Africa tech hub ecosystem surges

Admire Moyo
By Admire Moyo, ITWeb's news editor.
Johannesburg, 05 Nov 2019

Technology hubs are thriving in Africa, as the continent looks to create the next ‘unicorns’ – privately held start-up companies valued at over $1 billion.

This is according to a recent report by Briter Bridges and AfriLabs, which notes that as of October, 643 hubs were identified across Africa, which includes co-working spaces, incubators, accelerators, and hybrid innovation hubs affiliated with government, universities, or corporates.

“However, 25% of these hubs only offer co-working facilities and no specific business support programme for start-ups and entrepreneurs, but the majority – almost 500 of the hubs – provide some degree of in-kind or cash support,” comments Dario Giuliani, founder of Briter Bridges.

The report says Nigeria has the most hubs per country, with 90, followed by SA’s 78, Egypt (56) and Kenya (50).

Some leading hubs in SA include the Innovation Hub, Silicon Cape, AlphaCode, Jozi Hub, Impact Amplifier, and Cape Innovation and Technology Initiative, among others.

The survey was submitted to over 600 hub managers based on Briter Bridges’ latest data on innovation hubs in Africa.

The respondents differ by type, legal structure, location, and support criteria such as sectors of preference. Ninety-two responses represent 15% of the total number of identified, eligible, organisations.

The respondents were split between private, for-profit organisations and a mix of non-profit, academic institutions, programmes and associations, and were distributed across 34 countries.

Because almost half of the existing hubs consist of non-profit organisations or donor-funded organisations, the discussion around financing received and the allocation of funds has been crucial, the report says.

It notes that 60% of all respondents claimed to receive external funding and, among the donors, corporate sponsors, philanthropic organisations and NGOs have proven to be the most active funders.

The majority of hubs surveyed claimed to have received less than $100 000 in funding from various sources.

Giuliani explains that several hubs establish strategic affiliations with corporates, which often include a degree of asset-sharing such as cloud, servers, optic fibre, and the like.

“Several hubs also partner with their local government or international subsidiaries to get support for their activities. According to the surveyed hubs, the majority of funding received is largely used to cover operational costs and programmes,” he says.

“Wages and facilities still present the highest costs on average, while energy and rent-related costs vary respectively depending on whether the hubs are located in areas with unreliable access to electricity or in costly neighbourhoods.”

The survey highlights that hubs adopt three main revenue streams – a membership fee to use facilities; donor funding to both sustain operations and run start-up support programmes; and consulting, which was identified as the largest additional revenue stream by 40% of the hubs.

Giuliani points out that such consulting often takes the form of innovation-related research and programme implementation for specific donors.

In addition, he says, hubs with enough space capacity charge rent for events, while others offer paid training or partnership fees.

According to the report, hubs typically offer two types of support – in-kind, which includes training, advice and facilities; as well as financial support through programmes.

Among the respondents, 94% (six respondents left the answer blank) run start-up programmes as part of their business and, among these, the most common programmes last 3-6 (35%) and 6-12 months (23%).

In-kind support comes in the form of one-to-one mentorship or through workshops and bootcamps.

“The fact that only 40% of the surveyed hubs offer funding to start-ups denotes the high diversity in the type of support that such organisations provide,” says Giuliani.

“Equity investment (30%) remains the most common type of funding although, as explained, hubs are often endowed with donor or sponsor money which is used for funding – often through competitions or at the end of an incubator or an accelerator programme.”

He says this type of cash injection is typically in the form of grants or non-equity (23% and 13%).

“Almost 25% of the funding is also in-kind and it is not uncommon to see mixed funding rounds including in-kind and equity investment. Finally, a small proportion includes debt financing (12%).”