The Digital Scramble for Africa
Winners and Losers
Spend time in the Nairobi startup scene which includes co-working spaces, events, conferences and one can’t fail to get the sense that a gold rush is underway.
This past February I attended the Africa Tech summit in Kigali. The irony is the organizers of this particular event were a London based, European team. It is quite difficult to imagine the inverse, Europe Tech summit in London organized by an African team based in Lagos.
At the event it became increasingly clear that Africa’s future is decidedly digital with the only question being who stands to gain from this massive transition?
Observing the actors, forces, and outcomes so far in the East African startup ecosystem one is forced to contend with the uneasy sense that history could be repeating itself with the digital scramble for Africa threatening to mirror the original scramble for Africa. Whether Africans like it or not westerners are increasingly controlling the narrative and gaining easier access to opportunities in the African digital landscape simply because they are armed with the key enabling ingredient, capital!
As the Wu Tang so eloquently pointed out back in the 90s, “Cash rules everything around me!”
Why?
Owners of capital dictate what gets done and who gets to do it. Currently, nearly all capital active in the African startup ecosystem is foreign.
The now famous or infamous study, depending on your worldview by Village Capital found that 90% of venture capital invested in fintech startups in East Africa went to expatriate founders. It is now a generally accepted truism amongst Kenyan techpreneurs that installing a white, ideally female cofounder is a smart fundraising strategy.
Case Study
One stark example of this is the difference in fortunes between two identical startups offering the very same service to exactly the same customers, to protect their privacy we shall call them SPW and WVE.
Both apps entered the market at approximately the same time around 2014, offering a Western Union disrupting, direct to Mpesa cash remittance service for Kenyans in the diaspora. Nothing complicated. Since then WVE has been able to commandeer a $40M war chest in venture capital funding while SPW a paltry $0! Yup, you read that right. The entire $500K that went into SPW came directly from the pockets of the founders themselves.
All things remaining equal, $40M trumps $0 all day long in an execution battle.
WVE now controls 35% of cash remittances to Kenya while SPW is unable to operate due to lack of float capital necessary to fulfill remittance payments to Mpesa. A mere 3 days worth of cash advance is all that is required to make this business go. 3 DAYS!
At their height SPW was moving $70K/day in remittance transactions. The founders were literally running around Nairobi raising cash wherever they could find it to deposit into their business float account to meet transaction demand. They simply could not find investors willing to back them and they did speak to many local high net worth individuals.
All this taking place in the backdrop of Kenyan diaspora remittances continuing to break monthly transaction records hitting a new high of $161.50M in 2017. You would think this would an obvious opportunity for local investors *hand to face*
Reveal #1: The SPW founders are all Kenyan, mistake or nah?
Others have pointed out that money is tribal and will find it’s comfort level. Well, access, another form of power should also be tribal, in China it is. You simply cannot waltz into China and set up shop with an entire executive team of foreigners and do your thing. But here we are.
Reveal #2: The WVE founding team are all American, was it obvious?
Adapt or Die
One sure remedy to this mess is to increase the levels of local capital investing in startups. We can easily surmise that all the potential investors who took meetings with SPW and failed to see the opportunity are losing money everyday while the WVE investors continue to multiply their wealth with every transaction the app enables.
African holders of capital must get up to speed on the realities of the brave new world in which we now find ourselves where data is the new oil and digitization the new gold rush. Over the past 20 years the greatest amount of global wealth has been created in the ICT sector. This trend is not about to stop and is now taking Africa by storm.
Unfortunately, African owners of capital still swear by real estate and land. As a result, we stand to miss out on the biggest wealth transfer since colonization, the digital transformation of Africa.
With Mpesa and SportPesa we have witnessed the speed and power of technology to transform industries and create massive amounts of wealth in the blink of an eye. It is time for Africans to wake up and smell the opportunity slipping through our hands. In this brave new world, digital assets are waaaay more valuable than land.
We established Impact Africa Fund to bridge the gap between local capital and African startups because we believe doing beats saying.
