Orange Digital Ventures launched a €50m African corporate venture fund to stay at the helm of Africa’s mobile revolution

Orange Digital Ventures launched a €50 million African corporate venture fund to stay at the helm of Africa’s mobile revolution

March 28, 2018 | Ecosystem Accelerator | Sub-Saharan Africa | Guest Blogger

Following our work on mobile operator-led corporate venture capital funds and the publication of our report, ‘Start-ups and Mobile in Emerging Markets: Insights from the GSMA Ecosystem Accelerator, Issue #2’, Grégoire de Padirac, Investment Manager, Orange Digital Ventures Africa, has guest-authored this post to share some details on the work done by Orange on this topic in the region. The views expressed do not necessarily reflect those of the GSMA. Photo credit: Orange Group.

“Africa is on the move”, said Barack Obama during his trip to Kenya in 2015, talking about the country of his ancestors. For some years now Africa has been becoming one of the hottest topics in the technology industry, especially mobile. There are no major tech events without its African special focus; Slush, VivaTechnology, SXSW, etc. This revolution has mobile technology as its driving force. The continent is becoming the new ‘wild west’ of mobile tech, attracting thousands of entrepreneurs and investors from around the world.

The presence of mobile phones has been growing for decades, yet the growth of venture capital (VC) on the continent is more recent and striking in the past few years. The Partech Africa team found that total funding of African tech ventures grew by 53 per cent as compared to 2016, with 124 startups raising over $560 million.

From APIs to mobile money

Walk in the streets of any given city in Africa, from Lilongwe to Lagos and it seems that everywhere, everybody is carrying one or two mobile phones. Actually, there were 445 million unique mobile subscribers in 2017, estimated to grow to 638 million in 2025 in Sub-Saharan Africa according to GSMA Intelligence. This makes Africa the world’s fastest growing region on mobile penetration.

Infrastructure – physical and operational – is a huge challenge across Africa and one of the major factors that elevates costs and impedes economic development. In 2007, the World Bank cited that the cost of transport in Africa is often higher than the value of the goods being transported. In every sector that lacks infrastructure, mobile technology is demonstrating use cases of leapfrogging the traditional modes of operations. In Senegal, Yenni offers a pre-paid card that is accepted at hospitals, health centres, and pharmacies to pay for medicine or urgent medical services. In Ghana, mobile money subscribers can access basic small credit via mobile money, without a bank account.

We are seeing innovations developed to meet the local needs with local solutions across every sector: finance, insurance, energy, education, agriculture, logistics, health care, etc. Mobile APIs were catalysts for the start of this revolution – USSD gives access to information via mobile connectivity without requiring an internet connection and SMS is still the only messaging solution that works on the huge majority of mobile phones (smartphone ownership is growing fast but still very low on a percentage basis). In Kenya, Eneza Education is providing education by SMS to out-of-school populations. In Nigeria, Safermom helps mothers monitor and track pregnancy, antenatal care, and baby development. In Senegal, mLouma provides local market prices. In Malawi, UNDP developed an SMS messaging system that provides targeted weather warnings to areas under threat, and it is now being scaled into a much larger government-level service as part of the M-Climes project.

Mobile money was the first solution to digitise payments in Africa, enabling new business models that have been seen elsewhere in the world but are time-consuming and resource-intensive in Africa, such as pay-as-you-go models. We have seen pay-as-you-go leverage mobile money in clean and affordable energy access, with companies such as mKopa for solar and PayGo for gas (Kenya) and Oolu Solar (Senegal). We have also seen business models created that curate relevant data for developing and delivering new financial products. These include Tala (providing credit scoring and improved credit access in Kenya) and Pride Microfinance, the largest MFI in Uganda that is partnering with a tech firm to develop a credit scoring mechanism, to lower the cost of reaching rural customers and drive scale. Mobile money also offers solutions to improve operations and flows of money; in the first year Cote d’Ivoire offered school registration fee payments via mobile money, over 90 per cent of the population used the service.

The critical position of the MNO

Most of these new African start-ups rely on access to mobile operator APIs. The African continent is showing its capacity to adopt new technologies faster than other continents when it helps to solve infrastructure and transparency issues. For instance, in Ghana, the government is working with the company Bitland to record land titles on an auditable ledger.

… But the traditional ‘gatekeeper’ role of the mobile operator is being challenged

The fundamental place of mobile technology and mobile connectivity places mobile operators in one of the most comfortable – and critical – positions to seize these opportunities; yet this position is not without some implications.

New disruptions are coming and mobile operators won’t remain in this comfortable gatekeeper position. Smartphones and better internet coverage from internet service providers will soon replace services based on GSM networks such as USSD and SMS. There is no doubt that this is where the market is going, the only question is how rapidly? Falling device prices are encouraging the rapid adoption of smartphones. The GSMA estimates that by 2020, there will be 540 million smartphones, a growth of 380 million from the end of 2015[1]. APIs aggregators like Africa’s Talking in Kenya provide better user experience for developers to connect directly to telco APIs and give access potentially at a multinational scale, dismantling the role of the mobile operators as the sole provider [and gatekeeper] of connectivity.

To face these disruptive technologies and new market entrants, mobile operators have different strategies available:

1) Block those actors by refusing to contract with them. This is a short-term strategy that won’t stop an overall industry wave of disruption. Also, this strategy could undermine their future business.

