"From Obstacles to Opportunities" is written by Moses Waweru, Villgro Africa Senior Program Manager for his Dream VC capstone project.
Introduction
While building a successful startup anywhere in the world is difficult, launching an African healthcare startup is not for the faint of heart. Building startups in Africa can be exceptionally challenging given localised issues such as limited access to funding, infrastructure gaps, and talent availability. However, the potential for positive impact is immense. As they work to solve contextual challenges, African ventures are not only meeting local needs but also contributing to global advancements in healthcare.
Drawing upon insights gleaned from interviews with East African entrepreneurs and investors, this paper explores key lessons learned and essential considerations for those embarking on their own healthcare ventures within the region. It delves into the challenges and opportunities within this ecosystem, proposing recommendations for various stakeholders to drive positive change and unlock the full potential of African health startups.
Context
Africa accounts for 24% of the global disease burden but has only 3% of the global health workforce[1]. On average, Africa has only 3 physicians per 10,000 people, compared to 34 physicians per 10,000 people in high-income countries. This contributes to inequitable access to healthcare, with people living in rural areas and poor households having much less access to quality care[2].
Despite the significant disease burden, Africa comprises only a small proportion of the global health market. In 2016, global pharmaceutical revenues totalled over US$1.1 trillion, while Africa accounted for only 0.7% of this market share. Astoundingly, 80% of medical devices are developed for only 10% of the world’s population. Africa experiences gaps here too, as it is dependent on medical devices that are not designed with its unique context in mind. Such devices tend to be ineffective, expensive, complex to operate, difficult to maintain, and usually lack local support.
For instance, many commercially available vein finders have been found to be less effective on melanin-rich skin. Studies have shown that these devices can have significantly lower success rates in patients with darker skin tones compared to those with lighter skin tones. This can lead to repeated failed attempts to find veins in infants during medical emergencies, causing significant pain and distress to both the baby and the mother. According to a study published in BMJ, such delays can increase the time to administer critical antibiotics in septic infants by an average of 10 minutes, which can increase the risk of death by 7%[3].
Similarly, pneumonia is a leading cause of neonatal mortality in Africa, claiming countless lives each year. Yet, across the continent, only 0.97 ventilators are available per 100,000 people, far short of the critical need[4]. Cost, ranging from US$20,000 to US$100,000 per ventilator, is a major hurdle, often leaving hospitals without this life-saving equipment.
These disparities point to a broken global health market. A situation in which it fails to meet Africa's needs because the continent's perceived low purchasing power discourages investment and development of essential healthcare solutions. Addressing the healthcare needs of a huge section of Africa's population who are at the "base of the pyramid" demands innovative solutions that break away from the conventional models practiced in high-income countries.
Fortunately, the very challenges inherent in the existing healthcare model have ignited a vibrant wave of innovations across the continent. Numerous startups are tackling healthcare needs across different verticals (i.e., prevention, diagnosis, treatment and care, health systems and supply chain improvements). This innovative spirit translates into diverse, cost-effective solutions across three key areas:
These pioneering startups demonstrate the immense potential of innovation for addressing the unique needs of Africa's "base of the pyramid." Beyond bridging existing gaps, they pave the way for a more inclusive and accessible healthcare future, all while maximising impact with limited resources. The snapshot below is a visualisation of the top 50 African startups, according to market intelligence platform Holon IQ that includes companies across the described categories.
While the vision of affordable, high-quality healthcare drives health startups across Africa, the road to success is paved with obstacles. Conversations with health startup founders and investors in Kenya, Uganda, and Ethiopia reveal the following as common challenges they face.
Partnering with government
On average, governments in East Africa manage between 70%-90% of the health system. As a result, most startups operating in the health sector are likely to encounter the government either as a potential customer or as a channel to market. According to Sewu-Steve Tawia, Managing Partner at investment firm Jaza Rift Ventures, “For certain health products, working with government is inevitable.” For example, vaccination programs and epidemic response (e.g., COVID, HIV/AIDS, TB) tend to be government-run services.
Hence, even if they don’t initially target the government, most health startups will eventually find they must work with the government as a partner to achieve significant growth. Unfortunately, while collaborating with the government as a client or channel to market is essential, it poses specific challenges that negatively impact the business operations and growth prospects of startups.
