In Early October 2016, Safaricom announced the third investment of its corporate venture capital fund Spark. After Sendy and mSurvey, the Kenyan mobile operator invested in local ed-tech Eneza Education. On a different scale and in a different geography but with the same type of investment vehicle, a few weeks earlier Japanese mobile operator Softbank had led a round of $750 million investment into Southeast Asian ride-hailing app Grab.
As activity around mobile operator corporate venture capital (CVC) is ramping up in emerging markets, the GSMA Ecosystem Accelerator programme together with advisory and investment company Delta Partners, have co-authored a report which examines the motivations for mobile operators to pursue start-up investments in emerging markets, the merits of CVC for mobile operators and the benefits this can bring to start-ups and local ecosystems.
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As tech investment is still nascent in emerging markets, local start-ups often find themselves with scarce funding options. For example, in 2015, the amount of tech venture capital investments across all Africa was around USD 188 million compared to over USD 34 billion in California alone. In this scenario, mobile operators can clearly be one of the best sources of the capital injection start-ups critically need. Beyond the direct financial impact, financial backing from mobile operators can lend a start-up substantial credibility, not only with other investors (financial reassurance), but also with governments (smooth legislation/regulatory frameworks) since mobile operators in emerging markets are often one of the largest private sector employers and taxpayers.
“The new digital era has raised the bar and it is vital that mobile operators in emerging markets take heed of the opportunities represented by start-ups to avoid being left behind,” commented Nuno Goncalves Pedro, Partner at Delta Partners who co-authored the report.
“We believe that mobile operators in emerging markets can and should be more active in their support of the start-up ecosystem, in particular those start-ups that are local to them. To play more actively in the investment arena, not only creates commercial benefits for those involved, but also, from a socio-economic perspective, it can have a number of positive outcomes such as increasing employment, boosting the quality of the local labour force and ultimately fuelling local ecosystems.” he continued.
Moreover, by leveraging their assets and experience, mobile operators can in fact support start-ups overcome some of the key challenges they face in their day-to-day operations in emerging markets: missing market data, lack of trust or brand visibility, limited availability of customer information, partial reach of distribution infrastructure, smaller proportion of adults using traditional financial services, among others.
The report hence concludes with a recommendation to mobile operators in emerging markets to further explore the opportunity of setting up CVC arms and invest in local start-ups as a way to play a stronger role in the ecosystem.