By financen | April 9, 2018 - 5:41 pm - Posted in Uncategorized

ICOs raised capital in excess of $3.5 billion in 2017. Of this, more than $100 million came from ICOs based in different African countries. Compared to the huge amounts of capital raised by ICOs such as Tezos, African ICOs have a long way to go. However, the input of Initial Coin Offering on African startups is rapidly growing.

ICOs in Africa

One of the biggest challenges African startups face is inadequate capital. Getting venture capital in most African countries is a hassle. Startups from young people who are less connected almost always don’t attract any Venture Capital firms. Only a few lucky startups attract donations of more than $1 million before their launch. However, ICOs are changing the way African startups get funds for the better.

What are ICOs?

Initial Coin Offerings or ICOs, are a modern means to source funding for new cryptocurrency startups from the public. Like an Initial Public Offering, ICOs allow people to invest in the potential of a platform before it it’s actualized. The startups sell their own native tokens in exchange for established coins such as bitcoin or ethereum. Read more about the ICO topic.

Why African Startups are excited about ICOs

  • There are few venture Capitalists in African Countries

Although there are VC firms in countries like South Africa, Nigeria and Kenya, most of them are never concerned about unknown startups. VC firms and angel investors in most African countries only fund the most hyped startups. By contrast, ICOs are offering a new way to raise funds. By allowing investors to contribute as little as $10, ICOs allow even the low-income earners in Africa to invest in the crypto space.

  • There is less Competition in Africa

So far, African ICOs that showed great potential have been successful in fundraising through ICOs. In European and Asian countries, startups are constantly competing for funds. Unfortunately, investors tend to favor the most hyped ICOs.  Many startups with great potential end up getting overlooked. By contrast, the few African startups that have shown solid potential were able to attract funding because had less competition for funding.

  • The Hype and FOMO

African countries are fast embracing the cryptocurrency space. Throughout the continent, there are dozens of startups based on the blockchain technology. The huge hype surrounding the industry is attracting media attention and African tech related content providers. Startups, on the other hand, are catching up and looking for funding through ICOs. The Fear of Missing Out is partially ensuring that startups tap on the potential of ICOs.

How ICOs will help Fund African Startups

Not only are ICOs an exciting topic and a great way to fund startups everywhere, they will prove to be very beneficial for African startups. Here is how:

  • ICOs offer a Fair Investment Platform

Unlike Initial Public Offerings, anyone can participate in ICOs, whether you have a lot of funds or not. From as low as $10, Africans can contribute to the success of a startup that will probably help solve major challenges. This benefit is particularly important in Africa because most investors are able to raise high amounts. The median annual income in most African countries is less than $200, meaning that potential investors can only fund where minimum contributions are accepted.

  • ICOs are easy to Organize

ICO alternatives have proven burdensome to organize in most countries around the world. In Africa, organizing an IPO can take months. It’s expensive and requires resources that many startups cannot afford. By contrast, running an ICO is quite easy. Most African governments have not regulated ICOs, but startups must meet the basic requirements to run one. While that could be problematic for investors, it makes it easy for startups to fundraise.

  • ICOs are easy to Access among Low-end Investors

Although Internet penetration in Africa is lower than the rest of the world, it provides the easiest way for startups to look for funding. In Kenya, for example, there is an 85% Internet penetration. Despite this, a very low percentage of the population has the means to participate in an IPO.

ICOs are proving the better alternatives since interested investors can learn everything about the ICO online and invest easily. Regrettably, the average penetration of the Internet in Africa stands at 35%.

  • ICOs can Source Funding Globally

Since ICOs can welcome investors from any part of the world, they offer great advantage to startups from African countries. Startups no longer have to settle for low capital in their countries. Instead, they can set up mechanisms that allow investors from any part of the world to participate. This will increase funding for the best African startups and help them deliver the quality services their Whitepaper promised.

  • Growing Interest in the ICO Space

Many African countries are fast catching up with the rest of the world in terms of adopting the ICO space. Thousands of investors throughout the continent have already tasted the benefits of investing in budding cryptocurrencies such as ethereum. As adoption of the blockchain and ICO industry grow, African startups will see more people gain interest in their platforms. In a few years’ time, it will be possible for African startups to raise in excess of $50 million through ICO crowdsourcing.

  • Desire and ability to Support African Technologies

Africans have often shown willingness to support causes that affect their day to day lives. African startups that will develop solutions to African problems will have better chances to get funding online. This funding behavior has occurred before with startups such as Bitpesa (A Kenyan startups that offer bitcoin trading services), where investors contributed heavily in funding startups that promised to solve some common African problems in an efficient way.

  • Influence of African Public Figures

One of the driving forces of ICOs around the world is endorsements and backing by influential figures. Startups that have used celebrities to endorse their product have often gained significant attention. Startups that attracted the attention of major players in the industry also had better success. As more influential persons in Africa gain interest in the ICO space, startups will start getting endorsements and financial backing. Slowly, ICOs will turn out to be the best financial option for many African startups.

Conclusion

As ICOs continue to draw massive attention around the world due to their great potential, investors will increasingly concentrate on the best startups no matter where they are located. African startups that will provide great solutions to African or world problems will likely gain great attention from serious investors. For investors, however, the lack of ICO regulations in Africa makes it extremely important to conduct due diligence before you make an investment decision.

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This entry was posted on Monday, April 9th, 2018 at 5:41 pm and is filed under Uncategorized. You can follow any responses to this entry through the RSS 2.0 feed. Both comments and pings are currently closed.

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