Africa is still viewed from the post-colonial lens of poverty, famine, warlords and political unrest. That’s why there are more aid and philanthropic projects than there are venture capital projects. If we are still being looked upon as poor aid recipients, it is hard to see us as business opportunities because Venture Capital (VC) doesn’t see us as potential customers of anything.
The only place where there is opportunity is in large extractive industries, where it is about what you can rip out of the continent and sell in large quantities to energy and resource-hungry industries and countries: oil, gas, diamonds, and other minerals is where the money is going.
Additionally, most of the VCs don’t have an understanding that investing in Africa is a super long game. Don’t expect an exit strategy to kick in, in less than 7-10 years. Most traditional VCs aren’t that patient.
Lessons from India
Venture capital took off in India mostly because it was the Indian Diaspora that led the way and saw opportunities in the tech sector. Moving capital from Silicon Valley and setting up small startups and eventually the call centre and the rise of Back Office Systems enterprises we know today. That success led to the growth of the Indian population’s participation in startups and having a seat at Venture Capital firms in the Valley.
It gets even more complicated when you realize India and Africa have roughly the same population. However where India enjoys being a country and therefore one regulatory system, Africa has 54 regulatory systems. That means 54 different (smaller) markets. The growth strategies for any startup are X times harder – where X equals the number of countries that the startup wants to enter. 4 countries = 4 times the obstacles to conquer.
The sheer obstacles one has to overcome are a barrier for VCs to get their heads around, but they aren’t for local startups who know how to navigate that complexity. That chasm of disinformation between investors and African startups needs to be closed.
‘Money flows from like to like’
One trend that I see happening (even though I completely disagree with the strategy) is this: African startups are getting wise to the law of startup money. In the venture capital/startup world, money flows from like to like. In other words, sometimes it is not always about your product or business, it is about the people behind the business. Serial entrepreneurs in Silicon Valley are more likely to get funding quickly than someone no one has ever heard of or can relate to.
In some African markets, this is manifesting itself as the “white front” strategy. You are more likely to get funding (or get that meeting) as an African startup if you have a white co-founder on your staff. If you are smart, you put that white guy in your marketing videos, and/or you make him CEO. An all-black African startup CAN get funding, but it is a lot harder to do.
Africa investing in Africa
I’d also be remiss if I didn’t mention that we have a glaring missed opportunity in the $60 billion in remittances that flow into the continent from the Diaspora. If we could even tap 10% of that flow and direct it towards high-risk, high-reward startups on the continent, it would dwarf ALL the venture capital on the continent right now.
Finally, I think the only way the situation can improve is if African money begins funding African startups. There’s plenty of money on the continent, but the infrastructure for distributing that money to startups isn’t there yet. Nor is there a mature startup scene yet to jump-start this trend. The chicken and the egg aren’t mature yet. There are small semblances of this happening at various tech incubation and co-working spaces like Hive Colab in Uganda and iHub in Kenya that are centralizing exciting projects. This has attracted new African-focused VC firms to form like The Savanna Fund, but we need similar efforts for other market sectors on the continent as well. VC4Africa has things going in the right direction, but could certainly use the help.
TMS Ruge is the founder of several businesses and initiatives working on cutting-edge solutions for social change. Follow him on Twitter @tmsruge
This article first appeared on tmsruge.com and is published with permission.