Nchaupe Khaole, Chief Investment Officer, Mineworkers Investment Company.
Technology enabled businesses and the solutions they develop represent exciting growth opportunities for investors. In South Africa technology companies and startups alone raised $168.6 million in funding in 2021.
While last year was more difficult for local companies, with both the number of startups receiving funding and the total funding received down according to Disrupt Africa’s 2022 African TechStartups Funding Report, it was a big year for startups across the continent, with more than 600 African startups raising a combined $3.3 billion throughout 2022, a year-on-year jump of 55.1%
A key reason these businesses are so attractive to investors is the fact that they use innovative technological solutions like artificial intelligence, blockchain, and the Internet of Things to create new products and services that have the potential to revolutionise entire industries.
In South Africa, many of these companies have the added advantage of addressing the socio-economic challenges faced by many. Often, they are at the forefront of technological development and driving progress in fields like healthcare, finance, education, and transportation. Investing in them not only provides potentially lucrative opportunities but also supports the advancement of technology and the broader economy.
Access to affordable and technology-driven education is growing exponentially in South Africa and across the continent. In Edtech – personalised learning, gamification, continued growth of online learning, and augmented and virtual reality are already driving growth and evolution.
With more people working and learning from home, there is a growing demand for online education and training platforms. Companies that offer innovative online learning solutions or technologies that can enhance the traditional classroom experience are increasingly more attractive for investors.
Similar trends are driving the growth of cybersecurity. There is an increasing need for cybersecurity solutions such as cloud-based security platforms or AI-powered threat detection systems and the companies that provide them.
In healthtech telemedicine will grow exponentially, and the increased use of out of facility devices and wearables will allow for increased remote monitoring, supported by AI in areas such as diagnostics and remote health management. Healthtech, at least locally, is being driven by a consistent need to drive costs down, whereas on the rest of the continent (and to some extent locally), access to brick and mortar health services remains an issue.
Similarly, fintech continues to be a key investment driver due to the still substantial constraints around access to affordable banking across the continent. Here, we will see current trends accelerating including digital payments, AI, and machine learning, blockchain and DLT solutions. Financial inclusion solutions could also provide attractive investment opportunities locally.
With growing concerns about climate change and environmental sustainability, there is an increasing demand for technologies that can reduce greenhouse gas emissions, promote renewable energy, and improve resource efficiency.
Climatetech companies that offer clean energy solutions, sustainable transportation technologies, or other innovations that can help mitigate the effects of climate change could become attractive investments in the long-term.
South Africa’s current energy crisis necessitates the leveraging of solutions which not only offer short-term relief to the disruptions brought on by loadshedding and an unstable grid but long-term interventions which make the economy less susceptible to manmade disruptions (e.g. sabotage of power stations for profit from emergency procurement and manifest corruption which redirects state resources for personal gain) and leverage technological advancements aimed at creating sustainable national power grids.
When considering investing in technology-enabled businesses, investors should look for certain crucial features including a market for the product or solution, scalability, and either a new, innovative approach to solving a real problem or replication of an existing solution that has not yet been tried in a local market.
Despite the potential rewards, investing in technology-enabled businesses also comes with risks. Many start-ups fail to make it past the initial stages of development, and even those that do succeed often face intense competition and rapidly changing market conditions. Investors must be willing to take on these risks and be prepared to ride out the difficulties of the market.
From a global point of view, funding for startups has dried up significantly due to the end of the high liquidity period and inflationary pressures globally which existed pre-2022 – placing potential pressure on exiting such investments. Unrealistic growth projections from the founders in terms of the prospects of the business and the usual heavy-touch time and resources required to manage early-stage businesses are also risks to consider.
Despite these risks, emerging markets offer potential for traction, given the lack of access and the socio-economic dynamics for sectors like healthtech and fintech. Investors can position themselves to capitalise on this trend and potentially earn significant returns in the years to come.
MIC’s investing philosophy revolves around embracing technology-enabled businesses. Through our early-stage investment vehicle, MIC Khulisani Ventures, and our impact investing arm we actively seek partnerships with startups that leverage technology to drive positive change.
In the edutech space, we have invested in Limulab, an online platform that facilitates the learning of indigenous languages for children. Additionally, we support Kelo, Africa’s first all-in-one interactive digital library and bookstore, which grants access to a vast collection of African and international titles in both print and digital formats.
In the healthtech sector, we have backed Quro Medical, which provides a digitally driven Hospital at Home solution, allowing medical professionals to treat patients remotely, and our fintech investee Livestock Wealth enables crowd funding for farming assets such as cows and macadamia nut trees, a service they call Crowdfarming.
While two of our technology-based investments Rentoza, a subscription-based platform for consumer goods, and TooMuchWifi, an ISP focused on connecting previously disadvantaged communities, do not necessarily address social economic challenges they function as a bridge to access to the digital economy for those members of the population who haven’t been absorbed into it.
The sectors I have highlighted offer potential for growth due to increasing demand for digital health solutions, online education and training platforms, digital payment solutions, clean energy solutions, sustainable transportation technologies, and advanced cybersecurity technologies.
Ultimately, the best investment opportunities will depend on several factors, including market trends, technological advancements, and changing consumer preferences. Technology-enabled businesses represent a promising growth opportunity for investors who are willing to take on the risks.