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 precarious state of Nigeria’s economy right now captured in two charts
by Yomi Kazeem
When Nigeria's president, Muhammadu Buhari won the presidential ticket last March, the general mood in Africa's biggest economy was upbeat. Stocks surged as the market reacted to a 'Buhari bounce'. Investors also believed that the former military dictator would be more effective at managing the economy than his predecessor was but less than a year later, that outlook has changed drastically.
On Wednesday (Jan. 13), Nigerian stocks fell to a three year low in reaction to the continued fall of oil prices. Dipping below $30 a barrel for the first time in twelve years, the fall in prices have badly affected Nigeria as oil earnings account for a majority of its earnings. Investors, fearing the absence of a plan to manage the situation, have been dumping stocks leading to a plunge in the country's all share index.
https://atlas.qz.com/charts/4kiHtWbOe
These fears are heightened by the country's unorthodox monetary policies. As oil prices dropped, so did Nigeria's foreign reserves. In a bid to avoid further depletion, the Central Bank imposed strict restrictions which did little to curb the slide of the naira, its currency. The official exchange rate has fallen some 25% over the two years and it is now 199 naira to the dollar. But the more realistic value is seen on the parallel market in recent days where the naira's value has fallen such that it takes more than 300 naira to exchange for a dollar. There is now regular calls for the Central Bank to officially devalue the naira.
https://atlas.qz.com/charts/EyM0P22Nl
Two weeks into the new year, a budget has not the passed and the days of a Buhari bounce seem a long time ago.
El Niño is set to hurt millions of Africans in early 2016 as rains fail to show
Could the same weather pattern that’s causing the balmy pre-Christmas weather in the East Coast and Midwest of the U.S. also be responsible for a punishing drought in southern Africa on the opposite side of the globe? Scientists say yes—and they are pointing the finger at one of the most potent El Niño systems every recorded in the Pacific Ocean. The large pool of unusually warm water in the Pacific—perhaps the most extreme in 75 years—is forcing changes in normal weather patterns in the US, where it is keeping cold winter air firmly bottled up in the Arctic. El Niño’s reach is also being felt in the sun-baked farmlands of rural Zimbabwe, Malawi and South Africa, where rains that usually start in October or November have simply not materialized this year. Millions could suffer from famine if the pattern holds through the first few months of 2016 — as forecasters says it almost certainly will.
“Southern Africa is a particular and obvious concern,” said Maxx Dilley, director of the Climate Prediction and Adaptation division at the World Meteorological Organization. “A canonical effect of El Niño is drought in that part of Africa.” Experts say this year’s El Niño is on par with the 1982-83 and 1997-98 seasons, which were the most extreme on record dating back to about 1950. In the rural Madikwe district of South Africa, villagers are already praying for divine intervention. “God, give us rain because we have a big problem,” Josephine Motsoasele told a gathering of 30 people, according to Agence-France Presse. “We can’t do anything.” Why exactly does El Niño—which is named after Jesus because South American fisherman first noticed it around Christmas—have such a strong effect on Africa? Scientists say the warm water of El Niño disrupts the powerful Pacific trade winds that flow from east to west and feed moisture into the tropical islands of Indonesia. That makes the archipelago cooler and drier than usual and in turn disrupts normal seasonal wind and current patterns in the Indian Ocean. “The Pacific is so big and the area of warm water is so large that there is a shift in the circulation pattern around the globe,” said Wassila Mamadou Thiaw, a senior meteorologist with the U.S. National Oceanic and Atmospheric Agency (NOAA). Off the east African coast, normal wind and current patterns tend to drive bands of warm water and moisture to the south during the southern hemisphere spring and summer. When El Niño is in effect, there is less moisture in general and warm currents and the rains they bring sometimes stay closer to the equator, depriving southern Africa of that moisture. That pattern can lead to heavy rainfall in East Africa and the danger of flooding in Uganda, South Sudan, parts of Kenya and the Horn of Africa.
The impact on southern Africa is potentially much more dangerous because the region is semi-arid and relies on rains during the southern summer to produce staple crops, especially maize. Take away those rains, and millions of subsistence farmers will face starvation. One reason for some hope is that El Niño does not always bring season-long drought in southern Africa — and in fact the 1997-98 season produced close to normal rains in the region despite that year’s record El Niño. The Famine Early Warning System, a U.S.-government multiagency group, predicts up to 2.8 million people could face acute food shortages in Malawi alone. The maize harvest in Zimbabwe will be cut in half. UNICEF says 11 million children could go hungry.
South Africa, the economic engine and breadbasket of the region, is already warning of widespread crop failures. Could global warming be feeding the climate chaos? Experts say it’s too early to draw a direct link between climate change and El Niño, which occurs naturally every few years. But they do say that climate extremes are becoming more frequent and unpredictable, making El Niño potentially even more destructive. “The term that’s often used is that it’s like a system on steroids,” said Nathan Moore, an assistant professor at Michigan State University who is an expert on the impact of climate change on Africa.
