Rob Eloff is a co-founder of Lateral Capital, a mission-driven venture fund focused on technology ventures in Sub-Saharan Africa.

In 2017, investment into African tech startups reached a record high, with 159 startups raising over $195 million. African startups, however, also have one of the highest failure rates in the world. Given that venture capital funding is integral to the growth of African startups, venture investors need to ensure that they are backing businesses that can generate long-term solutions in markets with wide infrastructure gaps.  Much has been written about the potential to ‘leapfrog’ in African markets where infrastructure provision is fragmented, but, nowhere is it more important to focus on companies creating platforms for product and service provision rather than siloed single solutions.

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There are numerous examples of African platform plays that have succeeded. These businesses are identifiable through three key factors: 1) they harness a network effect, 2) they deliver efficient, scalable solutions to inefficient value chains or fragmented service offerings and 3) they deploy a suite of interconnected products and services to overcome frontier market challenges.

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The network effect is particularly important in markets where there is little infrastructure to support the development of businesses looking to grow and scale. KOKO Networks in East Africa is an example. The company operates on a platform initially established to distribute clean cooking fuel. Although more than 200 different enterprises have tried to solve for inefficient cooking by entering the cookstove space and offering marginal productivity gains, KOKO distinguished itself by establishing a digital platform that enables consumers, local shopkeepers, and suppliers to engage in seamless transactions with one another to deploy an ethanol based alternative to the pernicious dirty fuel status quo solutions. Providing users and agents with an easier way of engaging with one another helped the platform gain significant traction. With data generated by the network effect, KOKO is creating a sustainable market for clean cooking fuel and a viable business with the potential to offer additional consumer goods.

Venture capitalists should be on the lookout for models that are able to similarly leverage and deliver efficient solutions across a product or service value chain to achieve scale in Africa.  Nigeria’s EduTech is a good example of a platform that has achieved such scale as its services are adopted by university students, its end users. Edutech aims to help African universities efficiently transition their on-campus degree programmes online. Up to 75% of university applicants are turned away despite adequate qualifications for acceptance. By forging partnerships with three high-performing universities in Nigeria, EduTech has been able to develop a platform that streamlines connections between students and universities.  The platform consolidates university applications, acceptances, and access to digital educational materials and support resources. The centralization of resources that would typically be provided by multiple disconnected service providers is core to the platforms’ efficiency model and the company is on track to provide its platform as a service to 10,000 students.

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Finally, successful platform plays in Africa often deploy a suite of interconnected products or services that subscribe to Steve Job’s ‘closed loop’ mentality in Apple’s original product design philosophy. AppZone is a fintech platform that deploys automation and digital delivery solutions to bring African financial services operators fully online. Their SaaS products help banks significantly reduce operating costs, expand their addressable market, and gain competitive advantage. This closed loop of digital products functions as a digital operating system (OS) positioned to transform the largely brick and mortar operations of African Banks via a single counterparty. With a client base that includes 12 commercial banks and more than 350 microfinance banks in West Africa, AppZone replaces rigid and expensive manual banking operations being run internally or outsourced to third-parties with end-to-end automation. AppZone’s portfolio of products spans core banking, card management, transaction switching, mobile payment and agent banking. These products are built on top of a proprietary developer platform that allows banks to gain agility using small teams of in-house programmers who are able to extend functionality and respond quickly to achieve incremental process automation. Their home-grown IP confers advantages over imported equivalents that include being more cost effective, flexible, responsive and tailored to the local environment. The key to their success has been their complementary product releases that together address all market channels as a platform but offer incremental product adoption to meet a bank’s hierarchy of digital needs.

The innovation coming out of Africa’s cities offers investors an opportunity to generate highly attractive returns, and to provide solutions to existential threats to the fastest growing and most populous continent on the planet. Venture capitalists hold a significant amount of power to bolster this growth, but in order to do so, they must be cognisant of the factors that drive strong, effective and long-term business solutions within African markets. By investing in platform businesses that harness the network effect, deliver efficient scalable solutions and leverage an ecosystem of products or services, venture capitalists stand a better chance of achieving their objectives in Africa. The alternative, chasing a fragmented multitude of single product or service providers with a high degree of ‘copycatting’ will require a high threshold for disappointment.