Public procurement, one of the avenues for serving the government as a customer, can be a highly complex and bureaucratic process. Vendor requirements that are anchored on public procurement laws can be opaque, making it difficult for startups to understand, navigate, and participate in procurement processes fairly. This lack of transparency tends to favour larger, more established companies, hindering the growth of startups. The situation becomes even more complex when startups introduce groundbreaking innovations, that fall outside the scope of current government procedures.
Another major challenge in serving the government as a customer is the presence of multiple stakeholders and misaligned incentives. Dr Joshua Kibera, CEO and Founder of The Pathology Network (TPN), a Kenyan startup that connects African hospitals to a digital network of global pathologists, says, “To make a sale, you must convince many stakeholders simultaneously. You must go through doctors, hospital administrators, and regulators to get to patients. The challenge is that all these parties are motivated by different incentives, which are sometimes in conflict.” For example, a solution offering better quality services at lower costs for patients could be seen as a threat of reduced revenues for hospitals. Yet, without hospitals, it cannot successfully be deployed.
Beyond bureaucracy, startups must also navigate political influences such as election cycles and leadership changes. This often mean a change of priorities and the risk of losing opportunities. Even where a startup has successfully managed to overcome bureaucratic, complexity, and political barriers, government sales and payment cycles are notoriously slow. A startup founder interviewed for this article has yet to be paid six months after delivering services to the government and, lacks information on when the payment can be expected. However, they must continue providing services lest they breach the contract.
Infrastructure challenges
The low coverage of key infrastructure such as transportation networks, electricity, and internet affects startups in all sectors. For the health sector, infrastructure challenges impact the ability of startups to expand access and improve quality. While digital technologies such as telemedicine have the potential to expand service reach, they rely on the availability of electricity and internet, the lack of which becomes a barrier for their adoption.
Monica Gathoni, Investment Analyst at Jaza Rift Ventures, explains that this is the reason why most tech-enabled services are focused on urban areas. This leads to harsh competition as startups battle to secure few customers who have many alternative products to choose from. For example, the populations that need telemedicine the most due to lack of physical access to health services are likely to also lack access to other basic infrastructure.
Startups offering technology solutions to such populations resort to building their own infrastructure or relying on third parties who have the ability to do so. Both options increase costs, resulting in higher service fees for customers. They also introduce a sustainability risk for the startups as higher fees inevitably shrink their market. To bridge logistical gaps, many healthtech startups have had to combine digital and brick-and-mortar approaches.
Another challenge resulting from the lack of infrastructure is difficulties in collecting and sharing data. Given the lack of electricity and internet, health facilities in remote underserved areas are also likely dependent on paper-based records. As a result of the infrastructural challenges related to deploying health innovations in Africa, healthtech startups tend to be concentrated within the larger ecosystems (i.e., Nigeria, Kenya, and South Africa).
Medtech startups face a different set of challenges. They have to contend with competition from imports and the perception that locally manufactured devices are of lower quality, says Habtamu Abafoge, founder and CEO of Ethiopian medtech company, Simbona Africa. Though they work just as well if not better, Habtamu admits that locally made devices lack the highly aesthetic finish of imported ones. He attributes this to a lack of industrial design expertise in the ecosystem. Even where such talent is available it’s not accessible to startups. “Working for a startup is not easy, so skilled staff prefer to work for larger companies which offer better pay,” says Habtamu.
Regulatory challenges
The healthcare sector is one of the most heavily regulated in the world, and Africa is no different. The healthcare regulatory environments in many African countries are complex, with multiple government agencies involved, lengthy approval processes, and high fees.
This can make it difficult for startups to understand the system and ensure that they comply with all applicable regulations. In addition, both government officials and startup founders often lack the necessary expertise to navigate the regulatory environment. Sometimes innovative startups operate in regulatory vacuums, as authorities grapple to keep pace with emerging innovations.
When Kenyan home-based care nursing startup Benacare was first seeking registration, there was no licensing category for their type of business. Speaking about their experience, Naom Monari, CEO of Benacare said,“When we launched Benacare, the county lacked a licensing category for home-based nursing care. They registered us under the closest available category, which was Airbnb.’’
