Will corruption suffocate Africa's new tech incubators?
As hopes rise for a Silicon Revolution in Africa, two incubators are using different tactics to create tech success stories, while meddling government policies are dampening the optimism.
Silicon Valley’s influence on African start-ups took two new steps this month. First, start-up accelerator Founder Institute announced the May 28 launch of its first full-time African program in Johannesburg. The Founder Institute’s decision comes just one week after the launch of tech incubator Jozihub - the first of its kind in South Africa. This is welcome news for entrepreneurs: to create a robust ecosystem for tech companies and start-ups, experts say, incubators are the missing piece.
The profit-sharing model
The Founder Institute brings a new level of credibility to the African technology industry, sporting an 80 percent survival rate for the 650 businesses it helped launch in 39 cities around the world. While the $1,050 USD price tag per student might seem a little high, the program offers 15 hours each week with top-quality mentors for four months, and to graduate, each student must successfully incorporate a business. California-based Founder Institute also provides informal sessions with angel investors and venture capitalists around the world so that entrepreneurs can develop their pitch and connect with otherwise-inaccessible capital for their businesses.
In addition to support from foundations, the Founder Institute's financial success depends on bets placed on its graduates. Successful graduates must grant a warrant for 3.5 percent of their company stock to the Institute, which also takes a $4,500 slice of any financing above $50,000 they get while in the program. Thus it is in the Founder Institute’s own best interest to see its students succeed.
The collaborative approach
While the Founder Institute will focus on nurturing small groups of successful entrepreneurs, Jozihub wants to hatch a network of techies that make Johannesberg a world-class tech hub. Backed by tech giants like Google, the network is an “incubator” in a loose sense: it is led by the city’s top geeks, and membership is both easy to get and free.
Hoping to maximize its social benefit, the network has set its scope wide to include networking between entrepreneurs and investors, research and public-private partnerships. Its founders claim:
Emphasis will be placed on the development of internet, social media and mobile technologies that address the country’s most pressing social challenges.
Such a system could provide the support network that programs like the Founder Institute need to be successful.
Government butts in
Unfortunately, government policy casts a shadow on all this exuberance.
In fact, it sometimes seems systematically designed to hinder business growth across the continent. Foreign investors avoid Zimbabwe, probably in part because the government interferes with every sector of the economy, dictating what interest rates banks should set and inflating the currency until now businesses deal only in dollars. Similarly, when airline startup Fastjet tried to expand to Ghana and Kenya, it found itself mired in dysfunctional legal systems and was forced to scale back operations to South Africa and Tanzania.
Critics have voiced concerns that South Africa’s new National Development Plan (pdf) will have a similar stifling effect on their economy, contending that the goverment lacks the resources and power to implement the ambitious development goals it has set forward, like eliminating poverty by 2030. They worry that government attempts to support small business will only burden them further.
Perhaps Jozihub’s systemic approach will create enough social benefit to outweigh ineffective government policy and convince investors to stay. Maybe the Founder Institute will create success stories that promote the viability of African tech companies. Let’s hope they both succeed, because the world is watching.