Edging African entrepreneurs out of the start-up ecosystem in favour of foreign founders is a risky business
The runaway success of Silicon Valley over the past two decades has inspired an excited embrace of all things entrepreneurial across the world and Africa is no exception. Incubators, accelerators and ‘tech hubs’, such as Raizcorp in Johannesburg, South Africa, have sprung up around the continent in the hope of guiding the next Google to international acclaim and a dizzying market value. Moreover, in a region where stable, well-paying jobs are scarce, creating your own often appears as the most viable option. Surveys by the Global Entrepreneurship Monitor reveal that one in three working-age adults in sub-Saharan Africa either runs a new business or is looking to start one, compared with one in six Americans and one in 20 Germans¹.
However, despite the evident local enthusiasm for entrepreneurship, African founders frequently find themselves locked out of the most hallowed halls in this ecosystem: those where the funds runneth over with venture capital eager for a base in a fledgeling business.
Where before such an observation could be explained away by investors taking fright at crumbling infrastructure and woeful governance, the rising tide of venture capital flowing promisingly into countries on the continent belies this type of basic explanation. Rather, a closer examination of who is receiving the lion’s share of this investment is more telling.
A recent analysis of public data conducted by The Guardian showed that, of the top 10 African-based start-ups which received the highest levels of venture capital in 2019, eight were headed up by foreigners². When looking at individual African countries, the picture worsens: only 6% of the start-ups in Kenya that received more than $1 million in funding in 2019 were led by local Kenyans³. Most worryingly, Roble Musse, a Seattle-based author and entrepreneur, discovered that 65% of expatriate founders had not even lived in Kenya before launching their ventures and, presumably, claiming an intimate understanding of the local culture and context.
Arguably, it is Africans themselves that have left the gap which others from abroad have been only too willing to fill in their absence. Indeed, the African Private Equity and Venture Capital Association found that only 20% of venture cash came from Africa-based investors⁴, hinting at the unwillingness that exists amongst well-heeled Africans to switch from conspicuous consumption to long-term financing of early-stage enterprises.
The upshot is that the continent’s entrepreneurs have little choice but to seek support from westerners, in particular those from North America who accounted for 42% of all African venture capital deals in the last five years⁵. With such a heavy reliance on financial backers from outside of Africa, it’s little wonder that foreign founders come to dominate the landscape so noticeably.
Even where African-originated funding is available, this is all too often circulated amongst established networks populated by alumni of the same few business schools and friends of friends, making it hard for outsiders to gain a meaningful foothold in funding conversations. Rightly or wrongly, in the start-up space your network ends up becoming your net worth.
On occasions where African entrepreneurs are granted an audience with key investors, a lack of experience, expertise and support can sometimes prove a fatal weakness that prematurely ends the quest for external financing. Stephen Gugu, a co-founder of ViKtoria Angel Business Network in Kenya, admits that ‘expatriate founders pitch better than we [Africans] do. They’re able to paint this picture of an Africa that is full of opportunity. Local founders are not as aggressive in their pitches.’ In short, passion for entrepreneurship — which Africans undeniably possess — has to be combined with relevant business skills and knowledge.
However, it is in this area that the first glimmers of hope are emerging: young Africans are increasingly taking matters into their own hands by setting up business-oriented networks that are designed to empower their members with the connections, information and advice that increase their likelihood of start-up success. These collectives, which can sometimes be as simple as a WhatsApp group, are hives of energetic activity where links to events, funding sources and educational material are generously swapped. In this way, these groups provide a practical, bite-sized alternative to expensive MBA programmes which, in many cases, are notable for their minimal relevance to the realities on the ground across the continent.
In fact, it is this proximity to the local context that gifts would-be African entrepreneurs an advantage over their foreign counterparts who may have only briefly skimmed the surface of this multi-faceted economic environment. Jumia’s recent retreat and abandonment of its ambitious expansion plans in East Africa⁶ serves as a timely reminder of the very real risks that come from a business strategy or plan that is fundamentally unmoored from an understanding of how Africans ‘meet, greet, eat’ and generally live their everyday lives.
As such, allowing and encouraging local Africans to take a far more visible role within the continent’s entrepreneurial ecosystems is more likely to result in sustainable start-ups that are capable of producing ‘market-creating innovations’⁷, rather than short-term set-ups that simply enrich opportunistic expatriates.
⁷ Clayton, C. et al, 2018, ‘The Prosperity Paradox: How Innovation Can Lift Nations Out of Poverty’, Harper Business
This article was originally published on Medium.com.