Kopo Kopo is in a unique position to comment on the similarities and differences between operating a startup in Silicon Valley and the Rift Valley.   I recently returned to the US to participate in the Plug and Play Startup Camp near San Francisco.   At the same time, across the globe, Ben, Dennis, and Kibet will be moving into our East Africa office in a newly launched incubator space called the m:lab in Nairobi.    Based on these parallel experiences, we thought it would be interesting to provide a series of posts offering perspectives on the similarities and differences in the two markets.         

Funding: While funding markets work backwards, entrepreneurs in Africa are looking forward

At the recent Founder’s Showcase, Naval Ravikant explained how funding markets work backwards.   A funding market typically starts with a robust publicly-traded stock exchange. From there, funding vehicles are established as pre-cursors to a public listing - starting with venture capital firms.    Over time, seed investors, angels, and friend and family networks follow suit.   In the Silicon Valley, all of these categories are, of course, well-developed.   In fact, we are now seeing these traditional categories be disrupted by new models leveraging incubator concepts and crowd-funding.     

In East Africa, the public exchanges are relatively well-developed and recently venture capital firms are forming in key markets.    However, early-stage investors are few and far between.    As our previous post explains, this is not due to a lack of entrepreneurial vigor in these markets.   On the contrary, nature abhors a vacuum and markets are adjusting.        

The dominant form of bootstrapping takes place through cross-subsidization of projects.   Many of the leading technology firms open consulting businesses to provide high margin services that can subsidize the development of their core projects.    While this provides a funding mechanism, it severely stunts the growth of their core business.   

We are also seeing the ‘leapfrog effect’ taking place in East Africa.   Instead of waiting for more formal early-stage networks to develop, the newest innovations are taking hold now.   Crowdfunding networks, like GrowVC, are being launched with a specific focus on Africa.  Similarly, it seems every day brings an announcement of another incubator in East Africa.  

It remains to be seen whether traditional VC firms, seed investors, and angel networks in the US will look to Africa as a new source of opportunities.   When India was rising twenty years ago, some funds like ePlanet saw what was happening and made their moves. 

Will Africa be next?   Or will Africa be the first market where traditional investment vehicles are leapfrogged?   

Dylan Higgins - CEO