Data from VC4A’s new ‘2017 Venture Finance in Africa’ research proves that a strong team of founders is the key driver of startup success in Africa.
In this year’s study VC4A aims to better understand the critical success factors for African startups and identify the key ingredients that determine why one venture outperforms its peers. These learnings are useful for both the entrepreneurs and for the support systems they depend on to make well-informed decisions.
‘We are truly entering a new stage of startup growth on the continent. Not only has the number of startups continued to grow at an impressive rate, they are increasingly successful at scaling into sustainable enterprises well-positioned for growth. With the right team in place, we are seeing a growing number of companies break rank. I’m sure we will witness many new success stories hitting the headlines as a result.’ – Ben White, CEO VC4A
A key outcome from this year’s research on African startups was the identification of their unique traits relative to the startups’ level of commercial performance. And although many factors go into building a company, analysis of the data makes clear that a strong team of founders is the key driver of venture success in Africa. Many investors consider this as the main thing they look for, but now the data also shows that the right team of founders makes the difference, and is the single most unique characteristic across the companies making commercial progress.
By analyzing two data samples of 100 ventures in more detail, i.e.: ‘emerging’ and ‘established’ ventures, the research team found correlations that helps to understand the venture’s ability to be successful. The success of the ‘established’ ventures can be explained by the composition of the founding team based on size, education, gender and age.
As described above, gender balance can further explain venture success as the founding teams of successful ventures are more likely to include male and female founders. It is noteworthy that 46% of these ventures include a female founder in their team. Exclusively female teams run 9% of the startups.
Among the countries with 20 or more ventures participating in the survey, Uganda and Kenya have the highest female participation. For Uganda, 57% of the ventures include a female founder where for Kenya the number is only slightly lower at 55%. South Africa has the lowest female participation rate at 33%. Nevertheless, these percentages of female founders far outpace averages recorded in more established startup hubs like New York or San Francisco. More details and other factors that differentiate a successful team of founders are included in the 2017 report.
The founders in the VC4A community continue to inspire. Not only has the number of startups active across the continent continued to grow at an impressive rate, the startups are increasingly successful at scaling into sustainable enterprises well-positioned for growth. Our research showed that 62% of the ventures have secured paying customers and 22% have prepared audited annual accounts. These are part of the many milestones that are often achieved before formal registration. Research shows this affects investor interest positively: 42% of these ventures have received outside funding. 29% percent of these companies have raised more than USD 50,000.
Graph 1: External funding received by ventures part of this research.
This mainstreaming of technology in traditional business sectors advances core industries. This year we found an increased amount of relevant technology applications across traditional sectors, including agribusiness, energy, healthcare and education. This relates to VC4A’s observations that there is indeed a growing number of entrepreneurs that not only have the knowledge and skills needed to contextualize, repurpose and refactor technology, but also the business skills needed to do so successfully. A side effect is a growing number of ventures employing staff, see the video below.
Annual research among entrepreneurs and investors
The ‘VC4A Venture Finance in Africa’ report captures the performance of early stage, high growth ventures from Africa and the activity of early stage investors. The insights are broken down across several indicators: job creation, performance, investments, investor interest, ecosystem players and drivers of success.
This is the fourth consecutive time VC4A has endeavoured in this annual research. As of September 2015 the data collection takes place continuously via the VC4A.com portal. The 2017 release is based on data collected from 1866 ventures from 41 African countries and 111 Africa-focused investors from 39 countries around the world. As the community continues to grow, it is expected the report will generate insights into what is happening across the larger startup space.