As YC withdraws from Africa, alumni launch accelerators to fill the void

Influential accelerator Y Combinator made waves in Africa in 2020 when it shed its light on the market and began accepting startups from the region into its cohorts. The move was huge: In this nascent market, startups are especially reliant on programs like these to find their niche and connect with investors, and YC is the platinum standard for that process.

Fast forward to today, however, and that attention has started to seem a little fickle. These days YC is chasing big problems in areas like manufacturing, defense and climate, and has quietly reduced its focus on developing markets. However, in Africa some are using this as an opportunity. Local accelerators, backed by African YC alumni no less, are emerging to fill the void.

The new wave of accelerators arrives at the same time that the model favored by older local startup accelerators is changing. Co-creation HUB (CcHub), Flat6Labs, Baobab Network and MEST Africa have been driving companies for years alongside global accelerators, providing a pipeline of startups for larger investors, including foreign ones, during the startup boom. Now that foreign investors are turning away, local players have been forced to rethink how to leverage and cultivate startups on the continent.

“My view is that instead of overshadowing American companies (who don’t care about Africa anyway and were just being opportunistic), the community needs to come together to fund projects under $1 million programmatically, just like Techstars, YC and 500 startups. “I did all those years,” wrote Iyinoluwa Aboyeji, co-founder of YC-backed Flutterwave, on LinkedIn recently.

Accelerate Africalaunched by Aboyeji, is one such initiative. With 20 startups in its portfolio, the year-old accelerator emerged from an internal program at Future Africa, Aboyeji’s venture capital firm (where another Accelerate Africa co-founder, Mia von Koschitzky-KimaniHe is also a partner.

Aboyeji’s ambition is to become “The YC of Africa”, simply described, if not simply executed.

Indeed, African startups are currently at a crossroads. Successful African founders who have come through YC are unequivocal about the value of being selected for programs with an international profile.

“Everyone who knows me has heard me say, ‘The YC of Africa is the YC,'” Aboyeji, who also founded SoftBank-backed Andela, told TechCrunch in a recent interview. “That’s my response every time someone mentions joining an accelerator. I always tell them, ‘YC is the standard and let me help you prepare your proposal so you can apply there.’”

However, the reality is that no African startup made it to Y Combinator’s latest summer batch; and the previous three batches had only three startups each from the mainland. Compare this to previous years, when the Summer 2021 batch had 10 African startups, Winter 2022 had 23, and Summer 2022 featured 8 (and the fully remote COVID-19 years had even more).

YC’s change in tone isn’t just because what it’s looking for has changed: it’s also reduced the size of its post-pandemic cohorts since 2022 (when at its peak it had 400 startups in a batch), and has gone back to -person, international founders being in turn more susceptible to stricter US visa policies. Startups in Latin America and India We’ve also seen big drops in acceptances.

“YC has and will continue to fund startups and founders from around the world, including Africa. During COVID batches, we were funding global companies via Zoom,” a YC spokesperson told TechCrunch. “Today, we require all YC startups to move to San Francisco, which has naturally changed the makeup of startups applying to YC. “We remain interested in speaking to and receiving requests from the best startups around the world.”

Prioritize local capital, partners and public markets

Foreign funding, which includes venture capital and development finance institutions, has typically accounted for around 77% of all venture funding in Africa over the past decade, according to the African Private Equity Associationso the decline in foreign interest has had a direct impact on the amount invested in Africa. In the first half of 2024, he said, the value of initial investments decreased by a staggering 65% compared to the previous year.

Aboyeji believes African startups have two paths to follow: continue to rely on external funding sources (and hope they return); or take bold steps to build a local capital base.

“It starts with a portfolio of exceptional early-stage startups that the ecosystem and larger companies have access to, and then builds from there. And I can say this with confidence because I saw what happened when YC was being built,” Aboyeji said, referring to his experience watching Erik Migicovsky, a friend and founder of Beeper and Peeble, participate in the early days of the accelerator. “I watched (YC) build, grow and become what it is today. And I think to myself that we might do it here.”

There are some corporate venture capitalists like Orange Ventures, linked to the French telecommunications company, but local corporations have yet to collectively embrace this venture asset class.

Accelerate Africa’s goal is to forge partnerships between its portfolio companies and local banks, telecommunications companies and others, not only through direct equity investments, but also through mentorship, resources and services. His goal is for his portfolio companies to reach $1 million in revenue.

“We are working closely with these companies to create exit paths and help our companies solve problems unique to their markets rather than copying the Silicon Valley funding model,” Aboyeji said.

