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Immersive Tour of Entrepreneurship in Africa #3 - loadshedding on SA's economy
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ial thanks to Christophe Viarnaud (Methys / Africarena), Zach George (Launch Africa Venture), Vu Qabaka (Hybr Group), Justin Swart (Newtown Partners), Grace Legodi (Grinstone Ventures) and Mathew Marsden (Get Lion).

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Summary

Seven sections to know everything about the ecosystem in Côte d'Ivoire:
  1. Context - Macroeconomic insights
  2. Key trends - South Africa's entrepreneurial ecosystem 
  3. No Comments - The chart of the month
  4. Deep dive - ecosystem analysis
  5. Spotlight - the entrepreneur of the month
  6. Discovery - One interesting startup in 5 industries
  7. Learning - The strategic lesson of the month
Context - Macroeconomic insights
Loadshedding on SA's economy.

If the covid put an abrupt end to the slight improvement of the south african national GDP in 2020, the decreasing economic dynamics that the country is experiencing dates back ten years. In 2011, South African GDP exceeded Nigeria’s ($401Bn), but then has gone from $416Bn to $302Bn in 10 years. The country struggles with a 35% unemployment rate, one of the highest GINI index rates for inequalities (63%) and a general decrease in the level of corporate investments, mergers and acquisitions and DFI (direct foreign investments) inflows in the country. 

But despite its recent economic turmoil, South Africa stands as an exception in the African economic landscape. An exception that takes deep roots in the apartheid history of the country. Most of the corporations in South Africa were created by Afrikaners early in the century, such as Naspers, the multinational conglomerate and one of the largest internet companies in the World, who started as a publishing company and whose name is a contraction for De Nasionale Pers Beperkt and was created in Stellenbosch to support Afrikaner Nationalism early in the century. 

Living several decades in a closed bubble allowed a group of 40+ Afrikaners-led corporates to develop and reach major sizes: retailers such as Pick’n’pay or Shopright, banks with the “big four” (Standard Bank, Absa, Nedbank or FirstRand), or multinational corporations such as Naspers have been leading the economic GDP of the country for +50 years, creating oligopolies and monopolies through a history of successful investments, exits and mergers & acquisitions, creating a corporate-driven economy for the longer time. The openness that the country has gone through after 1994 and the end of apartheid allowed multinationals to settle in, increasing competition and M&As in the country, among which the acquisition of Thawte by Verysign for $500M+ in the early 2000s, making Thawte the first SA unicorn, and probably the first in the world since this term did not even exist. These cycles have led corporates to reduce investments in the country, causing their growth to plateau. Along with a shift in regulation exemplified by the Broad-based black economic empowerment, which led the same corporates to invest abroad first, then into the local nascent startup ecosystem.


Key Trends

💡 An excellent level of education in the country, although very limited to private universities that remain out of the reach of the common population. Stellenbosch University, the University of Cape Town and Witwatersrand University make the winning podium, with high level entrepreneurial programs and incubators, these three universities concentrate the high majority of the successful founders, active VCs and major corporate leaders

💡 A corporate-driven economy that may have diverted the youth from entrepreneurship aspirations in the past but now makes corporations ubiquitous in the entrepreneurial ecosystems of the country. A unique situation that made corporate innovations amongst the most notable in the country: Kalahari.com and takealot.com, SA’s major online retailer, belonging to Naspers, as well as CVC Naspers Foundry, or even Shoprite moving into fintech

💡 A high level of business and tech infrastructure. With a 70% penetration rate for Internet, 63% for smartphones, and one of the largest open-access fiber networks in Africa, the country offers a great playground for internet / digital-based products or services to find a market. This standard of infrastructure led South African companies to be among the first to explore web-based business opportunities in the early 2000s.

💡 In this sophisticated, corporate-driven economy, startups in the country are much more focus on SaaS B2B products/services, e-commerce and of course insuretech/fintech with some specificities compared to other african countries. Startups in SA focus on their domestic market and the products they develop do not easily find a customers elsewhere in Africa, explaining the declining interest of VCs compared to rising countries such as Egypt or Nigeria. 

