Venture capital (VC) money, now more than ever, is directed at Africa. But to get a piece of it you need to validate your idea using a white person on the board.
And that sucks!
Key TakeAways
- Only 6% of Kenyan Startups that have received VC funding are headed by Kenyans (Victoria Ventures).
- 90% of VC funds meant for East Africa went to foreign entrepreneurs (Village Capital).
- A white entrepreneur is 47,000% (yeah, that number is correct), more likely to be funded than a local entrepreneur in Kenya (the Guardian).
- 65% of White entrepreneurs in Kenya have never lived in Kenya before the start of their venture (the Guardian).
- Black entrepreneurs are held to higher standards than White founders and ruled out of funding due to negligible mistakes (Twiga’s Founder).
- Meanwhile, elite Kenyans are holding approximately Kshs. 5 trillion in offshore accounts.
Smart people. Great Ideas. Ready Market. No funding.
Kenyans (and Africans) are smart people.
A lot of good ideas in tech are floating around with the evidence being in the amount of venture capital being directed at startups in Africa especially those in places with high internet penetration like Kenya.
Kenya is among the top destinations for VC funds raking in 18% of early startup stages funding dedicated to Africa. Also, Kenya is part of Africa’s ‘Big Four’ in tech. So, tech capital either comes to Kenya, Nigeria, Egypt, or South Africa.
A report by African Private Equity and Venture Capital Association (AVCA) found that VC deals in Africa between 2014 and 2019 are worth around $3.9 billion dollars (Yeah! That’s a lot of money).
By value, East Africa takes up 15% of investor money while West Africa takes the largest share at 18%. The volume of deals in East Africa is however more at 23% of the total deals compared to West Africa’s 21%. Southern Africa leads in VC deals 25% of the total deals.
Even with East Africa topping the list of destinations for VC funds, only 10% of the funding went to local entrepreneurs according to Village Capital.
The problem is that this investor money is coming into the pockets of white foreigners running “African” startups.
Predatory behavior
The influx of venture capital in Africa has seen a new crop of white entrepreneurs setting up shops in the key destination of VC funds to the disadvantage of local entrepreneurs.
Whether strategically planned between these white entrepreneurs and the VC funds or not, this trend is fueling a form of ‘scramble of Africa’ only a tech version this time.
Just look at the “Kenyan” startups that have received the most funding since 2019 – Tala, Cellulant, Dlight, Branch, Twiga Foods, M-kopa, Powerhive, Copia Global, Kopo Kopo, CarePay, AZA Group, WeFarm, and Africa’s talking. All of these have a white person on the board for one reason or the other.
White entrepreneurs also run the most successful startups around including Kapu, Jumia, Bitpesa, M-Shule, Koko Networks, Mobius, Lendable, GrowthAfrica, Kenergy, ConnectMed, Solarize Africa, Takamoto, Paygo, Powergen, Sanergy, Sendy, Lori systems, Lynk, SokoWatch, Safeboda, Kiva among others.
Data by Victoria Ventures (a firm following flow of venture capital led by Stephen Gugu) in Kenya shows that only 6% of startups in Kenya that have received over Kshs. 100 million are headed by Kenyans.
Stolen Ideas
The woes of local entrepreneurs do not stop at having to get a white person on their board, there is also the challenge of being recognized as the pioneers of their own ideas.
Take Mr. Kennedy Ng’ang’a for example, he used his geospatial engineering knowledge to start Safi Analytics, a company offering smart metering capabilities for power distribution in Kenya. He did this alongside two foreigners, one of them being Lauren Dunford.
While he was working on the prototype for over a year, Lauren went back to the U.S. to finish her MBA at Stanford. However, when they received their first funding of Kshs. 200 million, Lauren – and the other foreigner – tried to push Kennedy out of the company.
This is just one case where local entrepreneurs are forced to share or relinquish control of their startups in exchange for getting funding opportunities.
Twiga food’s co-founder Grant Brooke who partnered with Peter Njonjo and got funding of over 670 million is quoted in the Guardian saying, he has seen venture capitalists being biased against black entrepreneurs and ruling even silly mistakes during presentations as incompetence or ignorance.
White Investors for White Entrepreneurs
The world’s most prominent investors in startups are not in Africa. These are the likes of Goldman Sachs, Chan Zuckerberg Initiative, Stanford University, Sequoia Capital, and Andreessen Horowitz.
There is a myriad of other venture capitalists and most of them are mirrors of these giant VC funds.
It is therefore no surprise that local entrepreneurs do not get funded easily.
Data from AVCA shows that 42% of all African venture capital deals in the last five years are from North America-based investment funds.
The same data indicates that 20% of venture capital deals are from African-based investors and their firms.
As reported by the Guardian, a white entrepreneur in Kenya is 47,000% more likely to be funded than local entrepreneurs.
Also, over 65% of white entrepreneurs in Kenya from first-world countries had not even lived locally before starting their ventures.
What are Kenyan billionaires doing?
A question that keeps recurring among local entrepreneurs is why even with new billionaires cropping up in political circles every other year, none has shown the willingness to pursue the venture capitalist path.
It is paradoxical that while these local entrepreneurs struggle to raise their ventures, the wealthiest Kenyans have stashed over Kshs 5 trillion in offshore accounts under shell companies.