2) Compete, by launching their own copycat products and services. Mobile operators won’t be able to do everything and will need to choose their battles where they want to compete. Orange chose to focus on financial services as a major growth-driver based on Orange Money success.

3) Partner with those start-ups. To keep up with the accelerating pace of innovation, Mobile Operators will have to increasingly be more connected to the most promising start-ups on the continent and find ways to build sustainable win-win partnerships and business models and open their APIs.

Why Orange Group has launched open innovation programs across the MEA region

Today, the most impressive start-ups receive funding of millions and even tens of millions of US dollars. Compared alongside mobile operators, they actually have more resources and more agility to build first-class, highly adapted products as they focus their core business on these products.

To take part in this growth (and growing consumer impact), Orange initiated a range of open innovation programmes across the continent, among them:

Education: Sonatel Academy to train coders at Dakar in collaboration with Simplon (a leader in coder training based in Paris); Partnership with Ecole Polytechnique based in Paris and INP-HB based in Abidjan to train data scientists in Côte d’Ivoire.

Acceleration: Orange Fab in Middle East and Africa; Partnerships with local accelerators and incubators (CTIC in Senegal, Createam in Mali, Cipmen in Niger, etc.), Platform launch of Orange Developer and Bizao to connect developers with Orange API.

Investment: Corporate VC with the Orange Digital Ventures fund; Corporate Development for bigger strategic investments (for instance Jumia). Corporate venture capital is a powerful tool to scale businesses that have pan-African potential and leverage expertise and deep pockets of corporations.

… Why three years ago, Orange launched Orange Digital Venture (ODV), its global corporate venture fund, a €150 million fund to make minority stake investments into early stage start-ups

Corporate venture capital is a powerful tool to build sustainable ties with the most innovative start-ups, by which it can gain learning and a better understanding of the coming disruptions. It can also have a huge impact. Start-ups are facing a dearth of investment capital, especially across the continent outside of the three tech hubs (Nigeria, Kenya, South Africa) where investment funds are highly concentrated. Corporate VC can help meet the financial needs of start-ups outside these hubs and expand the benefits seen by minority shareholding.

Minority shareholding could be a first step for further collaborations; managers on the ground in different Orange telecom business locations are more open and confident to work with start-ups backed by the corporate venture arm of the group. A mobile operator such as Orange has resources and infrastructure to share and leverage to bring real ‘smart money’. Among them, Orange has a footprint of more than 900,000 points of sale across the continent, more than 3,000 researchers, and presence in 21 countries in Africa with 120 million subscribers and more than 30 million active Orange Money users.

In addition, minority shareholding protects the independence of the start-up, maintaining its independence from a big corporate brand while providing a committed association for fruitful strategic partnerships.

Three years later, ODV launches Orange Digital Ventures Africa, a €50 million fund based in Africa

Africa had been central to Orange Digital Ventures’ (ODVA) investment strategy form the beginning, making investments in Afrimarket, Afrostream, Famoco, and PayJoys with the first fund. Fast forward three years, it became obvious that a dedicated program with a team based on the ground was essential to better grasp the African opportunities and to better serve the market. Six months ago, a €50 million funded Orange Digital Ventures Africa (ODVA) was born with a base in Dakar, Senegal.

ODVA invests up to €3 million for a first round investment. The fund targets start-ups from every sector, leveraging telco capabilities (APIs, Orange Money, etc.) or addressing core business focuses such as connectivity, financial services, etc. The start-up should be near to achieving a market leadership position in its first country of operation, and should be preparing to start its expansion to a second market. The Orange assets described above can be leveraged to support this expansion. ODVA is not limited to the Orange Group countries of operation, yet Orange Group is very strong in the francophone Africa region which is underserved by investment capital and ODVA sees a great and under-exploited opportunity in these markets.

Organised as VC, ODVA is focused on positive returns. Governance is structured to enable the deal execution with normal VC standards or earning return on investment.  An enormous benefit that ODV brings is that as a CVC, it brings all the agility and independence of a VC, and all the connections and doors to knock on of a huge multinational corporation.

One of the first missions of the investment team is to assess top collaboration potential and business potential and open all necessary doors; this can save the entrepreneur a lot of time in scaling and going to market and free up much-needed resources in their start-up.

To conclude, ODV is a long term investor, ready to follow-on. The fund has been designed as an evergreen fund, meaning it reinvests its gains and has no end of fund life. This design should enable more resilience and patience capital for entrepreneurs.

A powerful pan-African financing tool

Evidently, Orange Group thinks that Corporate Venture is a powerful tool to support ecosystems, have impact, and build the connections with the young, innovative entrepreneurs who are shaping the future of this 54-countries-strong continent. Most of the innovation is coming from young entrepreneurs, and most of these Africans, expats, or repats are tackling African problems with authentically digital and authentically African solutions. They think first with pan-African ambitions. This vibrant new generation is incredible, fully committed to making the difference in their African history. This narrative is not a good story or new hype that the tech industry often relishes. This is a reality that I am lucky and honoured to directly experience on the ground every day.

Meet the team: http://digitalventures.orange.com/ 

[1] https://www.gsma.com/mobileeconomy/archive/GSMA_ME_SubSaharanAfrica_2015.pdf

The Ecosystem Accelerator programme is supported by the UK Department for International Development (DFID), the Australian Government, the GSMA and its members.

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