Silicon Savannah or Silicon Valley? 90% of Funding in East Africa Goes to Foreign Startup Founders
At $168.6 million, African startups raised more money in the first half of 2018 than they did last year. The total funding was also nearly a four-fold increase on the $47.2 million raised in the first half of 2017. Kenya accounted for the most funds raised with $82.8 million — nearly three times the total amount of the runner’s up — Nigeria. This demonstrates the vibrant East African startup landscape, but who are these people getting the funding?
A Village Capital report indicated that 90% of Fintech Investment in East Africa goes to American and European founders. Several home-grown startup founders acknowledge that one needs a foreign co-founder in order to successfully raise money for their startup. Thomas Sankara, a startup founder, agrees to this funding bias where he points out, “bad business ideas from foreign founders get capital and good ideas from local founders do not”.
Olivia Zank, a co-founder factoring firm BeneFactors, agrees to this funding bias citing that foreign founders that set up startups in Africa have easier access to external funding than home-grown startups. Annstella Mumbi, a Kenyan tech entrepreneur, recounts her experiences raising capital, where she shares “raising $10 000 for an average African youth is extremely tasking (difficult — Ed) as compared (to startups with expat founders).” Kennedy Njoroge, Cellulant Co-founder and CEO, is one is one of the few home-grown startups that have received funding worth $47.5 million. He, however, explained of how difficult securing funding was where he had to meet over 60 different investors over a 2 year period that took up 400 pitches across the world.
Home-grown startups find it hard to raise capital because the majority of capital is international with a Silicon-Valley venture capital style that mainly favors foreigners and local founders who have studied abroad. Home-grown startups are therefore considered not investor-ready and as a result, miss out on the funding given the cultural bias that investors often have.
Foreign investors are looking for fast growing, scalable businesses, taking the risk on unique ideas and betting on the founder and team. They often use patterns as a proxy for potential where they look for indicators like prestigious universities, elite business networks or referrals from other investors. Most home-grown startup founders don’t necessarily have prestigious universities on their resume or are a part of elite networks, which makes them less likely to get funding from investors. Due to this bias, investors end up funding startups with foreign founders and end up missing out on some of the best ideas solving real problems.
Foreign investors often lack a cultural context, which results to a cultural bias where they assume that home-grown startup founders lack experience, are less entrepreneurial and lack ambition to scale their companies — something that is not necessarily true. Additionally, investors see foreigners as more committed than home-grown startup founders given that they “risked it all” by leaving a better lifestyle to move East Africa — yet they can always fly back when all fails. On the other hand, most of the home-grown founders take huge risks by mortgaging their career, financial future and their social capital in an environment that frowns upon failure. As a result of these cultural biases, home-grown startup founders end up missing out on the much-needed funding and support from investors.
