Ghana’s startup hub pioneer is going pan-African with a $50 million fund
Meltwater Entrepreneurial School of Technology (MEST) has built one of Africa’s best known startup ecosystems in Accra, Ghana over the last eight years—and now it’s doubling down on a push to take its vision pan-African.
As MEST has grown, it has opened up its local entrepreneur training program to founders from Nigeria and Kenya who usually want to go back home after their year-long program. To help ensure those startups thrive beyond the mothership, MEST is finalizing plans to open its first incubators in Lagos and Nairobi this summer. By next year, it expects plans to be in place to open incubators in Cape Town and Johannesburg.
MEST, which opened up shop in 2008 as a non-profit arm of San Francisco-based Meltwater Group, was a pioneer of the startup hub model in Africa. But in recent years its has been surpassed by newer, faster growing hubs in other African cities.
Reflecting the rapid growth in the continent’s startup scene, MEST is taking a long bet on African startups by starting to raise $50 million for its first venture capital fund, called MEST Venture Partners. The new fund will also back non-MEST trained startups.
Last year, startups on the African continent brought in more than $185.7 million, with South African, Nigerian and Kenyan leading the way.
In the last decade, on the back of an “Africa rising” narrative, local startups have matured beyond the “me too” business models which simply tried to replicate Silicon Valley companies. Now, many strive to solve some of the continent’s real world challenges in sectors from fintech to e-learning to health support. Even as startup investment has slowed around the world, and many of Africa’s large economies face headwinds, investment in African startups is very active. This is what MEST will be hoping to tap into.
From seed to seedling
MEST takes an early seed stake in every startup it supports, and in exchange entrepreneurs get intensive one-year training. It typically winds up with a 10% equity stake in startups that graduate from its program. If it makes a cash seed investment, which is usually around $50,000, then MEST takes an additional 20% in equity. The new VC model will see MEST make a bigger financial commitment to some of its most promising startups, as well as others in need of later stage funding.
“While we currently make seed round investments at the MEST Incubator, MEST Venture Partners will make check sizes closer $1 million to $2 million,” said MEST managing director Katie Sarro. The fundraising is tapping into both Meltwater’s Silicon Valley roots and local and international investors on the continent.
MEST has invested around $20 million in startups over the last eight years, through a mix of seed funding and its entrepreneur training program.
MEST’s Accra incubator building.(MEST)
Sarro says MEST is on the hunt for the ideal office space in both Lagos and Nairobi. It’s also looking for two general managers to help run the new units.
“We started here in Ghana because it had basics like being politically and economically stable,” says Emmanuel Quartey, MEST’s general manager. “But now as we expand you can’t just ignore a country like Nigeria, for example, given its size.”
Both Lagos and Nairobi have larger startup markets than Accra. Lagos, for example, is home to CCHub and Lagos Garage, while Nairobi has Nairobi Garage and iHub among others. Nairobi in particular has won global recognition for fostering a “Silicon Savannah” startup ecosystem which is producing up and coming local tech companies.
“Implicit in what we look for in our startups are teams that can grow quickly and scale pan-African wide,” says Quartey. “Maybe you get your feet wet in Ghana, but if you’re ambitious you need to expand into Nigeria and other countries.”
MEST is able to point to a few successful exits since it started including Saya Mobile, a mobile messaging app bought by US company Kirusa, which specializes in building for emerging markets. Another successful exit was Claimsync, which digitizes health records and was bought by a Norwegian biometric company GenKey.
The African countries that will be most affected by the Fed’s rate hike
by Lily Kuo
For the past two years, African economies have been emotionally preparing for the US Federal Reserve's rate hike. Now that it's happened—an increase by a quarter point of the benchmark short-term interest rate—the effect has been largely anti-climactic.
Currencies in Kenya, Uganda, and Ghana were mostly unaffected and are expected to stay unchanged next week. Stocks from emerging markets overall rose with a benchmark emerging equity index reaching a nine-day high. Central bank officials on the continent have issued staid comments about how prepared they are to defend their economies as years of an emerging market boom fueled by low interest rates in the US threaten to unwind.
Analysts say the long-anticipated rate increase has already been priced in. African currencies have already taken a beating this year. Falling commodity prices and lowered demand from China are putting pressure on Nigeria's naira and South Africa's rand especially. Investors are expected to have withdrawn a net $541 billion from of emerging markets in 2015. Central banks on the continent have been raising interest rates despite slowing growth.
Still, the worst is not over. Countries like Ghana, with a high current account deficit and rapid build up of debt in the private sector, or South Africa with its high levels of foreign debt, will be the most vulnerable to the risk of capital flight. An analysis by the Institute of Chartered Accountants in England and Wales (ICAEW) ranks African countries by their vulnerability according to these three factors. Countries most vulnerable to a US Federal Rate Increase
Ghana
Seychelles
Guinea
Tanzania
DR Congo
Kenya
Tunisia
Benin
Ethiopia
Mauritius
Countries most vulnerable to a US Federal Rate Increase
Mozambique
Togo
Republic of Congo
Rwanda
Liberia
Chad
Burkina Faso
Eritrea
Zimbabwe
Libya
Djibouti
Comoros
Niger
Sudan
Mauritania
Much of Ghana's debt is in dollar-denominated bonds and Accra is still planning another eurobond issue next year at a higher rate to attract investors. As the Ghanian cedi slumps against the dollar, paying back those debts will be even more expensive. Kenya's current account deficit, at 10.4% of GDP and private sector credit growth of 17.8% since 2013 also makes East Africa's largest economy more vulnerable to the rate hike. Countries least vulnerable to a US Federal Rate Increase
Botswana
Swaziland
Malawi
Cabo Verde
Guinea-Bissau
Namibia
Countries least vulnerable to a US Federal Rate Increase
Gambia
Egypt
Sao Tome and Principe
Morocco
Burundi
Central African Republic
South Africa
Angola
Sierra Leone
Lesotho
Gabon
Nigeria
Equatorial Guinea
Senegal
Cameroon
Algeria
Uganda
Madagascar
Mali
Zambia
Cote d'Ivoire
South Africa is ranked 40th but things still don't look good for sub-Saharan Africa's second largest economy. Dependent on mining exports to a slower growing China, it is expected to see growth of below 1.5% this year. Government debt is expected to reach 49% of GDP in 2016. Angola, the continent's second largest oil producer, is hit by low oil prices in an industry that is its main source of foreign reserves. The country may struggle to pay for its imports of food, consumer goods, and industrial material.
The fallout is not just limited to the continent. "African economies are still expected to be one of the brighter spots in the global economy in our forecast horizon. This means that many other economies are relying on Africa for important growth opportunities, and hence a fallout there could impact the availability of attractive investments, weighing on global levels of FDI and other financial linkages," Danae Kyriakopoulou, ICAEW’s economic adviser and senior economist at Cebr told Quartz.
