Entrepreneurship, at different scales, always has an impact on individuals and communities as it brings independence and prosperity.
Entrepreneurship in developing markets grows economies and can be a powerful social equalizer. To break down barriers, it is imperative to further promote business creation in such nations on a wider scale and as quickly as possible, especially as emerging countries are continuing to lose their brightest minds who opt to move to more prosper regions of the world; a brain drain that further accentuates economic disparities between countries.
According to the International Organization for Migration (IOM), this exodus affects African countries the hardest, since Africa has already lost one third of its human capital and is bleeding its skilled personnel at the rate 20,000 per year. These are highly educated university graduates: doctors, university lecturers, engineers and other professionals who are leaving the continent each year, for good!
Emerging countries desperately need to keep these skilled executives, managers and entrepreneurs. Many developing countries have understood this and have worked on trying to ease the problem by simplifying their company creation processes, and launching business accelerators and incubators. These initiatives remain scarce and are usually backed by the government or NGOs who tend to be the driving force.
NGOs tend to focus on projects that have local immediate impacts on disadvantaged communities. In a few cases, business coaches have launched private mentorship outfits, sometimes with the backing of government initiatives, but success stories are scarce and so often the impact is limited to the mentor having a successful mentorship business.
Developed nations, through regional investment and empowerment authorities, use the same acceleration models to promote projects that help employment and have an impact on local economies, but the most powerful effects, those felt worldwide, have always been initiated by the creation of startups that were backed by private funds through mechanisms like private incubators, accelerators, angel investors and venture capitalists.
Still, wide impact entrepreneurship isn’t exclusive to Silicon Valley, New York, Paris, London or Tokyo, and it is not always about using the latest technology! Simple solutions, developed by entrepreneurs in developing countries, can similarly have impacts on worldwide audiences.
Unfortunately “world reaching” ventures from emerging markets are rare, as entrepreneurs in these countries face major obstacles to building successful startups due to the local culture, the scarcity of experienced mentors and very inadequate funding. In fact the 2015 Africa Competitiveness Report details the most problematic problems for doing business in Africa. They are in order of importance: access to financing, corruption, lacking infrastructure, bureaucracy, and an inadequate workforce
Many entrepreneurs, in developing countries, simply do not trust themselves to compete on the international scene and stick to creating solutions that insure their local prosperity rather than embrace worldwide aspirations by building perhaps farther-reaching solutions, which may fail! It does not help that failure is often regarded as a form of inadequacy on the part of the entrepreneur, which further burdens, those that go through such stigma.
In the few cases where local entrepreneurs go with their ambition, they often have no recourse but go through banks, which seldom finance projects when there are no tangible collaterals and even then, they usually qualify these types of projects as risky and dictate financing at very disadvantageous terms.
Even with the Internet being the great equalizer that it is, startups who emerge from the developing word with worldwide ambitions remain very scarce, as investors often concentrate their investment in particular sectors or regions of the world and tend to shun investing in areas that present just too small of opportunities for them and thus, in their mind, are not worth the trouble of their time and investment, when in fact some of these startups can be lucrative investment opportunities, due to this very lack of competition for these projects! RoamStart in Tunisia, Fuzu in Kenya, Custos Media in South Africa, or Pointivo in Nigeria are examples of promising startups but there are still too few of them.
Some companies, especially from Europe, have seized on this opportunity and created private funds and incubators in several emerging countries. These incubators have launched startups for which they basically “hired” local entrepreneurs to develop local solutions based on “what already works” in leading nations. Rocket Internet, Seedstars and NUMA are some examples.
The market for such ventures being so open and at such an embryonic stage, the terms of the deals that the entrepreneurs get are often not as advantageous as those obtained by their counterparts in the US or Europe, but in light of the risk mitigation steps that need to be taken by these first movers and with terms being much more favorable than those of banks, this is an acceptable investment strategy since it is clear progress.
These investment outfits are growing very fast as a result of their first mover’s advantage and the lack of competition from other venture capitalists, so there is a bit of the “Wild West” effect. A few incubators, however, had to close! Hypercube Hub in Zimbabwe and 88mph in Kenya for example closed in 2015, Raizcorp on the other hand is a rare example of a profitable incubator not receiving grant funding. Other brave local outfits are launching, such as Wired Startups, out of Morocco, also a private company, who is launching its own brand of incubation, championing projects aimed at the U.S. market using unique co-founding partnerships.
This is encouraging for Africa, especially as we see in parallel that the number of investments is increasing. In fact, Disrupt Africa reports that African tech startups received funding in excess of US$129 million in 2016, with the number of startups securing funding up by 16.8 per cent year to year. Still, this remains a dismal number for such a large and full of potential continent.
In time, more local players will get over their fear of failure, especially as they accept that most startups can fail but that those startups that succeed can substantially cover the losses of a portfolio and even make it very profitable. Things should also stabilize even further as more local and international players get into similar forms of co-founders incubation types of agreements, and competition for talent and projects grows.
About the Author
This article was written by Mounir Elabridi. Mounir is Co-Founder and CEO of Wired Startups, a startups incubator, based in Morocco. Wired Startups brings together teams of developers, entrepreneurs and designers and helps them build investable prototypes for the international market. Follow Wired Startups on Twitter, Facebook and LinkedIn.