💡 If apartheid ended, the level of inequalities in the country is still massive, with 10% of the population owning +80% of the wealth and inequalities to access education and healthcare being the most blatant. This leads to a double negative effect: products and services inaccessible to the majority on one hand, and a considerable shortfall of black entrepreneurs for the ecosystem on the other.
 
                                                                      
"Between 1994 and 2004, a few middle class black people (200) got rich on the back of the law [Broad-based black economic empowerment]. Companies were forced to give equity, instead of creating new ventures or black-owned activities to develop. With this law being enforced, a lot of companies such as Naspers began to externalize and put their money outside the country instead of continuing to give away equity and money to black people. That has contributed to the lack of investments in the country"
No Comment - Chart of the month
Location of African startups' CEO's university (cc The Big Deal)
Deep dive - Ecosystem analysis
South Africa - a heavy legacy to sustain

South Africa is considered the most mature startup ecosystem in Africa by many. It has been part of the Big Four, along with Nigeria, Egypt and Kenya who attract, year after year, +80% of total VC funding in the continent. Last year, SA also entered the Startup Blink’s ecosystem report, finishing at the 48th place and being the only African country in the ranking.

Just like in most countries, SA’s ecosystem is very polarised around cities, Johannesburg and Cape Town in this case. Almost 60% of startups are located in Cape Town, also called “the mother city”, partly for administrative reasons. Indeed, the country is divided into 9 provinces, 8 of which being ruled by the African National Congress, and only one, Cape Town, being ruled by the Democratic Alliance.

The history of the ecosystem could be traced back to 1999 with the first incubator to be born, The bandwidth Barn in Cape Town, today considered as one of the leading ICT incubator in the World, with government backed vehicle CiTi to help ICT growth in the city. The first VC in the continent, HBD Capital, was also created in Cape Town back in 2002, giving birth to the leading VC fund in the country 8 years later: Knife Capital. HBD Capital has the particularity of having exited almost all their portfolio companies, among which Travel Starts or One Media Africa for $200M. This early story of VCs and exits, combined with major corporate involvement through investments and M&As created a very favorable investment environment in Cape Town and the first building blocks of the ecosystem. Besides, as always, the involvement of successful entrepreneurs has been a determining factor with the likes of Vinny Lingham (founder of Newtown Partners after his first fruitful exit), Justin Stanford (founder of 4DI Capital) who were both involved in the creation of Silicon Cape in 2007. Followed by the creation of another lobbying association for the ecosystem, SiMODiSA in 2013. Add to this recipe the excellent university level at Stellenbosch and UCT with an inch of cohesion and network illustrated by the so-called “Stellenbosch mafia”, and you get one of the first and most dynamic startup ecosystems in the world back at the time. 

Not a surprise that Amazon Cloud was founded in Cape Town, as well as Uber, Airbnb and Amazon opening their first offices in the continent in the mother city. 


Why is South Africa NOT the leading ecosystem in Africa? 

Despite having a legacy in internet based businesses and a favorable business ecosystem, South African startups still face numerous administrative challenges making foreign investments complicated to attract. Moreover, the country’s corruption level within the government mitigates the business environment advantages and leave startups to struggle. 

The Startup Act has been in discussions for several years now, with the ultimate goal of lifting these administrative constraints and obtaining more guarantees (protection of assets, IP...) and flexibility (skills visa and more). These discussions have long lasted so far, being way too siloed with different lobbying groups more or less powerful pushing for their own interest (pharmaceutical industry, automotive industry, banking industry…).

Spotlight - The entrepreneur of the month

Murendeni is a South African civil engineer who graduated from the University of Cape Town, specializing in water and wastewater treatment technology. Before founding Kusini Water, Murendeni was not destined to become an entrepreneur. He started working as a technician for the City of Cape Town for 2.5 years before joining Johannesburg Water as an analyst for 4 years.