There are large Africa-focused funds such as Partech Africa, Norrsken22, Algebra Ventures and Al Mada. Together, they have raised almost $1 billion to invest on the continent, but have yet to deploy widely. Building stronger early-stage companies will bring more of them to the table with these larger investors.

There is still a question of exits. Tech listings in local African markets remain rare, with only two startups, Flutterwave and Interswitch, currently raising the idea of ​​IPOs.

There is also AI in Africa.

In addition to investor appetite, startups in Africa face a different problem: they have fallen out of fashion.

Generative AI is currently the hottest trend in technology, but Africa and other countries emerging markets They have so far lagged behind their Western counterparts in North America and Europe when it comes to creating AI startups. Tellingly, more than half of the 92 African companies that have passed through YC focused on fintech: the main sector in YC before the rise of AI.

Only one of Accelerate Africa’s portfolio companies, CDIAL.AI, is creating conversational AI that understands and speaks African languages ​​fluently. The startup represents one of the few efforts on the continent and underrepresented communities join the global generative AI discourse.

There is now an accelerator in Nigeria that aims to reverse that trend.

GoTime AIbased in Lagos, is aimed at founders developing artificial intelligence products in Africa. Using Nigeria as a launchpad, it has five startups in its cohort.

GoTime AI is a creation of Advocate Agbolaanother co-founder and CEO of Flutterwave, through his studio and early-stage venture capital firm Resilience17 (R17).

“AI is the most impactful global megatrend to emerge in the last 20 years from mobile technology.” Hasan’s voicegeneral partner of R17, told TechCrunch in an interview. “It’s still early, so we want to move this engine forward. “It’s not like copy-pasting from YC, but just a recognition that it’s not just Silicon Valley that’s excited about AI.”

This highlights an interesting change. In the past, leading startups in emerging markets have found success through cloning, adapting Silicon Valley models to meet regional needs in sectors such as fintech, logistics and health technology. AI, on the other hand, is undeniably a global game, much like SaaS: a challenge but also an opportunity.

Luongo, who leads GoTime AI efforts, believes Africa has an opportunity to create AI products at a lower cost than in Western markets, which could make AI startups here more attractive to buyers, especially because they have lower ratings.

“That is our bet: that they willpower appreciate. We are betting that the talent here is on par or even better than that of other countries and at the same time benefits from a lower operating cost,” argued Luongo. “Also, companies here probably won’t have high valuations, so global companies could probably acquire them for less but still get great talent and their products.”

Fixing the pipeline: verification or no verification?

Unlike Accelerate Africa, GoTime AI does not aim to be the next YC on the continent. Instead, the accelerator is positioning itself as a springboard for AI startups to strengthen their position in accessing opportunities from early-stage investors.

The accelerator plans to expand its program in Africa and scale to accept 15 to 20 startups per cohort, depending on the success of its inaugural cohort in Nigeria.

AI applications for legal, compliance and sales/customer relationship management (trends also seen in recent YC batches) feature in the GoTime AI and Accelerate Africa portfolios. Both accelerators start with two cohorts per year, although their deal structures differ significantly.

GoTime AI invests up to $200,000 in exchange for 8% equity, structured as $25,000 upfront, $75,000 on Demo Day, and $100,000 on the startup’s first fundraising. The accelerator also offers its startups mentorship, workspaces, and access to APIs and cloud computing credits to train AI models and test products.

Accelerate Africa, which currently operates with a grant of less than $1 million, does not provide seed funding or acquire capital upon admission.

“The usefulness of these first two cohorts is the narrative, the halo effect, the community, not the money. “Once the money comes, we will probably change the model,” he said. black eraserpartner at Accelerate Africa, to TechCrunch about the accelerator’s decision not to provide funding to its startups. Instead, its sister fund, Future Africa, can co-invest between $250,000 and $500,000 after the program through its standard investment process.

Despite not offering upfront funding, Accelerate Africa boasts a 1.4% take-up rate and claims to have helped startups in its first cohort raise over $5 million. “We have a quality bar; We don’t want to build an accelerator that is no better than YC in Africa,” Udezue said.

Personal opinion:

“Y Combinator’s withdrawal from Africa has a significant impact on supporting entrepreneurship in the region, but the launch of new accelerators led by alumni of the program shows the proactive spirit and determination of the community. These initiatives may be better able to understand local needs and requirements and provide specialized support to startups. If these accelerators can attract funding and develop their networks, they could play a major role in building a strong entrepreneurial ecosystem in Africa, despite the challenges and risks they face.”