African tech start-ups must put social impact before profit

Sibahle Malinga
By Sibahle Malinga, ITWeb senior news journalist.
Johannesburg, 21 Oct 2021

Africa’s booming tech start-up sector is seeing shifting behaviour in venture capitalists (VCs), which are increasingly turning a blind eye to businesses not focused on social consciousness.

This comes as social conscious capital gains momentum on the continent, as funders specifically search for start-ups that have high environmental, social and corporate governance (ESG) standards.

In this way, VCs hope to force businesses to put people before profits and make meaningful long-term differences in society.

This was the key takeaway during a panel discussion titled: “Conscious capital: Investing into Africa”, at the recent virtual SingularityU South Africa Summit 2021.

The discussion, chaired by Christina Gerakiteys, co-CEO of SingularityU Australia, centred on conscious capitalism – a socially responsible economic and political philosophy adopted by investors, as they increasingly shift their focus towards funding businesses that operate ethically and consciously.

The panellists agreed that, as billions of dollars are diverted annually towards African tech start-ups that score higher on ESG measures, businesses with low scores are missing out on funding and support opportunities.

Hans Otterling, general partner at early stage venture capital fund Northzone, noted that 60% of Africa’s1.2 billion people are below age 25, with the majority of this population having an internet-connected phone.

This presented infinite opportunities for tech entrepreneurs to develop socially-conscious businesses focused on helping aspiring youth to become better educated when it comes to learning, banking and health issues.

VCs, he added, are increasingly on the lookout for businesses that strike the correct balance between growth, sustainability and making a long-term social impact on communities.

“Northzone is very conscious of the fact that we are trying to invest in digital entrepreneurs that are enlarging and enhancing people's lives. We have a strict policy of not investing in anything that's related to weapons, porn or gambling. We have a long list of businesses that we do not invest in.

“For instance, South Africa has one of the highest unemployment rates in Africa, which is a disaster. The big priorities in South Africa are jobs. So we want the funding we provide start-ups to at least not just provide jobs for Africa, but the right kind of jobs and create the right kind of environment for citizens.”

According to Otterling, when funds are searching for the right type of start-ups to invest in, there is no “one size fits all”, because there are so many different attributes to consider when going through the various perspectives of conscious capital.

More unicorns ahead

Robert Hersov, chairman of UK-based investment platform Invest Africa, noted that this year alone, four unicorns have emerged from Africa’s tech sector and there will likely be more before the end of the year. These are mostly tech start-ups whose business models are centred on resolving real challenges and changing the lives of the people they serve, he added.

“Africa’s private equity investments over the last decade or so have been tough and disappointing, but the technology sector is changing the continent for the better, in a very meaningful way. If you look at edtech, healthtech, medical technology, fintech, agritech − these are the massive growth sectors within African companies that are up and running, and have an existing need to use innovation to create new industries and ecosystems.”

“A tech revolution is happening on the continent, and I'm very positive about it. We just need to make sure that more smart, conscious capital comes to the table,” commented Hersov.

According to Otterling, in the past, conscious capital and impact capital were considered as charity initiatives. However, investors are now realising there are significant financial returns when funding is channelled towards such companies, as consumers become increasingly conscious of the types of business they support.

“I actually think conscious capital investments will outperform other types of investments in the future.

“Our customers are the financial institutions that are managing millions and millions of people’s savings. And we are getting increased requests and pressure from these investors to really have a very strong agenda when it comes to ESG and a conscious cap. So, funders that do not have an appropriate agenda, or an investment strategy that suits conscious capital, will struggle in the future,” asserted Otterling.

In conclusion, Hersov pointed out that a good way to ensure Africa’s tech entrepreneurs are enhancing people's lives is to ensure science, technology, engineering and mathematics skills are introduced to school children during their primary school education level.

“We don't mean more lawyers. We don't need more regulators. We need more people that understand technology, because technology can really change the world for the better. Regardless of what you're studying, at least try to understand blockchain, artificial intelligence, data analytics, coding, programming. Though innovation, one person can change millions of lives at a time.”