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Tackling venture capital bias in Africa


Two Tutu Fellows are featured extensively in an article in TechCabal by Eghosa Omoigui, the managing partner at EchoVC Partners.  The article, titled Nudges and shoves : Tackling venture capital bias in Africa, deals with how historic inequalities are impacting venture capital investment in Africa.  The two Fellows mentioned extensively in the piece are Swaady Martin, a 2002 Fellow, and Ada Osakwe, who was in the Class of 2014. 

Eghosa begins his piece by offering an explanation of how prosperity happens, then qualifies it by saying that unfortunately, economics cannot presume rational actors.  The playing field, he says, is skewed, and this impacts how investors pattern match when making decisions on where to invest.

These pattern-matching decisions are affected by social proof and biases - both conscious and unconscious - that act as metaphors for trust. Biases undercut rational decisions, even if they feel sound.

Investors, Eghosa says - both foreign and national - are looking for safe and trustworthy business environments. He unpacks the data: research shows that in 2019, 17 companies raised $1 million or more from venture capital in Kenya. Four were founded by a mix of expats and Africans, 11 by expats only, and only one by locals. Of the 31 companies in other countries - outside Nigeria and South Africa - that raised $1 million or more, 14 were founded by expats, 10 by locals, and seven by a mix of both.

The bias is obvious. One answer for this bias is racism, along with discussions about black entrepreneurs facing discrimination. Yet, opinion is converging on the need to challenge a North American lens that judges African innovation through a white pitch.

Swaady Martin, who is the founder & CEO of YSWARA, an African Luxury brand, says that despite her network, professional achievements, and sector knowledge, she has been unable to raise funding for the company. Her company has helped transform African agricultural commodities locally, incorporating them into profitable and sustainable supply chains, and her beautifully-packaged premium specialty tea brands are distributed globally.  Swaady is also the creator of the Luxe Ubuntu concept, an inclusive luxury business model providing economic value and meaningful income to all the members of the supply chain, who participate in the production of luxury products. She has received numerous distinctions and awards, one of which was being named The Queen of African Luxury by Forbes in 2013. The same year, she was named by the same publication as one of The top 20 young Africans building the future of Africa. In 2014, she was listed on Oprah Winfrey’s “O’ Power List“ and named one of the Youngest Power Women in Africa by Forbes.

Despite that, she has noticed the capital cycle from white funders to white founders in ways that mimic the transfer of World Bank loans from Washington institutions to Africa-based NGOs led by white people. This perpetuates what she has called another form of "neo-Colonialism".  She doesn’t expect mindsets to change and has a three-pronged plan: 

  • To mandate that a minimum of 60% of VC deals be channeled to African founders
  • Requiring non-African founders to give some equity to a fund supporting local entrepreneurs
  • Africans to invest in Africa

Ada Osakwe, who is an agro-entrepreneur and angel investor straddles both the startup world and funding.  Ada is the Chief Executive of Agrolay Ventures, an investment firm dedicated to growing the agricultural and food sector in Africa. She describes her home country of Kenya, which has a large community of expatriates, as a soft landing pad for foreigners who want to become African entrepreneurs, because of that community.  When foreign investors look to fund African companies there, they are drawn to these expats, assuming them to be capable and experienced. Unfortunately, she says, people fund those who look like them, not those who are the most capable or have the best ideas.

As someone who previously served as the Senior Investment Adviser to Akinwumi Adesina, Nigeria’s Minister of Agriculture and Rural Development, she was responsible for advising the Minister on all agriculture investment-related activities involving private sector investors. She led investment policy and financing initiatives as the Ministry initiated a “government-enabled, private sector-driven” agricultural transformation agenda. Amongst various initiatives, Ada led the development and launch of the US $100 million Fund for Agricultural Financing in Nigeria (FAFIN), a private equity fund dedicated to investing in small and medium agribusiness companies in Nigeria.

Ada says that the only way Africa can crack this issue is when African start being the providers of capital, meaning to suggest that that with more successes on the continent, the world will come around to seeking out Africans on Africa’s terms. The article says that because a workable VC-founder relationship goes beyond money venture capitalists tend to fund people who are compatible with their world view.  As a consequence, VCs may be inclined to lean into this compatibility argument as justification for not doing enough to fund companies founded by people whose worldview they are not familiar with, i.e. black-founded companies.

To change this dynamic, the Africa Development Bank has set up a fund called Boost Africa in partnership with the European Infrastructure Bank. Aimed at “empowering young African entrepreneur” startups, the initiative will fund up to 30 funds over an eight-year period. It is unclear at the moment which funds have been funded so far as there is no public record. Perhaps the Boost fund should incorporate some of Swaady's ideas?

You can read the entire article at TechCabal.

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