So you want to be the Silicon Valley of Africa?
In my first installment of the Tanzanian tech sector, I focused on giving a brief overview of the Tanzania innovative tech sector to dispel any myths that it is non-existent, but to also reaffirm that Tanzania is just too silent and does have potential if the sector embraced more marketing and PR. I also began by pointing out a unique little known Tanzanian scientific discovery- the Mpemba effect. Keeping up with this and to assure you that there is plenty of innovation in Tanzania (just not well known), I remembered the winner of the 2010 Tanzania innovation fair- bomb/mine sniffing rats conceived by a Tanzanian living in the Kilimanjaro region. The potential of this to address global security markets in today’s threats cannot be underestimated.
In this second article I will focus on building the ICT ecosystem and how Tanzania is trying to leverage Silicon Valley mentorship to further accelerate and catch up with the rest of East Africa and some challenges it faces.
Silicon Valley of Africa is what everyone wants to be these days- or at least this is what the Governments are saying, including Tanzania. At the same time there is quite an appetite from Silicon Valley itself to go abroad and look for interesting innovations. i/o ventures, an early stage investment firm and incubator has links to number of emerging markets at the varying levels, Brazil, Chile, Argentina, Russia and Singapore and Africa too with Tanzania’s recent meeting. At a recent networking event at i/o ventures in San Francisco with Brazilian entrepreneurs, I learnt that 23% of tweets are from Brazil and the only women entrepreneur in the event had cofounder a $100M a year in revenue social network built on orkut. (And I thought Zynga was the only real player in social gaming and facebook/myspace was where the action is at).
It is clear that there is a lot of interesting action going on abroad and indeed Africa is definitely a new frontier, if not the last frontier, for silicon valley to pay attention. I am going to not focus on South Africa, Ghana & Nigeria as well as Tunisia, Egypt and the rest of Arab Africa as I believe these are large and distinct markets in their own rights with different cultures, levels of development and even cultural norms. Within Sub-Saharan Africa and you are pretty much left with Kenya as a leading country that has the most potential to be the Silicon Valley of this region. It’s also important to note that the East Africa Community (EAC), 120 million people market was recently set up and this year began the push for regional integration that will allow free movement of labor, goods and capital. My home country of Tanzania is moving its feet slowly on the opportunities; Kenya again has the most to gain. Some have said Uganda, although a significant player, does not speak Swahili and can hence not as easily communicate with the rest of East Africa; the same is probably true for Rwanda.
Let us also be clear – you can never replicate Silicon Valley and many sophisticated countries have tried in past, the place is the perfect storm for tech with many interconnected factors that it is hard to replicate elsewhere. The area has a distinct culture and “ICT ecosystem” in place that is hard to match. The best in the world come to study at top universities with hopes of landing not only amazing technology jobs and fast growing companies but they can pursue a startup. Many students who come study in Silicon Valley get a year on “Optional Practical Training” as part of their student visa where they can pursue whatever they want and many become company founders. The hardest thing to replicate about creating an ICT ecosystem region is the unique community of people- you need a steady stream of engineers who are supported to pursue technology projects (particularly programming), this is then followed quickly by a business environment that can allow projects to become companies this involves helpful lawyers willing to incorporate your company for cheap or free or take equity and of venture capitalists with a risk appetite- the final piece that is extremely important is a supportive network of optimistic mentors who are often also angel investors with an entrepreneurial track record and that can support the next wave of entrepreneurs in part to ride the excitement but also for financial reason and are willing to risk their own personal money. The founders of microchip companies then supported the PC era that then supported the Internet era and now supporting the next generation of mobile and social computing. And even before all this- Silicon Valley took advantage of in the early days- military/aerospace government grants creating the earliest of technology pioneers that even laid the groundwork the Internet, Arpanet.
Rather than try “copy” silicon valley – we can learn from it and adapt and apply areas that make sense for a region. In East Africa, we are beginning with a first wave with no forbearers that came previously, so it is foolish to even think we can build a silicon valley outright. However, what is exciting is the availability of development tools, communication tools open source software, growth of the mobile web and mobile banking as a platform to start capital efficient startups addressing unique opportunities in a different market, we can expect an “acceleration” or “leapfrog” in technological development without legacy burdens that is underway if we develop, promote the engineers and entrepreneurs.
