareholder agreements).

Ultimately only the startups founders’ can honestly assess whether an accelerator is good for them. Furthermore, here are some hard questions to ask we typically come across:

  • You have already done an accelerator before or are considering doing another simultaneously. This is costly (on equity and opportunity costs) and might just lead to time wasted and your startup not focusing on the growth fast enough, I see it as a sign of distraction from the core business or it might just have been a poor fit on the first choice accelerator. But it should not be confused as a follow on round. As more and more accelerators or incubation programs open up in Africa that don’t match the number of credible startups being founded, this will become more and more of a problem. We actually require all startups accepted in our accelerator to not be part of any other program via a signed contract before they get any money. If you have been around the Nairobi conference circuit, you will realize why this is important to maintain focus- we had to let one of the startups go that joined our 1st class that couldn’t decide which accelerator they should be part of.
  • The cost of travel and relocation to Nairobi prohibits focus and might harm the business. We typically require 2 founders to come to Nairobi, Other employees can stay in the home market- for a business such in a sector such as ecommerce that relies on physical deliveries, this presents strong challenges. However, Startups should also look at opportunities to expand business development into a new markets and weigh the pros and cons. For a startup coming from West Africa to East, this can help broaden perspectives. Despite the cost, a startup that came the furthest away, from Ghana, has performed the best in terms of follow on fundraising and revenue– in other words, when startups come from far to Nairobi, they don’t take the resources made available to them for granted- they often return home stronger despite the high costs of participating in the program.
  • You are already talking to other investors for a deal outside the accelerator. That’s fine, and is quite common, and we understand it might affect these negotiations, but our accelerator typically broadens the number credible and value added investors and after going through the accelerator should be in a much better negotiating position going forward. When deals in Africa can take over 6 months to close, 3 months in an accelerator is not only much needed cash to bridge over to the next round, but brings on a partner to help you focus and refine the business if used correctly. This morning a talked to a startup that claimed to have raised $160k from investors from Kenya and Korea- but when it actually came to me asking more detailed questions, the investors hadn’t followed through on their commitment (only supplied $60k) and the startup ended up trying to break up the agreement- this kind of issue is more common that one might imagine in emerging markets. In Silicon Valley or other mature markets, you just wouldn’t get away with this given the reputation risks of being a bad investor but also the depth of experience funding startups.

In short, the accelerator is designed to give startups we invest in a solid footing for the long road ahead- the bar to join the accelerator is getting higher with each class. We would like to do more deals outside the accelerator and we will do, but expect a lot more traction, diligence and network of investors to participate and often valuable time you might not be able to afford.