Industry experts have urged investors in East Africa to shift their focus to other projects besides solar power and mobile money.
Analysts from financial services firm, Village Capital say that some Venture Capitalists are reluctant to invest in anything besides these two segments.
“Virtually all startup investment in East Africa goes into off-grid solar or mobile money. Investors don’t seem interested in anything else,” said Sean Pawley from Hapi Resources, a water trading firm based in Jinja, Uganda that looks to minimize the usage of water in arid or nonproductive regions.
A Village Capital report sponsored by the Bill and Melinda Gates Foundation and released earlier this year found that 72% of startup funding in East Africa has gone to just three companies in the past two years, and the other companies have struggled to fulfill a full round.
“Companies can’t raise money without the right team, but can’t afford the right team without raising money. Investors worry that without the necessary talent, companies will not achieve the milestones that are needed to scale,” argued Researchers, Heather Strachan Matranga, Bidisha Bhattacharyya and Ross Baird concluded in the report.
Pawley, who has a background in Information Security, believes that East Africa can benefit greatly from a shift in the kind of investment projects that Venture Capitalists choose to support.
Village Capital analysts, however, still believe that mobile money has great potential. The team argues that digital financial services (DFS) companies in East Africa face significant challenges operating in markets where infrastructure is insufficient, human capital is difficult to find, and enormous portions of the population are poor or still operate using cash as a primary form of payment.
“As a result, they aren’t getting the capital they need to succeed. This is bad for everyone: the investors who miss out on great deals, the companies that don’t receive the capital they need to grow, and ultimately the individuals and communities who could become more financially healthy through the solutions offered by innovative DFS businesses. We strongly believe that these challenges are addressable if entrepreneurs, investors, policymakers, foundations, DFIs and entrepreneur-support organizations can coordinate on taking action to break down some of these barriers,” said Strachan Matranga, Bhattacharyya and Baird.