More than undersea fiber cables to enable an ICT Ecosystem
Infrastructure is also important – both for developers to cheaply access the Internet and development tools. Undersea fiber cables followed by broadening the access of internet availability are a great start, but are by no means enough – it’s also important for developers to tap the next important layer of infrastructure such as cloud computing. When we visited a small incubator in Dar es Salaam, it was apparent that developers have a hard time accessing Amazon web services, because they do not have credit cards to signup up the services. One day, mobile banking will be widespread enough that these vendors will realize the untapped opportunity of supporting African developers.
I remember a smart Tanzanian developer who had built a mobile SMS social network with over 10,000 users without the use of SMS gateway- the network was actually ran from his phone charged in his backpack through some very smart approaches to get round the high bar to get an SMS gateway to the networks (at least $2,000 for a shortcode). When I asked what he would do if he got angel investment money – he said he’d spend it on advertising, specifically print, TV radio etc… there are indeed smarter ways to grow a social network effectively and he did not seem to realize that he may run into scaling issues if he did not get onto a proper SMS gateway (key infrastructure) as his network grows or that angel investment money could be used to further fuel viral marketing channels (product design and execution). This illustrates an example of all too common capable “technical” entrepreneur capable who can get an idea of the ground, but may not be equipped to handle the next stages of growth without proper mentorship, access to infrastructure to allow additional levels of investment to allow his company to scale.
Incubators help concentrate disparate development communities- but they need competent multidisciplinary managers.
Incubators are also incredibly important as workspace where developers can come together and work on their projects and support each other and they can be incredibly important in connecting all the dots and facilitate learning across communities from shared high-speed Internet connections, readily available programmers to product designers and investors. Kenya and Uganda and even Rwanda have led the way in creating these, from Appfrica labs, iHub to the TBIF in Kigale. Some of these incubators are set up by development organizations or philanthropists. For instance, iHub was in part funded by the Omidyar network.
In August I got to see the early stages of planning for the Tanzanian Government backed incubator in Dar es Salaam- and Tanzania badly needs one as the development scene is too fragmented and no one knows who is working on what and there is a lack of awareness of ICT entrepreneurship yet alone how to bring it all together to overcome the challenges I mentioned above as the Tanzanian developer of a mobile social network ran into.
The Commission for Science and Technology (COSTECH) began working with the world banks’ infoDev – this was an exciting time and given the timing of meetings with high level government officials, i/o ventures got to participate. I liked the general principles that infodev laid out for making the grant to the government including.
- The incubator must be run by the private sector
- A space must be set aside with the look and feel of lively incubator (no dungeons)
- Incentives need to be set up (such as low tax rates) to encourage membership on the incubator
- The incubator must be sustainable through a mix of royalties from incubatees and services it offers to the public (such as training, web development etc…)
- The incubator manager is a critical role to be hired for the success of the incubator.
The last point is extremely important. But presents some unique challenges, firstly should the person be foreign or local? Will the person be a good fit with the companies brought onto the incubator, does the person have the skills to market and run the incubator sustainably AND advice/mentor daily the incubated companies? How does one incentivize the incubator manager to look out and grow the incubated companies?
In Tanzania there is another unique cultural challenge- the idea of open book accounting (a further requirement infoDev has on making the grant available). Something even our East African neighbors take for granted. The reality is that many companies in Tanzania do not run their books in an open and transparent manner- sometimes out of fear of exposing their business model to competitors- this is almost a parallel reason why some companies don’t promote themselves in PR across East Africa- maybe a fear of Kenyans coming to compete with them?
Show me the money – incubators without smart capital are not sustainable
Furthermore, these incubators need to have funds (preferably locally raised) to support seed funding. Risk equity is lifeblood for startups- banks in Africa in general are unwilling to lend to small businesses in general and it is no exception in Tanzania. There are many articles that call for the necessity of SME financing and many organizations that support it- in tech it is not just about that, it is also a culture of “risk equity”, the fact that investors understand that they could lose their entire $50,000 seed investment. In silicon valley, the best angel investors were technology entrepreneurs who are happy to make this bet given the fit in their sector and unique understanding of the challenges and value they can add to reduce the risk. In Tanzania and I would argue parts other parts of East Africa, angel investors that have a strong technical background and success in technology are not as readily available- having an angel investor who made their fortune in agriculture is not going to be as good in managing their investments in technology- this creates a risk or “dumb” money problems. Investors general invest in sectors they know and in Tanzania there are just enough investors who understand tech and its unique requirements. The legitimization of venture capital as a real asset class alongside real estate, bonds and equity is of great importance in the region. The skyline of Dar es Salaam is composed of the PPF tower, NSSF buildings- PPF and NSSF are two out the six pension funds that were investors in these buildings- pension funds also funded the university of Dodoma at an estimated $500M! Why don’t these funds allocate a small amount of their capital to risk equity such as venture capital?