Although resorting to an Airbnb license enabled Benacare's initial launch, it left the company vulnerable to potential government action for operating medical services under a non-medical license. Such situations tend to deter potential investors and they also have implications for growth.
For instance, medical device regulations vary widely from country to country. Some countries have no laws at all, while others have laws borrowed from more developed markets. This makes it difficult for startups to expand their operations beyond their domestic markets.
Furthermore, startups developing new devices and therapies or those manufacturing locally are required to obtain market approval for their products. This often involves conducting rigorous studies to demonstrate safety, efficacy, and adherence to regulatory standards. The process is often lengthy and expensive, and it can be difficult for startups to meet the requirements. This can be a significant barrier to entry for startups, as well-intentioned regulatory requirements can sometimes be impractical.
A medical device startup founder interviewed for this piece expressed frustration at prohibitive requirements for obtaining a manufacturing license. Regulations require that the manufacturing site is established in a 500-square-meter, air-conditioned facility, whereas the startup only needs a low-volume setup for a pilot manufacturing site to generate the traction needed to attract further investment. Such requirements adopted from other countries without contextualisation only serve to stifle the growth of innovative health startups. They also point to capacity constraints within the government bodies charged with the responsibility to regulate the sector.
Aftermarket approval, some health startups are also required to engage in post-market surveillance, monitoring the safety and performance of their products. The lack of standardised approval and reporting mechanisms for such processes can be a challenge for startups operating across multiple jurisdictions.
Health-seeking behaviour
Cultural nuances such as health-seeking behaviours play an important role that is not always obvious for startup founders. The reliance on traditional medicine is a case in point. Traditional medicine is widely used in Africa and sometimes preferred to Western medicine. This is due to many factors, including cultural beliefs, affordability, and accessibility.
A related trait that could hamper the adoption of digital health innovations is the preference for human touch. While quality in modern medicine is guaranteed by diagnostic sciences, perceptions of caring behaviour in some African cultures necessitate touch and inter-personal relationships with healthcare providers. As a result, digital health could be seen as low quality due to its impersonal nature.
Self-medication is also very rampant in Africa. It’s done using over-the-counter medications, traditional medicines, and home remedies. It leads to delay in seeking treatment, another common behaviour in many African countries. People tend to delay care-seeking until they have exhausted other means or have an emergency. This is related to financial constraints, fear of being stigmatised, and low trust in healthcare providers that could be the result of negative past experiences in the health system.
According to Dr Stella Kivila, a health innovation expert who has a pharmacy background, pharmacies are usually the first point of care, although they should be the last point after a consult and lab tests. People tend to go to pharmacies seeking for informal consults that help them to self-medicate. Unfortunately, pharmacies enable this behaviour and use it to boost their sales.
Another important cultural nuance is the perception that healthcare is a public good which should be accessed free of charge. It manifests itself in the low personal prioritisation of healthcare costs. Dr Kivila who has launched digital innovations in several African countries says, “This is why people don’t pay for health insurance though they need health services. The National Health Insurance Fund (NHIF) Supa Cover in Kenya provides attractive outpatient and inpatient benefits for only 500 shillings ($3) per month, yet people don’t sign up. They think someone else should pay.”
This pattern of behaviour is supported by a social expectation that family and friends will step in to contribute for hospital bills, an expectation that is met dutifully and is seen as part of the society’s collective role to care for its own. The perception that health is a public good could be a factor in the low insurance penetration rate across the continent, with a 3% average rate against a 7% global average.
For startups solving health sector problems, a lack of understanding of these health-seeking behaviours could result in building the wrong solution. Unfortunately, the data that is needed to shape such understanding is hard to come by and hence costly.
Access to funding
Limited access to funding is a significant challenge faced by African health startups, impacting their ability to develop, build, scale, and sustain innovative healthcare solutions. Several factors contribute to this challenge. Health startups often deal with complex products or services, such as medical devices that require substantial research and development. Meeting stringent regulatory requirements further adds to the costs, making the product development phase more capital-intensive than in other sectors.
The development and approval process for healthcare innovations, including clinical trials and regulatory approvals, translates to a much longer time to market compared to other sectors. This duration increases funding needs and prolongs the period before health startups begin to generate revenue.
