The 5 Business Models of African Tech Hubs
By: Leah Ngari
Entrepreneurs in Africa often struggle to find capital or source expertise required to develop their idea into a thriving business. Tech hubs seek to fix these issues by providing co-working spaces, accelerator programs, and mentorship opportunities. As a result, tech-based startups can get the funding, training, and connections they need to transition from concept to implementation. Currently, over 600 tech hubs currently operate across Africa, fostering flourishing communities and robust networks that allow entrepreneurs to realize their vision and propel their business to the next level.
Why are Tech Hubs Important?
Tech hubs can help African entrepreneurs overcome the specific challenges they face in establishing successful tech companies on the continent. Africa’s connectivity gap can frustrate many innovators who rely on a stable internet connection for their work. The shortage of seed-stage funding can make it difficult for new founders to make the investments necessary to get their company off the ground. Lastly, the digital skill gap on the continent can inhibit innovators from sourcing the expertise needed to build a winning team.
The Five Different Business Models for Tech Hubs
There are many different types of tech hubs on the continent. Some hubs, such as Nigeria’s CcHub, focus on the local startup ecosystem, contributing to the tech industry’s growth in their country of operation. Other hubs, like pan-African MEST, consist of a network of hubs that facilitate communication and collaboration across the continent. According to the International Trade Center‘s report Supporting Startups: Tech Hubs in Africa, these are the five business models for tech hubs on the continent.
1) The Grantee
Tech hubs that intentionally choose to work with public organizations, foundations, and corporate social responsibility (CSR) departments of large multinational companies fall into the “grantee” model. Grantee tech hubs generally offer their services free of charge. They may provide mentoring, business connections, specialized training, networking opportunities, media attention, access to markets and capital, and technical tools and resources.
2) The Networker
Networker tech hubs strive to create an ecosystem that gives entrepreneurs access to the network they need to grow their company. These hubs generally give their entrepreneurs access to a physical co-working space that enables connections to develop organically. Successful networker hubs manage to build an ecosystem of freelance talent, peer entrepreneurs, companies, investors, and other business development services.
3) The Consultant
Most tech hubs interviewed for the report fell into this category. Tech hubs operating on the consultant model try to secure multiple revenue streams by offering their consulting services to public and private organizations. Consultant tech hubs aim to become profitable as quickly as possible while supporting entrepreneurs at little to no cost. These consulting services can be in the form of
- Providing digital solutions services
- Granting access to data for government and development organizations
- Giving training sessions on innovations
- Helping large corporations set up their startup accelerators
- Advising organizations, foundations, and multinational companies’ CSR programs on collaborating with entrepreneurs and startups to create jobs, foster inclusiveness, etc
4) The Agent
Agent tech hubs are usually acceleration-oriented. They focus on startups that are ready for funding by connecting them with investors. These hubs seek to generate revenue from exits, success fees, and fund management fees. Unfortunately, this model is challenging to develop in immature entrepreneurial ecosystems. As a result, the only surveyed hubs to generate revenue from exits were located in Ghana, Kenya, and Nigeria, which are all classified as mature ecosystems.
5) The Builder
Unlike other incubators or VCs, the builder tech hubs’ main goal is to build startups from the ground up. Builder tech hubs function as startup studios that aim to generate revenue by creating multiple successful startups. They have the infrastructure necessary to support emerging startups by making available the technical tools, management, and multi-disciplinary team necessary to build a business. Instead of accepting applications from pre-existing companies or innovative entrepreneurs, these hubs supply business ideas and attract high-skilled, experienced people eager to implement them.
According to the report, the consultant model and the builder model are the most financially viable, followed by the agent model, the grantee, and finally, the networker.
The Future of Tech Hubs in Africa
In recent years, tech hubs have become influential startup creators and tech community builders in Africa, contributing to the startup ecosystem’s growth on the continent. To keep playing this role, tech hubs must also thrive financially. The five business models listed above can help investors looking to fund the next big African accelerator choose a business model that can realize their vision while achieving financial sustainability.