“One of the things I realized while working for municipalities of Cape Town and Joburg - and it is an African problem - was the level of inequalities within cities and between people living 5km away from each other. This is well reflected in the access to safe drinking water. Not only would people living in informal settlements have to walk a couple of kilometers to get clean and safe water but the biggest cause of child mortality is water-born diseases”.

Facing this reality, Murendeni decided to act and started working on Kusini Water in 2016 with one mission in mind: providing unprivileged communities with a sustainable, safe and clean source of drinking water. That’s how Kusini Water was born. Today, the company has three products that work the same but can produce different volumes of water depending on the site they are implemented in: the Water box, a smart water dispenser and the water kiosk. To filter the water, Murendeni had the bright idea of using macadamia nutshells to filer the water, SA being the world’s biggest producer of macadamia nuts. With a membrane able to filter water from diseases and viruses and a solar energy system to pump the water and distribute it to communities, Kusini water operates a circular economy for a social business.

On a faisibility perspective, Kusini operates a robin hood business model and addresses primarily businesses and multinationals by implementing on-site mobile water kiosks. The money generated from those sales finances the Kusini’s activities within the unprivileged communities. Beside, Kusini just launched the Water Champion program, offering young people from the townships the opportunity to get free training and a certification in water management and sanitation. The best candidates get a chance to join Kusini as a community operator or get financed to own and operate their own kiosk within the community.

Kusini now operates in 50+ impact sites and offer the opportunity to sponsor one of the sites to keep water running clear and safe. To contribute and provide safe water in a school in South Africa, click here.
Discover - One startup in 5 industries

🌱 Agritech: Aerobotics 🌱  - Feeding the world through advanced intelligence


Context
Aerobotics was founded by a son of farmers near Cape Town, James Paterson, who graduated from UCT and MIT in robotics and aeronautics. It was back then that he met Benji Meltzer, who specialised in machine learning. Together, convinced that their combined set of expertise could help farmers identify problems invisible to a naked eye through AI to process aerial imagery, they started building drones and testing them in the farm where James grew up. The trial was a success and Aerobotics was born.  

Solution
Aerobotics targets mostly crop farmers focusing mainly on fruits such as apples, avocados, citrus or nuts.

The drones and associated software are able to detect a wide range of problems within the farm including: plant inventory, detection of irrigation issues, yield management, identification of underperforming areas and the specific reasons behind it (irrigation, pest, diseases, nutrient deficiencies…). The company products can also be used to optimize the insurance policy for farmers crops and risk management, thanks to accurate data.

Why is it interesting?
Since 2014, the company has grown a lot, raising $17M from investors including Naspers to scale its operations worldwide from its two offices in San Francisco and Cape Town. Aerobotics now has +80 employees and operates in 18 countries. It has processed over 100M trees and detected and sized +1 million citrus fruits. Aerobotics is considered as one of the leading startups in South Africa and has proven to be highly competitive in the US as well. Satellite and aerial imagery for the agriculture industry is a market that is expected to boom in the next decade and Aerobotics seems well positioned to address these challenges.

 



💸 Fintech: Bettr app 💸 - a hybrid model between banking and a creator agency

Context
The creator economy is booming. Tiktokers, Youtubers, Influencers, Designers, Gamers, Music producers, now NFT creators… Software-enabled content creation and monetization is  an estimated $93Bn market and growing on a daily basis. With over 50 million content creators worldwide becoming micro-enterprises who turn clicks into profit. This new remunerative activity for part-time young businessmen with little business education is still seen as a “bonus” and hardly managed and optimized as a real business (only 5% of creators do it full time)

Solution
Bettr was born from the reunion of a community of producers with fintech veterans to create the first digital bank for content creators, with specific perks designed to help creators distribute, monetize and enhance their revenues. The bank's positioning is very unique in the fintech landscape in Africa but particularly relevant, being a hybrid model between traditional banking (issuing, payments, savings, investments…) and a digital marketing agency that helps creators and creates a community of artists. In addition, Bettr recently created its creator’s fund to back aspiring creator and put itself on a mission “to grow the GDP of the African creator economy”.