For instance, medical devices require technical verification to ensure they work as intended. Once verified, they must undergo several cycles of clinical validation to demonstrate patient safety and treatment efficacy. Conducting clinical trials involves significant costs, making it challenging for startups to secure the funding required for these essential steps.
Healthtech startups in verticals like health financing face similar requirements. As an example, startups seeking to provide health financing products such as insurance tech have to meet very high minimum capital requirements to be licensed. Chris Onyancha, CEO of Ugandan health savings platform clinicPesa, experienced this first hand. Their launch was delayed by almost five years as they struggled to raise funding for regulatory compliance. Chris shares his journey:“Funding is a huge issue in Africa, and it’s worse in some ecosystems like Uganda. We experienced resource and capacity gaps due to lack of funding that made it difficult for us to grow our team.”
Having worked in other sectors such as retail, agribusiness, and energy, Jackson Mwatha, Investment Lead at Villgro Africa, a healthcare incubator and early-stage investment firm, agrees with Chris that funding is hard to come by for health startups. Jackson explains that there are good reasons why investors shy away from the health sector. “Healthcare is tough, it’s only second to aviation in terms of regulation. You can’t advertise, you can’t price as you want, and you can’t make any claims you want about your product. This creates limitations on how much you can drive sales and it slows down scaling.”
Chris also thinks there is a mismatch between the type of capital available and that which is needed. He says, “Most entrepreneurs in the health sector are driven by a passion to alleviate human suffering in the face of daunting circumstances, not to just make money. We need more investors who can align with this cause.”
Health startups are also faced with the additional task of educating healthcare professionals, regulators, and end-users about the benefits and proper use of their innovations. This requires additional resources for marketing, training, and awareness campaigns.
How are entrepreneurs and investors responding to the challenges faced by African health startups?
As seen above, the African healthcare landscape presents unique challenges, but within those hurdles lie the seeds of opportunity. Innovative health startups across the continent are already demonstrating how to overcome these obstacles and deliver impactful solutions. This section shines a light on the ingenious solutions they're deploying to tackle challenges and pave the way for a healthier future.
Promoting the triple-helix partnership model
Having previously operated in a regulatory vacuum, the Benacare team took a proactive stance when the problem recurred prior to the launch of a chronic kidney disease (CKD) service. Since there were no protocols to guide home-based renal replacement therapies for CKD care in Kenya, Benacare partnered with the Jomo Kenyatta University of Agriculture and Technology (JKUAT) to implement a study on CKD in Muranga County in central Kenya.
The partnership was facilitated by Villgro Africa and funded by the International Development Research Center (IDRC). The study aimed to determine the effectiveness and safety of home-based mobile renal replacement therapies in comparison to the standard-approach, facility-based therapies. The study was highly successful. Its main output was a tool focused on early intervention and continuous monitoring of patients with diabetes and hypertension to prevent progression to renal failure.
This tool was adopted by the Muranga County government health management team who used it to target preventive interventions at patients with a high risk of developing CKD. Patients who had already developed CKD were recruited for home-based peritoneal dialysis provided by Benacare.
Through this project, Benacare was able to pioneer a novel treatment approach in collaboration with the government. The results of this study will be pivotal in generating guidelines for home-based CKD care in Kenya. Currently, the NHIF is considering including home-based peritoneal dialysis as part of its benefits package. If approved, this will be a major milestone. It will allow thousands of patients to receive care in the comfort of their homes and, be spared the agony of travelling for long distances to receive care.
This project exemplifies the triple helix partnership model, a framework for collaboration between government, academia, and the private sector. Such partnerships leverage expertise, resources, and networks across sectors to drive innovation and progress. In the Benacare case, the collaboration not only addressed a critical regulatory gap but also fostered a stronger relationship with the government, a valuable asset for any startup.
Comprehensive regulatory compliance support
The conversations with health startup founders and investors—held while conducting research for this paper—revealed a resounding demand for robust regulatory support services within the African ecosystem. This demand highlights the significant challenge founders face in navigating complex regulations and underscores the potential impact of providing targeted assistance.
The journey to launching Yene Health - an Ethiopian healthtech company offering comprehensive sexual and reproductive healthcare - proved challenging for founder Kidist Tesfaye. A diaspora returnee from the US, Kidist grappled with legal complexities without access to necessary guidance. As she puts it,“Manoeuvring the requirements for investing and operating in healthcare is tough, without adequate institutional support, it feels like you're stranded in a bureaucratic maze.”
