How Mobile Is Sparking Creativity in African Business

How Mobile Is Sparking Creativity in African Business

Eric-OsiakwanChanzo Capital is an early stage micro-VC firm that provides capital and mentorship to high-tech startups in Kenya, the Ivory Coast, Nigeria, Ghana and South Africa (the so-called KINGS of Africa’s digital economy). Eric Osiakwan, managing partner of Chanzo, is a tech entrepreneur and angel investor with 15 years of ICT (information and communications technology) industry leadership across Africa and elsewhere. He has worked in several African countries setting up ISPs (Internet service providers) and high-tech startups. He cofounded the Angel Africa List and Angel Fair Africa, and sits on the boards of several companies. “We Africans are going to lead the 21st century through technology,” he says in this interview with Knowledge@Wharton, which was conducted in Ethiopia at a leadership summit organized by the Wharton alumni club of Africa.

An edited version of the conversation follows.

Knowledge@Wharton: What is Chanzo Capital?

Eric Osiakwan: Chanzo is the Swahili word for “early stage,” and we chose this name because of what we stand for; we believe that Africa is going through a renaissance. We Africans are going to lead the 21st century through technology. We think that 20 years ago, Africa embarked on this journey — leapfrogging the world using mobile phones. As of 2015, we have one billion mobile users on the continent. And so, mobile has become the platform [for the renaissance].

I was a pioneer in building internet service providers (ISPs). I built 14 ISPs  between 1998 and 2008. I was also involved in building submarine cables — in bringing connectivity to the continent. Now, I have started mentoring and investing my own capital in some startups.

Essentially, this is part of creating a new generation of entrepreneurs that believes in taking Africa into the creative era. Before this, Africans were just consuming Google, Facebook, WhatsApp and so on. Now, we have a new generation of millennials and digital natives who are saying: “Well, we can create the same Googles; we can create the same Facebooks solving local problems.” This generation is beginning to unleash its creativity using mobile web technology to solve market problems, pain points and bottlenecks.

What I’ve been doing is seeding some of this entrepreneurship, not only by writing a check, but also by bringing my extensive experience as somebody has built companies in the past.

 “This generation is beginning to unleash its creativity using mobile web technology to solve market problems, pain points and bottlenecks.”

Knowledge@Wharton: Could you offer some examples of the innovations you are seeing in this space and how you have been helping them?

Osiakwan: The latest company I invested in is called Forhey. I invested in it last year because the story is very remarkable. The founder got out of college, built his first startup, which failed miserably. He realized that the reason the company failed was it was trying to solve a problem in a sector that he didn’t have knowledge of; he had knowledge of technology.

In his new venture Forhey, which is a local word for “wash,” he wanted to get into the laundry business. So he took nine months, went to New York, interned at a laundry in New York and learned the business. When he finished, he came back to Ghana. For me, that’s a very powerful story. Normally people his age finish school, go to the U.S. and do something; they don’t come back. But he actually came back and started this company.

The app is a simple platform where if you want to wear the shirt you’re wearing tomorrow, you go on the app and say, “Hey, can you guys pick up this shirt at 9 p.m. from my hotel room? I want it back at 6 a.m. laundered, ironed and ready to go.” This is actually the Uber of laundry, basically using software infrastructure to organize the logistics around laundry.

The other company I invested in last year is called Swappaholics. This jacket, maybe I’ve worn it for five years. I don’t want to wear it again, but perhaps you want something like this. So you go to Swappaholics.com and you label it. And then you swap. We do this all the time informally. But now, you take it online. These companies are examples of how you can take the simple things that happen in daily life and use technology to solve the logistics around them or the pain points or the inefficiencies.

These are powerful ways, but these young entrepreneurs are beginning to engineer efficiency and create opportunities that didn’t exist before. In the laundry business, in Forhey, when you put in a request, what happens is that a Forhey, someone we call a “hey girl” or a “hey boy” comes to you. These are college students. We go to the students and tell them, “Hey, in your free time, you can be earning some money to pay for your college.” So you join the company, you go for some training and we give you a simple app on your phone. When you are available, you just log in and say, “I am available between 10 a.m. and 6 p.m. today.” So we are creating opportunities for college students to get employment and earn.

Knowledge@Wharton: Are both Forhey and Swappaholics based in Ghana?

Osiakwan: I am helping Swappaholics raise money after the company went through an accelerator in Dubai, which allowed them to launch the company there. I also helped Swappaholics with their launch in Kenya. I had invested in the previous company of one of the co-founders — it was called Kuzima — which failed but through that experience he and I built a strong relationship.

Knowledge@Wharton: Many entrepreneurs in Africa say they don’t like to focus on just a single country; they want to take a pan-African view. What’s your view of the right strategy for building these innovative startups in Africa through a pan-African strategy?

Osiakwan: I had a pan-African focus from day one because, when I got into IT, I realized that the markets for IT in these countries are very small — except maybe Nigeria. Ghana is 32 million people, Kenya is 40 million. I’ve always had this Africa-wide focus. Anytime I invest in companies, I want companies that I can take to a large market and that generally means thinking of several countries.

The new generation of entrepreneurs is not only not country-focused; they want to take on the world. We can solve problems globally and that’s good. It’s a good thing, if you are going to have a bigger perspective on life and not just a local perspective, to start at the community level. I always say, “Have a global vision, but always start small. If you start big, you end small; if you start small, you get big.”

