OBG talks to Neal Hansch, Managing Director, Meltwater Entrepreneurial School of Technology (MEST) Incubator

Interview: Neal Hansch

What can be done to create an enabling environment for information technology start-ups?

NEAL HANSCH: Incubators have limited capacity and can only train a certain number of people, so it is all about the ecosystem and support system. We are finding, in a lot of emerging markets, that the corporate, legal and tax structure is not set up to support ICT start-ups. Key elements of a support system are lacking in many emerging markets – things native to the start-up world like equity, stock options, founders’ shares – which incentivise those that stick around. Other countries have initiatives such as tech parks or tax breaks for startups. Emerging market governments can provide development facilities or initiate softer concepts, like event planning and networking opportunities. Foreign investment rules like minimum capital requirements are unfriendly to start-ups. Nigeria is a good example of a government that has been proactive in establishing the enabling environment for ICT start-ups.

How do ICT start-ups in sub-Saharan Africa differ from those in the West?

HANSCH: Some business concepts are fundamentally the same here as existing Western products, but with local nuances. One example is mPawa, a recruiting marketplace focused on blue-collar, rather than white-collar jobs. It uses an SMS instead of web interface, because that is the medium which most workers use, and the employer pays, whereas in the West the job applicant would pay. Companies like Rocket Internet’s Jumia have to worry about things like underdeveloped delivery networks or payment methods in an environment with low credit card penetration. Core ideas are the same, but the implementation is a challenge.

Interestingly, you also see models that work locally that would not be as relevant in the West. For example, a solar charging station for mobile phones, whereby the telephone operator acts as a bank to loan the charger to a small business. The recipient business then uses it for people who come home from work and charge their phones. This would not be relevant in many other parts of the world.

What is the primary challenge facing start-up founders in Africa?

HANSCH: African start-ups need funding in the product development stage, as it will take time to establish a local network of angel investors. A key challenge facing the financing prospects of start-ups is that early stage investors are uncomfortable investing in intangible assets. In an ICT company, because most of your assets are human capital, they walk in and out of the doors every day. Given the relatively nascent nature of institutional venture capital in Africa, one would expect that most money flowing to tech start-ups will come from the traditional centres of venture capital abroad, including Silicon Valley and Europe.

To what extent does weak intellectual property (IP) legislation hinder ICT industries in Africa?

HANSCH: The textbook answer is that IP rights are very important for ICT start-ups. However, a lot of the start-ups are going to be tech-assisted companies, as opposed to, say, a leading semi-conductor manufacturer. For example, most of our teams are coming up with start-ups that are taking the existing tech platforms and solving problems, which is to say that IP is less relevant. More important than creating a patentable product is the first-mover advantage, execution and sales – delivering an elegant product. The African tech sector is not going to be hugely affected by weak IP rights.

Even the largest software firms are shifting their focuses away from selling databases, mainframes and enterprise software to energy companies, government clients and other large organisations. Instead, due to growing mobile and laptop penetration, these firms see consumer opportunities, and consumer software is less susceptible to piracy. A lot of services from multinational software firms are now going online, and the rise in software-as-a-service has reduced piracy risk.