How grant funding bridges the pre-seed funding gap for startups
Zinhle Mncube
From the 4th to 9th November 2024, the 22 On Sloane Cape Town Hub came alive with energy, innovation, and collaboration as we hosted our first major ecosystem activity, The Google Startup Bootcamp. This milestone not only marked the debut of our facility in the heart of Green Point but also underscored our commitment to nurturing Africa’s dynamic startup ecosystem.
The Google Startup Bootcamp is part of the Google for Startups Black Founders Fund initiative, which has pledged over $30 million (R545m) in equity-free funding to empower Black-led startups across the globe. For one week, participants engaged in transformative workshops, one-on-one mentorship sessions, and invaluable networking opportunities. It wasn’t just about learning, it was about building relationships, refining ideas and laying a stronger foundation for their ventures.
This programme reflects Google’s broader vision for Africa. Through initiatives like the Google for Startups Accelerator Africa, the Google for Startups Fund Africa, and the Google Developers Space, Google has invested resources, mentorship, and funding into the continent’s startups.
To date, more than 80 startups have participated in the Google for Startups Accelerator Africa, with over $10m invested through the Google for Startups Fund Africa, driving tangible progress across the continent.
Among the startups selected for the 2024 Google for Startups Accelerator Africa Black Founders Programme were Mapha Logistics, which empowers township, peri-urban, and rural merchants with digital tools to streamline their operations; Breaze Delivery, an on-demand delivery platform connecting businesses with a network of drivers; and Vuleka, an e-commerce and fintech platform that links informal township businesses with customers through both online and offline channels.
Grant funding in the tech entrepreneurship ecosystem can be a vital source of capital during the formative years of a startup. While pre-seed and seed stage deals make up a significant proportion of the number of deals, according to a number of Disrupt Africa reports, pre-seed and seed round investments make up less than 20% of total funding and in other estimates, funding towards these early-stage rounds hovers around 15%. This is where grant funding can contribute.
Pre-seed investments are crucial for founders to validate their ideas, move towards formalisation and start gaining meaningful traction. Pre-seed investment encourages the building of an ecosystem from its roots, which, along with non-financial support, aids in the development of a robust pipeline of startups. We will detail two areas that grant funding can assist early-stage founders.
Early-stage startups that want to develop innovative solutions oftentimes are faced with a chicken-and-egg situation: they need funds to develop and validate their ideas. Funders require a proven solution in order to disburse their funds. This creates a clear funding gap which can be met by grant funding. An example of a such a grant is the Catalyst Fund which provides grants to help startups build and refine their products while providing venture building support. Another example of a grant is the Schmidt Futures’ Innovation Grants Programme which highly promising ideas that leverage technology to solve societal challenges.
Once a founder has developed their minimum viable product, they would need to go to market and test out the functionality and reception of the MVP from its intended audiences. In certain instances, resources are required to run surveys, run focus groups, conducting experiments and running pilot tests.
While there are not a lot of financiers who would be interested in supporting proof of market exercises, Grant funding has the ability of filling this need. The GSMA’s Innovation Fund, which supports mobile tech startups testing and deploying MVPs that are addressing societal challenges.
The fund grants of up to $350 000 to these startups. There are a number of examples of beneficiaries who have been recipients of the GSMA’s Innovation Fund. This includes Aquarech in Kenya, which uses IoT to improve aquaculture, and Crop2Cash in Nigeria, which offers climate-smart farming tools. Through the fund, these initiatives helped in validating their models, improve product design, and enabling them to create sustainable impact in underserved communities
Grant funding has an ability to assist in de-risking startups and crowd in more investments into startups by giving them the runway to build with impact, test for market suitability and develop commercially sound business cases. This can be achieved without the need to dilute their shareholding and muddying their cap table so early.
Programmes like Google for Startups Black Founders Fund are examples of necessary initiatives that can aid in advancing early-stage startups progress in the continent.
Zinhle Mncube is the Head: Business and Partnerships at 22 On Sloane.