Why is it interesting?

If the fintech scene in Africa is consolidating with startups now covering all the value chain of the industry, in South Africa the banking industry is highly dominated by traditional banks, leaving no room for fintech startups or almost (Jumo and Yoco for instance). 

Bettr targets a customer segment that has been forgotten by other players and that needs specific services and advice to run their growing activity, thus blurring the borders between what a bank and marketing agency usually do. Beside its relevant strategic positioning, additional perks and communication strategy, Bettr offers the best on-boarding process I have seen in a bank so far, using whatsapp to answer easy questions and creating a bank account for the creator within 15 seconds.



🏥 Healthtech: HeardX Group 🏥 - Digitizing ears healthcare diagnosis and treatments

Context
In many African countries, people still struggle to access appropriate health care. Sometimes located very far from the health services with low technical infrastructures, the population still faces the problem of financial resources even when they manage to get these health centers. That is the case for the access of general health care and when it comes to health specific problems like hearing loss, you can face more straints.

With an appropriate earring treatment costing around $3000-5000, 97% of those who require hearing access in Africa cannot access them. HearX addresses this problematic, by trying to make hearing health accessible for all.

 
Solution
HearX provides affordable access to hearing care, by using digital solutions that anyone can use, anywhere. In South Africa, they provide digital technologies to help clinics and audiologists in their daily work. With Lexie Hearing in the USA, consumers can purchase from the comfort of their home quality hearing tools after passing some tests online. They can also access hearing experts on demand.

Why is it interesting?
Noted by The Forbes as “one to watch”, the HearX Group already amassed dozens of awards across the world and contributed to improving the lives of more than 1,5 millions of people in 68 countries. The $8.3 M funding led by Bose Venture permitted HearX to develop and expand to the USA with an hearing aid solution called Lexie Hearing.
 


🎓 EDTECH: Foondamate 🎓 - turning social networks into intimate learning tools

Context
In most African countries, especially in sub saharan regions, internet infrastructures are very low developed. Data is very expensive, and students in these countries struggle to access the internet to do research, or to download educational resources. Most of the schools lack means and cannot afford printing for all, free WIFI or even a textbook for their students.. However, most of the students have smartphones with an internet connection which allow them to use at least WhatsApp and Facebook messenger. That's what Foondamate realized and then decided to turn social networks into learning tools.

Solution
Foondamate enables students struggling to access the internet in the context of their school to study via WhatsApp and Facebook Messenger. They bring the learning through these social networks by using a chatbot that provides students with past exams papers, word definition, math equations solving, and wikipedia articles...

They also offer services to educators who can set homework, help students prepare for an exam or teach them how to do research using Foondamate chatbot. Advertising and Content distribution services are also available for Corporate, or Universities.

Why is it interesting?
In september 2021, Foondamate registered approximately 120 000 users in more than 30 African countries, with an average growth of 600 new users per day. That shows the potential of this startup, which manages to attract and engage more and more users by making its chatbot available in at least 10 languages including not just French and English but also local languages such Afrikaans, Sepedi, isiZulu, etc.. 

 



💡 ENERGY: Plentify 💡 - Understanding consumer habits to reduce loadsheddings in the country


Context
In South Africa, water heaters represent half of all household electric consumption. That is particularly the case during peak hours, where the energy grids are most under pressure in addition to the increase of the demand for electricity created by the rapid urbanization. This causes important loadsheddings in the country’s most urbanized poles such as Johannesburg.

Plentify was created in this context to help South African households and services to face the high cost and the irregularity of energy services

Solution
Plentify develops a smart device called HotBot which can be plugged into a water heater. This device uses machine learning algorithms to understand the water usage habits and allow users to reduce their electricity consumption. This allows Plentify to regulate the electricity consumption by reducing the heater consumption when it is not needed.

The device is also connected to an app, where the user can see information about their energy use, and change information manually about their hot water needs.