An African regulatory map could be a good starting point to resolving this pain point. A comprehensive regulatory map of African countries would equip startups with a clear overview of product or service requirements for each market. This resource would be a crucial first step, enabling informed market entry decisions and tailored approaches to compliance. The map could also serve as a guide for startups to comply with all applicable regulations, including preparing and submitting regulatory approval documentation and navigating approval processes. An ecosystem advocacy effort at country and regional/continental level is also required, to advocate on behalf of startups to governments and regulators, for the streamlining of regulatory processes across the continent to make them more supportive of innovation.
In the absence of robust regional or national frameworks, African medtech startups turn to established international standards, such as FDA and CE certification, as alternatives for market approval. While these standards offer valuable benchmarks, they don't always perfectly answer to the specific needs and contexts of African healthcare systems.
Customer engagement and value creation
When it comes to customer behaviour, there are no shortcuts. To deliver value, entrepreneurs must engage their customers to understand their pain points. The health sector is no different, but entrepreneurs need to understand the nuances. TPN’s Dr Kibera highlights the payer-provider distinction as an important consideration: “We rely on the health facility (the payer) to sell our services, though they are not the ones experiencing the problem (the patient) or the ones using the solution (the provider).’
This paradox illustrates the need for health entrepreneurs to possess a deep knowledge of the workings of the health system and deep networks that allow them access to key people. Essentially, healthcare entrepreneurs must be sector insiders themselves or have the ability to hire experienced insiders. Without this, achieving meaningful engagement with the right customers and hence clarity on the pain points to solve can be very difficult. In addition, health sector entrepreneurs must also have a firm grasp on the tech required to deliver the solution and the business know-how to monetise it successfully.
Chris Onyancha clinicPesa CEO agrees that health-seeking behaviour matters, but it’s not permanent. He believes a strong value proposition will change customer behaviour. Citing lessons from the mobile money revolution, Chris explains, “Adoption was not easy, but mobile money proved convenient, cost-effective, and secure – such high value that customers couldn’t resist.” He acknowledges that digital health is different because you are competing with human touch, but he feels the principle remains the same: Superior value will trigger behaviour change. Challenging the status quo in healthcare requires exceeding expectations on all fronts, as Dr Kibera astutely observes: "You can disrupt the status quo and go mainstream, but you must be way better, way cheaper, and way faster."
Go-to-market (GTM) partnerships
GTM partnerships can help health startups overcome infrastructure challenges without having to incur huge costs. While a lack of adequate distribution networks is the main implication of infrastructural gaps in Africa, with the right GTM partnerships, startups can circumvent this challenge.
Samuel Mugisha, CEO of Ugandan electronic medical records platform Streamline Health, credits the power of partnerships as one of his biggest lessons as an entrepreneur. This is with good reason. Streamline’s GTM partnership with the Uganda Protestant Medical Bureau (UPMB), a non-profit umbrella organisation, unlocked access to a market of 317 health facilities within UPMB’s network across the country. This single partnership leapfrogged Streamline and saved them years’ worth of time, effort, and money that would have been spent to individually approach and convince each facility to acquire their service.
Additionally, partnerships with other startups could provide alternative GTM options. Several startups have emerged to address gaps in logistics, finance, energy, and digital infrastructure. Ugandan tech firm Signalytic is an example of a startup tackling infrastructure and distribution gaps in the healthcare sector. Signalytic digitises health facilities by providing digital health platforms for remote clinics. This includes low-cost, solar-powered connectivity hardware and pharmacy inventory management software tools. Signalytic brings rural health facilities that are not covered by the national power grid and 4G mobile networks to the digital age. It allows them to connect to other facilities, share and receive data, which enables them to improve stock management of pharmaceuticals. Signalytic’s platform is designed to accommodate integration with other software tools and can serve as a GTM option for startups seeking to serve the same market.
Adding his voice on the importance of partnerships between startups, TPN’s Dr Kibera concludes that health startups need to work together to solve common problems: “You can’t go it alone in our healthcare context. I have been thinking of a founder’s round table where we can come together and co-create solutions for problems affecting us all.”
