Local capital, not Silicon Valley, has failed African entrepreneurs

Monday August 24 2020

The debate on why companies with ‘white’ founders or co-founders get the bulk of early stage investment in Africa has been raging for several years. Many wonder what disadvantages African founders have, that they cannot access the same support.

In my opinion, it is the African funder, not Silicon Valley, that is to blame.

A report by Africa Venture Capital Association (AVCA) noted that 39 per cent of venture capital (VC) deals in Africa are done by third party fund managers — that is firms that have raised or are currently raising their investment money from other institutional investors, referred to as limited partners.

In this, the limited partners will have a pre-determined investment strategy for themselves, which informs what VC manager they support.

In my engagements with US-based institutional investors, the often-asked question, “how much local capital is committed to the industry?” is raised, one that we in the industry struggle to answer.

For the foreign investors, it is hard to make a case to support African entrepreneurs when local investors (either through angel investment, institutional capital among others) will not support them.


The AVCA research further provided that only 20 per cent of VC investors involved in funding early stage entrepreneurs were African.

This is telling. Until we have more local investors willing to back African venture funds or engage in direct investments as corporates or angel investors, we shall continue to see foreign investors supporting foreign founders and co-founders. After all, charity begins at home.

Local capital is the cornerstone of business and economic growth for any country. It is affordable capital needed by entrepreneurs starting or looking to scale up, especially in Africa.

Local investors, whether institutional such as government allocated SME funds, insurance and pension funds, or corporate and individual angel funds, commit money in local currency, removing from the investment capital the risk premium associated with foreign currency investment.

Beyond the money, local investors understand the dynamics of business operations in the market and can provide the much-needed mentorship to African founders on how to navigate the Continent’s reputed complex business environments.

In my interaction with entrepreneurs I have often heard many remarks on the need for “strategic guidance” more than the capital from investors. If this holds true for African founders, then the answers to their growth and success must be derived from within the continent, not outside.

One way of bringing more wealthy Africans to invest in start-ups is by governments incentivising them through tax breaks.

Corporates venture capital (CVC) is another platform through which African founders can get the needed financial and strategic support.

CVCs help nurture local startups by offering hands-on experiential learning based on their own market experience.

For example, in Kenya, leading telecommunications company Safaricom in 2014 launched the $1 million Safaricom Spark Venture Fund, which went on to seed some of the country’s leading start-ups such as logistics firm Sendy.

While there may be rational justification to blame Silicon Valley for failing African founders, the truth is that local capital is the first bearer of responsibility and should step up its position of anchoring Africa’s revolution.

Eva Warigia is CEO of East Africa Venture Capital Association. The opinions expressed here are her own.