White Tech Startup Founders Are 50,000% More Likely to Get Funded in Kenya Than The USA.
Seventy percent of startups in Kenya that received a million dollars or more of Venture Capital (VC) investment in 2018 was led by a white expatriate founder. Despite the expatriate community making up only 0.15% of the population. In the USA, around 76% of VC investment goes to white led companies while the population of white Americans is about 72%. If you weigh the percentage of VC investment received by white founders to their representation of the population in each country respectively, you get the astounding number in my title. I can see the skeptics begin to question some of the assumptions inferred in my calculation. But this position seeks to challenge the degree of the problem and risks us losing the proverbial forest for the trees. Whether you prefer the 70% or 50,000% number, we can all agree that we have a problem with the representation of Africans in an African technology ecosystem. Others might be uncomfortable with my use of the term “white” instead of “expatriate.” This is intentional on my part because the overwhelming number of expatriate founders in Kenya are white and I believe this is an issue about race.
In my book Un-Silicon Valley, I researched the founders listed on the Kenya Startup Funding Report for 2018 prepared by Founders360. While the focus of my book is on the USA startup scene, I wanted to see if there were any parallels between the USA and Kenya when it comes to diversity in VC funding. I filtered the list for startups that received funding from VCs and Angels. I then used LinkedIn and other publically available information to build a profile for each of the founders on the list. Did these expatriates have unique skills and experiences that could explain their over-performance in securing funding compared to their local counterparts? There are, after all, known challenges with the Kenyan startup ecosystem like the shortage of software developers. The results of my research were quite surprising and raised broader questions of how this overrepresentation of white expatriates is impacting Kenyan’s nascent startup scene.
65% of the founders were from the USA, while 35% come from the UK, Italy, Denmark, and Germany.
So where do these expatriates come from? Sixty-five percent of the founders were from the USA, while 35% come from the UK, Italy, Denmark, and Germany. To become an entrepreneur, you need to be bold, willing to shun the safety of the corporate nest for the uncertainty and whirlwind ride that is entrepreneurship. But it takes a special kind of chutzpah (supreme self-confidence) to decide you will take this ride in an unfamiliar country thousands of miles from your home. But this is a familiar pilgrimage. Nigerian American author Teju Cole refers to this pilgrimage in a 2012 article in the Atlantic — “One song we hear too often is the one in which Africa serves as a backdrop for white fantasies of conquest and heroism. From the colonial project to Out of Africa to The Constant Gardner and Kony 2012.” Africa is the perpetual last frontier and the target destination for this tech “gold rush” is Kenya. The two other countries in Africa that received the most VC investments: Nigeria and South Africa, are dominated by local founders. It’s hard to point to a single factor that has caused the Kenyan anomaly but there is a specific condition that has contributed to it. Kenya has a large expatriate community that works for the UN which is headquartered in Nairobi and the sprawling not-for-profit industry that serves its war-torn neighbors. This community not only serves as a networking base for a large number of white expatriates that have moved to Kenya specifically to start a business, but it also serves as a transitional vehicle into for-profit social venture startups. A few of the expatriate founders I identified in my research started as employees in the not-for-profit industry.
To co-opt President Donald Trump’s statement — “America is not sending their best and brightest to Africa.”
Can the skills and experience that these expatriates bring to Kenya explain their overrepresentation in VC funding? To co-opt President Donald Trump’s statement — “America is not sending their best and brightest to Africa.” OK, I will not go that far. Stumbling onto “the killer app” or business idea is much more art than science and requires a little bit of luck. Far from addressing the shortage of technical talent, 75% of expatriate founders held non-technical degrees. Sixty-five percent held an undergraduate degree and only 15% could be considered experts with nine years or more of specialized experience in the field they were working on. Kenya is believed to have one of the most educated populations in the world. With close to 49 universities, the country is a source of professional talent. Kenyan along with Nigerian immigrants in the USA outperform some immigrant groups from Europe and Asia when it comes to education level and earnings. There is no evidence that expatriate founders have a distinct advantage over their local counterparts when it comes to education and experience. Let’s explore one of the negative consequences of having an overrepresentation of expatriate tech founders on the Kenyan market.
65% of expatriate founders lived in Kenya for zero years before starting their company.
The best business ideas come from the entrepreneur’s bad personal experience. This experience gives the entrepreneur a unique view of the problem and hopefully, the solution they propose will be unique as well. But what if the entrepreneur has not lived in the country they want to start a business let alone having a personal experience of the problem? And what if the country they are moving to is a developing one with unreliable infrastructure, a large informal sector, and cultural peculiarities very different from the west? This is the case for 65% of the expatriate founders who lived in Kenya for zero years before starting their company. Many of these founders are using Rocket Internet’s “copycat” strategy. Rocket Internet, a German company, is well known for replicating successful American internet companies in markets where they have not expanded to. One of Rocket’s offshoots in Kenya is Jumia an online e-commerce platform similar to Amazon. There isn’t anything particularly wrong with this approach but if they are crowding out local entrepreneurs who have the unique experiences to provide a more tailored product for Africa then the market is poorer for it.