Why is it interesting?
Plentify has the ambition to equip 500 000 houses and create around 8 000 full time jobs in the horizon 2050. Their business model is B2B, working directly with the electricity companies in cities to help them regulate global consumption and reduce their costs, with the ultimate goal of having them install HotBots straight within consumers’ houses and thus reducing their marketing and distribution efforts. More than just a profitable business, Plentify addresses a real economic issue and their project is supported by private and public including the City of Cape Town, EDF and GIZ. By regulating water heater electric consumption, they also contribute to reducing the pollution of South African energy grids.

The strategic lesson of the month
Done is better than perfect

“No one likes to stand in a stationary train”

That is the main lesson that Murendeni Mafumo, founder of Kusini Water, learnt from his experience as an entrepreneur so far. Having moved from a safe and protected engineer career in state-owned utility companies to the life of a social startupper in one of the most dynamic ecosystems in the World, the biggest challenge Murendeni had to face is changing his mindset.

Indeed the economic and financial requirements imposed on startups are far away from the quality and efficiency requirements at Johannesburg Water or within the City of Cape Town. While motivated mostly by his mission to deliver safe, clean water to the most vulnerable communities in the country, Murendeni realized how complex was the economic equation he had to resolve: spend time working on his dream product, approach macadamia producers, recruit people to assist in the building of the solution and most importantly find a business model. The rest of Kusini water’s history is a series of amendments and concessions on both its product and its business model.

“As an engineer, you get a certain satisfaction from coming up with the perfect solution. We were targeting the most fragile communities and wanted our solution to be sustainable, ecological, economical and easy to use.

But the reality of water economics always catches up, especially in the water industry where most projects fail within 2-3 years because of lack of sustainability. After raising some money from angel investors, pragmatism slowly imposed itself, causing Murendeni to change his approach to the business model of Kusini Water. Realizing it was not possible to bring enough revenues through the sales of clean water to the communities, and really complicated to be able to work with the utility companies despite his network and experience working with them, Murendeni changed his tune and decided to start building solutions for companies and corporates who had the ability to acquire small solutions and the need for access to drinking water. The first product Kusini Water came up with was then a smart water dispenser that hooks to a water line and pours water on demand and notifies technicians when it needs service.

This provided Kusini Water with some basic revenues and mostly gave more time to the team to work on their flagship product to companies with bigger needs: The Kusini Water Box, introducing macadamia nutshells and solar panels to help filter and pump the water. The box is designed as an emergency solution to a water crisis and still destined to B2B sales, working with NGOs or companies with remote workers (KLM for example).

But yet the mission of the company was not fulfilled as Murendeni was still far from his initial motivation while starting his project: facilitating access to clean and safe water for the communities most in need. And the economic equation was still to be resolved. Yet, Kusini Water was now earning enough revenues to raise more money from investors and donor agencies, allowing them to grow in numbers and dig further into their mission.

That’s how the Kusini Kiosk was born: the third product of the company, the solution for townships and middle income communities in South Africa. The kiosk includes a water container and a mini water treatment plant making it able to filter 5000-20000 liters per hour. It is powered by solar panels and able to filter both groundwater and municipal water and works as a turnkey entrepreneurial project to empower communities with jobs and revenues while serving clean and affordable water to the communities in need.

If murendeni had stayed with his initial idea, his project to provide drinking water to communities at an affordable price would probably never have seen the light of day. The life of a startup must be punctuated by recurring income and if this requires upsetting the pre-established order and modifying the nature of its product or its business, it is necessary to have the flexibility to be able to do so.

This is the entrepreneurial mindset that Murendeni had to quickly acquire and as he sums it up so well: “No one wants to sit in a stationary train”.

This Newsletter was sent to you by Sendemo, a one-year research project in Africa. One month, one country / region.

Next month I'll be exploring South Africa's ecosystem. Do not hesitate share this newsletter around you, and to follow us on Linkedin:
Sendemo or Abderrahmane Chaoui

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Many thanks to our partners The Mastercard Foundation, Sciences Po Paris, Carneggie Melon Africa, EDF and many others for their support 🙏🏽
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