Africa Proptech - Funding and Opportunities
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Africa has a hugely underserved Proptech market driven by a population of 1.2 Bn that is expected to double by 2050. Market dynamics dictate we will have to serve these markets at a very low cost to serve and at a high scale which means effective solutions are likely to be technology-led. On a recent Africa Proptech Forum panel - Boosting Funding & Reviewing Proptech Strategies in Africa - we discussed funding and the opportunity for proptech in Africa. In this article, I also talk about some of the factors that impact the Proptech opportunity including the highly mobile population, the pace of urbanisation and digitisation, the variability of maturity in the various markets, access to data and the complementary sectors that could help with attracting capital and funding.
Social Impact
Land and access to property as an asset class for the broader population is one of the main foundations for creating wealth. The history of the continent means that it is a highly emotive issue and is still a problem most countries are grappling to solve. This issue compounds when combined with a highly mobile population. The capitalist and social impact Proptech markets are directly linked and solving one area will usually impact the other.
The Africa Opportunity
In Africa the population growth with the youngest population in the world that will move to urban centres to seek employment and a largely non-urban population that will be over 50% urbanised by 2050 will place enormous pressure on existing infrastructure and will mean the Proptech sector is set to boom. Everyone will need somewhere to live, eat, work and shop. Urbanisation increases quality of life, access to resources and drives digital inclusion so serving this market will have a significant social impact.
Market Maturity
Over the last few years, we have built the Sw7 Digital Market Maps, where we have researched the size, shape, and maturity of the African digital economies showing that our digital markets vary enormously in Africa. We have some mature and structured digital economies with good commercialisation such as South Africa, Kenya, and Ghana. We have booming unstructured digital economies such as Nigeria and Egypt and a hugely unserved portion of the market. The behaviours and opportunities in each market will vary based on the digital market maturity and the community being served.
Pace of Digitisation
Market sectors embrace change at the pace they are used to moving at and the property sector has historically been a slow-moving sector. It is asset-intensive and sales cycles to plan, build, sell, let and service the market are measured in months and years, rather than days or weeks. This means conversations have to be led by business fundamentals rather than based on vision or strategy. The market will digitise based on the business case and demonstrated returns which will mean the budget will tend to be operational rather than strategic. Proptech businesses will need to make a significant investment to ensure the platform works before approaching the customer. Slow-moving B2B business markets with an operational budget have low appetite for risk and low tolerance for weak code. An MVP will usually mean a proven business case and a working and stable product that is 85% complete.
Data as a Resource
Data is the new gold. There is a huge opportunity in property-driven data as Africa has traditionally been data-poor. The historical lack of data combined with the slow pace of change means that for the Proptech sector we have to package the data, create the business case and then show how to drive the outcome. Data will only initially have value if a lot of work is done cleaning, structuring, and preparing it, and creating the processes for it to be easily consumed. In more mature digital markets data can be seen as an asset in its own right.
Attracting Capital
The nature of the funding means there are always more people seeking funding than there is funding available. The Proptech sector is generally slower-moving so, unless we can figure out scale, it is unlikely to attract high growth investment. Proptech does touch on a lot of other sectors, Fintech is exploding, as is Martech (Marketing tech) so there are some exciting opportunities where Proptech touches these high growth markets and this is where the funding is going. Investment is flowing to the other slower moving Proptech sectors where there is a proptech investment mandate from the investor.
Access to Funding
We are still seeing a prevalence of activity from the established VC players, they tend to invest in post-revenue businesses with paying customers and typically make larger investments in three to five businesses a year. This investment market is growing quickly and we are seeing new funds launching over the last 18 months. What is exciting is that new funds are emerging that are able to write more cheques, more quickly at a smaller amount of between US$25K to US$200K. These new funds will lay the foundation for growth and create deal flow for the traditional VC funds. Less than 1% of businesses are funded so the focus on funding must be placed in this context. VC funds are a key part of the ecosystem but we will need a lot of them to have any kind of impact. They are not an instrument that is likely to drive systemic lift. Smaller investments made faster creates access to investment opportunities in all regions, not just the normal investment hubs.
What Funders Look For
The three things funders will look for are evidence-based investments, proof of a clear path to profit and a vision of scale. Evidence-based means having the data to show the size of the opportunity and proof points that the offering serves a proven need and offers value at the right price point. The path to profit takes most businesses down the B2B path, the B2C markets are high volume and difficult or expensive to access at scale. Proptech, by its very nature, is local first. This means there is a local market to serve but also means that scaling to other markets can be slow. The investor will need the data that shows the path to profit, how the business will make money, break-even, and then scale.
If you are starting out as a Proptech entrepreneur, expect to bootstrap until the business is trading. It will be a hard slog getting your product ready for the market with little support but the social impact of getting Proptech working will be enormous. Funding will flow faster to connected sectors such as fintech and martech where there are high growth opportunities so this is a good place to focus your energy.