VCs and investors need to take responsibility for their role in either facilitating this abusive behavior or looking the other way.
A recent case that has sparked outrage among Kenyans on social media is the dispute between Safi Analytics co-founders. The company is in the energy space and offers a smart-metering service. The local co-founder, Kennedy Ngan’ga alleges that while his American co-founder, Lauren Dunford (who has no experience in the energy space and hadn’t lived in Kenya before starting the company) was completing her MBA at Stanford he was building Safi’s prototype and setting pilots in Kenya. Mr. Ngan’ga states that he was kicked out of the company after Mrs. Dunford recruited a fellow Stanford graduate, Westin Mcbride and after the company raised $2 million in investment. Mrs. Dunford has countered by claiming that Mr. Ngan’ga was an employee and in her own words — “In calling him a ‘co-founder’ we wanted to appreciate Kennedy for joining the company at such an early stage, although he had not created the idea for the company.” I found this statement to be condescending and exposes the exploitative nature of their relationship. When Mrs. Dunford was seeking to establish herself in Kenya, Mr. Ngan’ga was a valuable co-founder. Now that she is expanding to Mexico, Mr. Ngan’ga’s usefulness has diminished and she is ready to move on. In any other startup ecosystem in America or Europe, due to Mr. Ngan’ga’s involvement pre-funding he would have had a significant equity holding in Safi Analytics and his title as co-founder could not have been interchangeable with employee. But TIA (this is Africa) and the same rules don’t apply. Safi is by no means the only startup in Kenya that has applied this tactic of exploiting African co-founders. There needs to be a full accounting of this by the media. VCs and investors need to take responsibility for their role in either facilitating this abusive behavior or looking the other way.
Gut-feeling is borne from the investor’s years of experience but it is also influenced by the investor’s worldview, including their biases.
Why then do white expatriates get the lion share of VC funding in Kenya? One explanation could be bias in the investment process. In her academic report titled The Role of Investor Gut Feel in Managing Complexity and Extreme Risk, Harvard Professor Laura Huang states: “If they (investors) relied solely on pro-con lists, or what the hard numbers look like for the company at their current state, probably none of these investments would be made.” She continues: “Gut feel is the factor that allows them to invest despite what might seem overly risky.” This gut-feeling is borne from the investor’s years of experience, seeing what has worked and what hasn’t, but it is also influenced by the investor’s worldview, including their biases. VCs in Kenya are mostly expatriates, and it’s their worldview, their biases that are playing a significant role in creating this funding disparity. There is a natural human attraction to the familiar. There is also a strong motivation, albeit one that lacks imagination, to try and find “predictive patterns.” What has previously worked? This includes the type of entrepreneur that has proven to be successful over and over again — the young white male. The black Mark Zuckerberg is a distant image that is hard to grasp.
We need to explore new funding models that can profitably support niche businesses specific to a region or country.
What is the way forward? I would not like to see Kenya implement an affirmative action model like the one introduced in South Africa. I believe this will be too burdensome for Kenya’s burgeoning startup ecosystem. They say light is the best disinfectant, so I would like to see VCs and Social Venture funds publish their diversity numbers. Journalists and activists in the public space should study the diversity trend and put pressure on these funds to take concrete action to address bias in the funding process. We should be alert and identify startups that choose to apply tricks like bringing on African co-founders (that have negligible equity and role) to change their status as “expatriate founded.” While I believe there is room for the VC model (to chase unicornesque solutions targeting the entire African continent), we need to explore new funding models that can profitably support niche businesses specific to a region or country. This is where the local entrepreneur’s experience will shine and its where, I believe, the next Mpesa will emerge from. A similar evaluation is occurring in the USA with the Zebra Unite and organic growth model (that I discuss in my book) being proposed as alternatives to Silicon Valley. There might also be a need to put regulations in place to protect local founders, especially in the early stages. There could be minimum standards set for new startup entrants from abroad which might include them not raising seed funding locally. This might give local entrepreneurs some space to grow and compete against their expatriate counterparts.
Safi Analytics Founders Westin Mcbride, Lauren Dunford, and Kennedy Ngan’ga
Kennedy Ngan’ga & his new co-founder Peter Mbari (Pema Smart) at my book event in Nairobi.
Response from Safi Analytics CEO Lauren Dunford
About the Author
Roble Ega Musse is a serial entrepreneur and author of the book Un-Silicon Valley.
Twitter — @UnSilicon_Roble
Facebook — https://www.facebook.com/Un-Silicon-Valley-Book-100778514640187