“[We looked at] how our academic institutions are becoming a force for creating human resources. This technology game is a human resources game; it’s a people’s game.”

It’s always good to have that big vision. I think part of that is the exposure. When I encountered the Internet in the early days, it exposed me to the world. I suddenly realized I knew what was happening in the U.S. and I had never been there. I knew what was going on in Europe and I had never been there. So immediately, my horizon expanded beyond Ghana. This has also happened to the digital natives and millennials. The Internet exposes them to the world, so they suddenly realize, “I can actually conquer the world, so why do I want to conquer Ghana?”

As a firm, we focus on the KINGS of Africa — Kenya, the Ivory Coast, Nigeria, Ghana and South Africa. We call them the kings of Africa’s digital economy. These are the countries that we believe are leading the digital economy in Africa. When we invest in one country, we want to go into these five countries at the least.

Knowledge@Wharton: What is it about these countries that makes them special — to be classified as kings?

Osiakwan: That’s a good question. We have five criteria and we looked at each country. One is economic growth, so we looked at GDP; we looked at the growth of factories. These countries are among the fastest-growing economies, not based on resources only, but also a service sector or technology sector that comes with the growth. That is very important. The second is a vibrant telecom sector, which makes them very competitive. The third factor we looked at was the innovation policy. The fourth criterion was telecom infrastructure. And the fifth criterion, let me see…

Knowledge@Wharton: Availability of capital?

Osiakwan: No, we didn’t use availability of capital, but the growing technology ecosystem. That encompasses capital — it is capital-community connections. So we looked at how the technology ecosystem is growing in these countries — who are the actors and how is the government, civil society, the private sector, academia. … [We looked at] how academic institutions are becoming a force for creating human resources. This technology game is a human resources game; it’s a people’s game.

Knowledge@Wharton: Is there enough human capital and financial capital to develop these startups?

Osiakwan: Not enough, not enough.

Knowledge@Wharton: What are the big challenges?

Osiakwan: Starting something new is a challenge. You don’t have all the resources. What we look for are minimal viable resources. And in these countries, they have the minimum. If you can then build on that, you can create opportunities.

The challenge of capital is, of course, always there. But we also have seen capital going to real estate in an unprecedented way in these markets. So, the question is: Can you direct that flow of capital to the technical systems? It’s not that there’s no capital in these markets, but it’s that the capital is going to the opportunity that gives the best return. Such opportunities will exist in the tech space soon.

I started work on an African [angel] list to bring individual investors into a network. We started an event that brings entrepreneurs and angel investors together to basically pitch and do deals. We believe that by doing this, we are creating the environment for the interaction using capital as a pivot — as a lubricant. And as we’re beginning to do this, more and more companies are going to grow.

“The new generation of entrepreneurs is not only not country-focused; they want to take on the world. We can solve problems globally.”

Very soon, the exits will start and that sort of turns the turbine. Once we can create the exit, this turbine begins to turn and becomes a channel for more capital to come through. But for now, it’s not easy. But some people have to be pioneers.

Knowledge@Wharton: In which sectors do you see the most interesting deals?

Osiakwan: We focus on five key areas. What is most interesting is, first, financial services. The industry is going through a lot of disruption. Banks are quaking in their shoes; telcos are becoming banks. I think the next level of disruption will be amongst the telcos. One of the things we are looking at, for example, is peer-to-peer transfer.

We also think that Africa is going to be producing a lot of interesting disruptions in what we call “energy tech” – renewable energy. The lack and the shortage of energy are creating a need for grids and micro-grids. We believe that when you take that, on the one hand, and you take mobile technology, you are going to create very interesting ways in which energy is produced, distributed and used.

We focus a lot on that. In addition to renewables, we look at water. We look at the new ways that water is distributed – irrigation and all that. We think that the other sectors that are going to be really disrupted are education and farming. As a fund, we focus on markets that are low-margin, high-volume. We don’t invest in companies that are looking to get high returns in exchange for low volumes.

Knowledge@Wharton: What are the big risks that keep you up at night?

Osiakwan: Investing in companies is a people game. It’s not a contest of ideas. It’s a contest of execution and the scale of the execution team is the determinant of success. What keeps me up at night is how you build the best teams for these great ideas. Some of these entrepreneurs are doing it for the first time, so they sometimes don’t realize that you need a team because you have weaknesses and you need all the members of the team to back you up. That’s the biggest challenge I have: convincing an entrepreneur that you need a co-founder. We also employ what we call “gender forward” — which is bringing in female entrepreneurs or co-founders or key team members.

Knowledge@Wharton: Is there any evidence that, when you have women executives in the senior leadership of a company, it tends to do better than other kinds of companies?

Osiakwan: Actually, we came to this conclusion looking at a lot of literature. We haven’t done our own study but the body of literature we looked at in terms of company performance and outcomes shows that, generally, companies that have female co-founders who are part of decision-making and implementation, tend to do better.

Knowledge@Wharton: Where do you see Chanzo Capital in the next 18 to 24 months?

Osiakwan: We want to be the firm that seeds the best technology companies in Africa. That’s our vision. We want to be out there, finding the best entrepreneurs. We also think that as a fund, we have a responsibility to build the ecosystem, because this is not a zero-sum game. It’s a game where the more, the merrier.

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