This is generally how Silicon Valley venture capital is structured, pension funds such as CALPERS are primary limited partners in venture capital industry and this is clearly one component East Africa should borrow from Silicon Valley, not quite at the same level of scale, but specifically adapted to suit the environment. The reliance on foreign VC funders such as eVentures (Dutch) that cover huge regions might miss promising opportunities in specific countries even if they understand the market- the returns accrue to foreigners- whilst I am not against this given we live in a global world, it is always more sustainable if local funds chase local investments that build wealth for the region.
Many of these issues come back to mentorship, people training – are East Africans ready to make risk equity bets on themselves? This is an all too common problem for many areas of Tanzania development from health to education, there is just enough “technical capacity” to create sustainable growth and address services that the Government is so keen to tap- be it competent teachers, doctors or engineers.
When i/o ventures met with the President of Tanzania and high Government officials, we stressed that this was not about money and investment, although many officials were hoping the firm were coming in and pouring millions of dollars into ICT. Instead we focused on what i/o does best at home, mentorship, through its network including the founders of YouTube, yelp, mint.com, Myspace we were will to make these entrepreneurs available to Tanzania at the appropriate levels from inspiring the computer science students to learn to program and start a company vs. take a network admin job at Vodacom to doing 1:1 chats with aspiring entrepreneurs. i/o ventures call these “mentor” trips, and i/o has been doing quite a few this year inc. trips to Brazil, Singapore and now Tanzania in the works. i/o ventures is also now on the board of the soon to be Tanzanian incubator as a critical Silicon Valley link.
Incubators with value added partners from private sector
What I like about Kenya and Uganda are that the incubators are foremost private incubators with strong capable partners such as Jon Gosier, a silicon valley veteran as well as Erik Hersman (white African/AfriGadget) who created Ushahidi and are critical leaders who are helping to shape East Africa’s ICT ecosystem. Government run incubators in general have a bad track record of success (even with incentives like tax breaks), but if the right skillset and people are brought in to help can make a difference. Government can help by creating an enabling environment that is conducive for ICT investment- for instance by making it easier for foreigners to start companies like USA has done, another specific area I can cite is Tanzania Communication and Regulatory Authority (TCRA) allowing startups to better access SMS gateways cheaply with less red tape, so that developers of mobile SMS applications can scale their businesses easier. Of course, the central banks role in regulating and securing mobile banking is a must to protect consumers of the service. Even the presence of strong Government leadership support such as Rwanda’s Kagame can help send a message both and home and abroad that a country is open to business in the ICT sector. There is even a role for Government to provide grants through competition in strategic areas for the countries development (like the US government did in the early days of Silicon Valley with military/aerospace grants) that can then translate into spurring the entrepreneurial activity- Kenya ICT board has taken a leading role here recently.
InfoDev has a good track record of success and helping build up incubators around the world- and I have high hopes in them structuring a great incubator in Dar es Salaam- bringing in value added partners from Silicon Valley to focus on the mentorship piece is an interesting model that can help elevate the levels of success created in other incubators and reduce the reliance on Government to run and manage technology incubators. I personally look forward to working with i/o ventures in bridging the mentorship gap for Tanzania and across East Africa- I also think Tanzania and generally East Africa can teach veteran silicon valley entrepreneurs a thing or two about the unique challenges and opportunities of the East African market.
The question is – who will create the first incubator that generates $100M in combined revenue of incubated companies, like the success of Parquesoft in Columbia? This is the real test for the recent rise of incubators to address opportunities via the new regional integration via the East Africa Community, whoever creates this first can truly be crowned the “Silicon Valley of Sub-Saharan Africa”.