First-ever funded startup sparks Somaliland investment hopes 

By:Africa Business

In significant news for the nearly 6m inhabitants of Somaliland, an unrecognised state located on the southern coast of the Gulf of Aden, Caafisom, a healthtech startup based in the capital city of Hargeisa, has completed a $110,000 seed investment round led by the US-based venture capital fund Tofino Capital and the locally based Takeoff Fund.

The company, co-founded by local entrepreneurs in 2021, provides software and logistics services for hospitals to digitise patients’ health records. Users can book doctor appointments, access their medical records, and consult with health experts through their in-house app.

According to co-founder Mohamed Ismail Ahmed, the startup currently operates in multiple hospitals across the country, including Hargeisa Neurology Hospital and Needle Hospital in Hargeisa, and attracts an average of 400-500 new users daily.

With this new funding, completed in May, Caafisom has been able to increase its workforce and pursue its expansion plans. “The funding has enabled us to hire more people. This means we can be present at more locations and hospitals, which, in turn, allows us to register more people daily. Moving everything online takes a lot of time and manpower, so it was important that we could hire employees,” says Ismail.

But the healthtech company, which becomes Somaliland’s first ever funded startup, has ambitions beyond the de facto borders of this small state. In the short term, it plans to expand its business first in neighbouring Somalia, and then across the Horn of Africa.

“The plan is to open new offices in Mogadishu and Garowe, both in Somalia, and Addis Ababa, Ethiopia, over the next couple of weeks, and be present in Djibouti, Kenya, Sudan, and Tanzania in the next six months,” says Ismail.

Caafisom’s arrival would mark a diversification of Somaliland’s agriculture-dominated economy. In 2021, more than 60% of Somaliland’s exports were live animals, mainly to Gulf Arab countries through the city port of Berbera.

Somali diaspora fosters tech-focused investment

Ismail is part of a large diaspora eager to return and invest in their country of origin. The entrepreneur graduated from Middlesex University in the United Kingdom in 2012, before returning home and launching Caafisom.

“Somaliland is a unique place due to the combination of local and diaspora ideas,” says Ismail. “The diaspora coming back to Somaliland brings solutions that exist in the West. These could be things that we take for granted but don’t exist here. There are plenty of things needed in the region that could improve people’s lives. Due to all this need and demand, I think Somaliland and Somalia are future markets with unbelievable potential.”

In an economy worth $3.5bn, remittances to Somaliland from the diaspora amounted to over $1.3bn in 2020, according to figures reported by the FT. The International Organization for Migration (IOM) has estimated that 25-40% of the population receives regular remittances from abroad.

The regular transfers have led Somaliland entrepreneurs to play a key role in the flourishing money transfer industry. Ismail Ibrahim Ahmed, a Somaliland-born entrepreneur who was smuggled out of the country to the UK at the outbreak of the civil war, founded UK-based WorldRemit in 2010, which has since received $700m in funding and is now valued at over $5bn.

Investing in an ‘unrecognised’ state

Somaliland broke away from neighbouring Somalia in 1991, but no foreign power has ever recognised the state’s sovereignty. This status makes it difficult to get its voice heard and attract international investors.

“Somaliland’s status as a self-proclaimed territory will, of course, be an issue for many investors as they will worry about law and order,” says Ismail.

To reassure its investors, Caafisom enlisted the services of AQN, a law firm based in Hargeisa and led by Amal Ali, a lawyer who also studied in the UK at the University of Sheffield.

“The legal side was the biggest concern, but it wasn’t a significant issue once we started working with AQN Law Firm here in Hargeisa. Dr Amal is very competent, and she played a significant role in securing the investment,” says Ismail.

“Venture capitalists considering investments in the region can be confident that everything is in place,” he adds.

Despite the lack of international recognition, Somaliland enjoys economic relations with several countries outside Africa, including the United Arab Emirates, Taiwan, and Turkey, as well as neighbouring countries Ethiopia and Kenya within the continent.

Jesse Clain, the CEO of the Take Off Fund, a VC fund based in Somaliland that originated the investment in Caafisom and invested an undisclosed amount, regrets that some investors focus too much on the international recognition aspect.

“Somaliland is functionally independent in every way; it’s just not recognised internationally,” he says. “Unfortunately, there are institutions that are unable or unwilling to invest in Somaliland for political reasons or are overly reluctant about making investments in low-income countries.”

Last year, Clain moved from San Francisco, where he was working in tech, to Somaliland. He opened the Take Off Fund to boost what he believes is “a very promising startup ecosystem”.

“Somalilanders have seen how much progress has been made in the last 30 years, largely without the help of the international community, and they know that they can create a better future for themselves and their children,” he says.

Tech funding makes case for international recognition

Although Clain believes that Somaliland is ready for business without the need for international recognition, he still thinks his investment could play a role in that sense.

“Somaliland can’t control what other countries do, but I think there are certain kinds of economic activity that strengthen the case for international recognition,” he says.

“As we build more high-growth businesses in Somaliland, bring in more international investors, and expand business operations to other countries, it will become clearer to Somaliland’s neighbours and trading partners that the country is an important, independent player in the region and deserves recognition.”

Ismail is also confident that the funding of its startup by a US-based VC fund is a step towards international recognition.

“It will certainly help,” he says. “The more positive news that comes out of Somaliland, the better. I think people will start to realise that it’s an untapped market with huge potential and a young population.”

Ismail believes that Somalia’s security issues undermine its business potential – the country has yet to receive startup funding, according to the startup deal online database Africa The Big Deal.

“I think it’s easier in Somaliland at the moment due to security. The main concern in Somalia is the security situation, where it’s difficult for foreign VCs to consider investing in the region,” he says.

“Once the situation improves, Somalia will have one of the best potential markets in the whole of Africa.”

However, recent clashes between Somaliland forces and militia from the Dhulbahante clan, which inhabits the Sool region of Somaliland but has never recognised the government, show that security challenges lie ahead for both Somalia and Somaliland.

To date, the conflict in the Sool region has caused 308 civilian casualties, with 36 people killed and 272 injured, according to a recent statement by Catriona Laing, the UN Secretary-General’s Special Representative for Somalia.