AFRICA NEEDS TO BACK ITS OWN START-UP AGENDA
Nothing would prove more controversial than our deliberations regarding the issue of investor bias, apparently prevalent across the continent.
appears Village Capital has been able to identify at least four reasons for the existence of this discrepancy.
The first is what they call the “the human capital trap” – a phrase that describes the dilemma faced by home-grown start-ups that fail to raise capital because they don’t have the right team but yet can’t afford to assemble the right team without raising capital.
The second factor is “business model constraints”. This speaks to the challenge start-up founders face in coming to terms with how far behind the digital adoption curve some African markets are, relative to more developed countries, in terms of active participation in the new digital economy.
While investors typically want to see evidence of traction and profitable business models right away, in Africa, time, capital, and agility are required for founders to overcome key structural environmental factors in order to demonstrate the scalability of their efforts.
Then there’s the “debt capital gap” which relates to the uphill struggle local founders face in attracting the capital they need to achieve proof of concept.
Start-ups on the continent lack access to innovative and risktolerant backers who can provide them with working capital to substantiate the viability of their ideas by demonstrating traction.
The fourth and final issue flagged by the study is what Village Capital calls “the patternrecognition problem”.
It turns out African start-ups don’t fit the investability mould that investors recognise, and founders lack the academic pedigree and elite people networks investors favour.
The most commonly expressed frustration in chatting with startup founders who are on the hunt for venture capital is the fact that, as Sankara puts it, “bad business ideas from foreign founders get capital and good ideas from local founders do not”. I’m told investors betray their deep-seated biases by turning up their noses at African investment prospects due to a perceived “lack of experience”, or the belief that locals “do not understand corporate governance”, and often cling to the dense notion that local founders are inherently poor executors who aren’t up to building “the next Facebook”.
It’s impossible to deny these issues are confounded by the fact that the majority of the continent’s most active venture capital firms, as well as key sources of alternative investment like high-profile investor networks, consist of a tightly-knit community of expats and Ivy League-educated Africans.
Via their handy Silicon Valley connections and strong affiliations to leading start-up accelerator programmes, they are wellpositioned to set a continental investment agenda that favours people who look, sound and behave European or North American.
By dragging these issues into the sunshine, I hope to enlighten us to how empty the rhetoric around Africa taking charge of her own future is if we don’t face up to the damaging impact of allowing investor bias to persist.
It’s clear that we can’t expect foreign interests, however wellmeaning they are, to adequately address the partiality that exists. Case in point, at the recent G20 Summit in Hamburg, Germany, French President Emmanuel Macron expressed the widelyheld prejudiced view that Africa is suffering a “civilisational” crisis.
Right. Clearly, we need to be setting our own investment agenda and solidifying our own king-making criteria. We simply can’t afford to leave that up to Ivy League alumni, Silicon Valley club members, or even “Africa-friendly” presidents like Macron.
In a recent chat I had with AppsTech founder and chief executive, Rebecca Enonchong, she highlighted the importance of promoting the formation of angel investment syndicates across Africa. That’s a message I believe we need to spread aggressively if we are ever to see real change start to take root.
As the co-founder of the African Business Angels Network, Enonchong is one of the dozens of individuals who strongly believe that home-grown syndicated angel investment efforts ought to be the bedrock of the continent’s start-up ecosystem. While it’s true that most major African markets are under immense pressure right now, and that the continent represents a tricky proposition in as far as being a serious global tech investment destination, the record investment Africa’s tech industry has been attracting of late is proof our potential is clearly too much for foreign interests to ignore.
Andile Masuku is a broadcaster and entrepreneur based in Johannesburg, South Africa. He is the executive producer at AfricanTechRoundup. com. Follow him on Twitter @MasukuAndile and The African Tech Round-up @ africanroundup.
PARLEZ-VOUS? French President Emmanuel Macron poses next to a robot at the Viva technology event in Paris dedicated to start-ups development, innovation and digital technology.