We sim­ply must not al­low in­vestor bias to per­sist

The Star Early Edition - - OPINION & ANALYSIS - Andile Ma­suku

AFEW WEEKS ago one of Kenya’s finest dig­i­tal heads, Mark Kaigwa, joined Musa Kalenga and me on the African Tech Round-up pod­cast for two glo­ri­ous hours of straight talk. The tap­ing pro­duced a bus load of ac­ci­den­tal hot takes on the state of Africa’s tech in­dus­try, but none would prove more con­tro­ver­sial than our de­lib­er­a­tions re­gard­ing the thorny is­sue of in­vestor bias that ap­pears to be preva­lent across the con­ti­nent’s fund­ing land­scape.

Dur­ing the dis­cus­sion, Kaigwa cited a Medium blog post en­ti­tled It’s time to fix the start-up fund­ing land­scape in Kenya, penned in May 2017 by an East African en­tre­pre­neur writ­ing un­der the pseu­do­nym, Thomas Sankara.

In this fierce think piece, Sankara rails at the prej­u­dice and mis­treat­ment he claims to have fre­quently ob­served and per­son­ally ex­pe­ri­enced within Kenya’s start-up in­vest­ment scene.

He points to undis­guised ills such as poor cap­i­tal al­lo­ca­tion, nepo­tism, racial bias, and mis­placed pat­tern match­ing – is­sues that he says in­flu­ence, which start-up founders are able to ac­cess the cap­i­tal they need to launch or grow their busi­nesses.

Sankara goes as far as ar­gu­ing that the qual­ity and sound­ness of busi­ness ideas is rarely a ma­jor con­sid­er­a­tion in this con­text.

Fu­elling fires

Up un­til re­cently, it was all too easy to dis­miss such as­ser­tions as merely anec­do­tal, or as sen­sa­tion­alised gos­sip fu­elling the fires of Kenya’s buzzing bl­o­go­sphere.

How­ever, Sankara’s ar­ti­cle ref­er­enced find­ings pub­lished in an im­pli­ca­tory Bill & Melinda Gates Foun­da­tion funded re­port called Break­ing the Pat­tern: Get­ting Dig­i­tal Fi­nan­cial Ser­vices En­trepreneurs to Scale in In­dia and East Africa.

This fin­tech-fo­cused re­search, which has since been re­leased by the Wash­ing­ton DC-based ven­ture cap­i­tal out­fit, Vil­lage Cap­i­tal, pretty much val­i­dates most of what Sankara laid out in his blog post.

Ac­cord­ing to the re­port, more than 90 per­cent of fund­ing for East African fin­tech start-ups typ­i­cally goes to ex­pa­tri­ate founders (Euro­pean or North Amer­i­can), and de­spite East Africa post­ing a record haul in terms of start-up in­vest­ment ($84.7 mil­lion or R1.13 bil­lion) over the last two years, the fact is, a whop­ping 72 per­cent of that fund­ing has gone to just three com­pa­nies – namely, M-Kopa, Off-Grid Elec­tric and Angaza.


The bal­ance went to 57 other com­pa­nies. After in­ter­view­ing dozens of dig­i­tal fi­nan­cial ser­vices stake­hold­ers, in­clud­ing en­trepreneurs and in­vestors, it does ap­pear that Vil­lage Cap­i­tal has been able to iden­tify at least four rea­sons for the ex­is­tence of this stark 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 prove out 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 risk-tol­er­ant 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 pat­tern-recog­ni­tion prob­lem”. It turns out that African start-ups don’t fit the in­vestibil­ity mould that in­vestors recog­nise, and founders typ­i­cally lack the aca­demic pedi­gree and elite peo­ple net­works that in­vestors tend to favour.

The most com­monly ex­pressed frus­tra­tion I’ve en­coun­tered in chat­ting with start-up founders who are on the hunt for ven­ture cap­i­tal to ad­vance their ef­forts is the fact that, as Thomas Sankara puts it, “bad busi­ness ideas from for­eign founders get cap­i­tal and good ideas from lo­cal founders do not”.

I’ve been told that time and time again in­vestors be­tray their deep-seated bi­ases by turn­ing their noses up 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 that all 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 – which typ­i­cally pre­side over early stage in­vest­ments – 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 well-po­si­tioned 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 all 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 well-mean­ing 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 widely-held prej­u­diced view that Africa is suf­fer­ing a “civil­i­sa­tional” cri­sis.

When asked by an Ivo­rian jour­nal­ist why former colo­nial­ist na­tions haven’t felt the need to roll out an African equiv­a­lent to the Mar­shall Plan that the US ini­ti­ated for Western Europe fol­low­ing World War II, Macron re­port­edly stated the fol­low­ing: “The chal­lenge of Africa is com­pletely dif­fer­ent, it is much deeper. It is civil­i­sa­tional to­day.

“Fail­ing states, com­plex demo­cratic tran­si­tions, the de­mo­graphic tran­si­tion… One of the es­sen­tial chal­lenges of Africa… is that to­day seven or eight chil­dren (are) born to each woman.”

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.


I’ve writ­ten be­fore about how clue­less most African gov­ern­ments ap­pear to be at sup­port­ing tech start-ups, and how grudg­ingly the con­ti­nent’s in­sti­tu­tional in­vest­ment com­mu­nity has started to back early-stage ven­tures on the con­ti­nent.

While there are signs of im­prove­ment, things are nowhere near where they need to be.

What we need to do while law­mak­ers and big busi­ness get their act to­gether, is fash­ion a new dis­pen­sa­tion of al­ter­na­tive home-grown cap­i­tal sources that African start-ups can count on to fi­nance growth.

That’s where I be­lieve African an­gel in­vest­ment syn­di­cates can and must fill the void.

As the co-founder of the African Busi­ness An­gels Net­work, Enon­chong is one of the dozens of in­di­vid­u­als who strongly be­lieve that 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 that our po­ten­tial is clearly too much for for­eign in­ter­ests to ig­nore.

It’s time we ac­knowl­edge the lim­it­ing na­ture of the sys­tem­atic bias that of­ten stems from some of the con­ti­nent’s big­gest for­eign fans.

Let’s set and back our own in­vest­ment agenda to counter the real and per­ceived so­cio-eco­nomic is­sues that are ham­per­ing the suc­cess of Africa’s most promis­ing start-up founders.

Andile Ma­suku is a broad­caster and en­tre­pre­neur based in Jo­han­nes­burg. He is the Ex­ec­u­tive Pro­ducer at AfricanTechRoundup.com. Fol­low him on Twit­ter @Ma­sukuAndile and The African Tech Round-up @african­roundup.


French Pres­i­dent Em­manuel Macron re­cently ex­pressed the widely-held prej­u­diced view that Africa is suf­fer­ing a “civil­i­sa­tional” cri­sis.

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