When startups should expand to Africa

The Business Accelerator Chapter54 is currently looking for scale-ups that want to tap into an African market. It can also be worthwhile for very young start-ups to go to Africa, as the example of Ecoligo shows.

There are not too many founders in Germany who dare to take the step onto the African continent. The situation is too different in the individual countries and it is too difficult for many to accurately assess the potential and hurdles.

Martin Baart is someone who has done it - twice, in fact: the first time he failed, but now he has succeeded in his second attempt with his start-up Ecoligo. His story makes it clear what can go wrong when founders misjudge the circumstances and it shows the potential that lies dormant for young companies in African countries if they know their way around.

It is now a good ten years since Baart made his first attempt. As CTO of the start-up One Shore Energy, which no longer exists today, he was tasked with selling solar-diesel hybrid systems to companies in Kenya, Tanzania and Uganda. Local electricity is expensive, so if you can generate it yourself, you save a lot of money and are safe from outages.

This is why the first attempt to go to Africa failed

As recently as 2019, there were still some African countries where the population's access to electricity was disappearing. According to the International Energy Agency (IEA), only 8.7 percent of the population in the Democratic Republic of the Congo had access to electricity in 2019; more recent figures are not yet available. And even in the countries Baart was targeting at the time, access to electricity was anything but secure by 2019: in Kenya, around 84.5 percent of the population had access, in Tanzania it was 39.5 percent and in Uganda 28.9 percent. Supplying companies with green electricity should therefore actually be a goldmine.

"Unfortunately, we failed back then for two reasons," says Baart today, looking back on his first attempt. "Firstly, we had the typical German engineering mindset of delivering the best of the best. That made our systems unnecessarily expensive." The second reason was the lack of customer presence. "I traveled a lot back then, but it makes a big difference if you are permanently on site," says Baart.

The founder did better the second time around

In his second attempt, this time with his own start-up Ecoligo, Baart therefore did a few things differently from the outset. Again, it's about power generation. After all, as the IEA data shows, the demand is there. His start-up helps to realize solar projects for companies in emerging countries. He also relies on crowd investing in Germany for this purpose. Private investors can participate in the projects via the company's website. If everything goes well, they receive around 5.5 percent interest on their investment. However, if things don't go well, as is the case with crowdinvesting, the money is completely gone.

Baart did not want to repeat the mistake of the first time, which meant moving to Ghana. It was about understanding the business culture there. "It may be a bit of a cliché, but there is a slightly different relationship to time there, for example," he says. Many people there don't have such tight schedules, and traffic jams or a lack of public transport also make punctuality difficult. On the other hand, the start-up community in many countries is extremely helpful. "It's no problem at all to simply ask the person sitting next to you if you're in a large co-working space, for example," says Baart. They can also put you in touch with a local lawyer, for example, who can help you register your company in the local register. "Of course, you can also use a law firm in Germany for this, but then there's often an extra zero at the end of the bill," says Baart.

With Ecoligo, Baart has long since left this phase behind him. He is now active in several African countries. To date, his start-up says it has fully installed and commissioned more than 58 projects with a total capacity of 19.2 megawatts. According to the start-up, a further 71 projects with a capacity of 41.7 megawatts have already been signed and are in the planning stage. Baart's idea has now also convinced an investor. The social impact investor Oikocredit has just invested five million euros.

Baart can therefore now give a few tips. For example, that the commercial register in many African countries is similar to that in Germany. This also applies to the documents required. According to Baart, anyone who wants to set up a company from Germany has to go to the relevant embassy and have the numerous papers legalized, and copies of the shareholders' passports are also required.

And then there is the question of how welcome European founders are in Germany. According to Baart, this is now very different. In Kenya, for example, the authorities are open and friendly towards founders from Europe. There, a company can still be founded with around 1,000 euros in share capital and managed from abroad. Ghana, on the other hand, has become much more restrictive over the past five years. There is a clear sense that the country primarily wants to promote young domestic companies, says Baart. There, foreign founders tend to need share capital of one million euros and have to sell 15 percent of their shares to domestic shareholders within five years. The situation is similar in South Africa as far as shareholdings are concerned.

A business accelerator wants to help

To prevent other young entrepreneurs from Europe from failing right from the start when they want to expand into Africa, venture capital provider Partech has launched a business accelerator, Chapter54. Chapter54 is aimed at scale-ups that are already active in another country in addition to their own in Europe. "We want to see that a company has already tested the internationalization of its business model," says Vincent Previ, who heads Chapter54. So far, only around 14 percent of European scale-ups have exploited the continent's potential.

The accelerator is supported by the German development bank KFW and is intended to promote growth and job creation in Africa on behalf of the German Federal Ministry for Economic Cooperation and Development (BMZ). Chapter54 also works with local mentors for the program. The program runs for up to eight months and is not limited to a specific African country. "There are currently four countries in Africa that clearly beat the others in terms of attractiveness," says Previ. For him, these are Egypt, South Africa, Kenya and Nigeria.

But there is also great potential in other African countries, according to Previ. The British healthtech Babylon, which has already achieved unicorn status, operates exclusively in Rwanda. Ghana could also be worthwhile. "Gaining a foothold in Africa is not easy, there is definitely a risk," says Previ. "In my opinion, it's all about having the right attitude; founders have to make it clear that they really want to enter this market." Without at least a temporary move like Martin Baart's, it is likely to be difficult.