Less explored but equally important are startup-corporate partnerships which could offer another GTM avenue. David Ndegwa, Associate at AAIC Investments, highlights the rise of corporate venture capital as a signal for African startups to pursue lucrative GTM partnerships with established companies. He shares his reflections on this opportunity: “Startups can leverage the immense assets legacy players bring to the table — their loyal customer base, extensive distribution networks, and established brick-and-mortar infrastructure — to their own advantage. By associating with larger, trusted brands, these young companies can gain instant validation and credibility, while also benefiting from the financial firepower that corporates possess.”
Investment readiness services
Although the funding available for health companies in the African startup ecosystem is indeed limited, startup founders can improve their odds by understanding the investment landscape and the expectations of different types of investors. To begin with, startups need to ensure proper financial record keeping and management as a basic minimum. Some startups begin to clean up their books when they are looking for investment. Jaza Rift Ventures’ Sewu-Steve Tawia insists to founders, “You must manage your finances well, this means get your books in order as soon as you start.”
Because many health startup founders are seeking to make social impact by reaching underserved people, they end up serving markets where purchasing power is low. Bearing in mind this context and the challenges discussed here, it is clear that health startups need flexible financing options. Arnold Mwangi, Investment Manager at DOB Equity, advises that as a health startup founder, “You need to know how to blend different types of capital to make financing work for your startup.”
A blended capital approach combines capital from various types of sources such as public, private, and philanthropic funding and various instruments including grants, loans, equity investments, and guarantees. Blending capital could mean startups utilising grants to develop and test their innovations in the earlier stages and then shifting to equity as they progress towards commercial viability. Whereas R&D grants play a crucial role in product development, health startups also require additional support to test and validate their business models for successful commercialisation. This could translate to several rounds of grant funding before a sustainable business model that would be convincing enough for equity investors is achieved. Arnold adds, “An alternative approach to achieving social impact could involve generating high margins from serving affluent customers and using those profits to subsidise offerings for less fortunate individuals.”
Given that the blended capital approach speaks to mix of sources and instruments, it’s important to note that different strategies are needed for different types of capital. Entrepreneurs need to map the financing needs across the startup growth stages and conduct research on potential investors to determine alignment in strategy, timing, and funding needs.
The next step is to prepare investor materials adequately. The standard materials include a pitch deck and a financial model capturing future projections and the assumptions on which they are based. There are many guidelines available on what an entrepreneur should include in their data room for potential investors to review as they consider an investment. However, the startup fundraising journey can be long and daunting.
Entrepreneurs should find help, especially if they don’t have a financial background. Arnold encourages founders not to shy away from seeking help: “There are many incubators and accelerators supporting health entrepreneurs to grow their enterprises.” Startup founders can take advantage of their services to help them along the journey. Since all investors want a return, they have rigorous processes in place to ensure they select startups that demonstrate the best opportunity to generate those returns. Incubators exist to help translate investor demands for startups and support them through the process.
In essence, investors want to see a compelling vision, a realistic plan to achieve it, and a team with the ability to execute this plan. As Arnold puts it, “Investors want to see a clear path to sustainability based on sound financial projections.”
Ultimately, the winning formula lies in the ability to weave all these elements into a compelling story that captures the hearts and minds of investors.
Conclusion
The broken global health market in Africa necessitates innovative solutions that go beyond traditional business models. By fostering collaboration, streamlining regulatory processes, diversifying funding sources, improving infrastructure, and understanding the local context, stakeholders can contribute to a vibrant and sustainable ecosystem for health startups. Through collective efforts Africa can overcome the disparities in healthcare access, empower health startups, and pave the way for a healthier and more equitable future for its people.
[1] WHO. Global Health Workforce Statistics 2023. Geneva, Switzerland: WHO; 2023.
[2] World Development Indicators 2023. Washington , DC: World Bank; 2023.
[3]https://www.ncbi.nlm.nih.gov/pmc/articles/PMC8336151/
[4] National estimates of critical care capacity in 54 African countries
[5] Source: https://www.holoniq.com/notes/2022-africa-health-tech-50
[6]https://cytonnreport.com/research/national-health-insurance-review-cytonn-weekly-27-2023