This could be the golden age of African tech startups. African tech startups are on a money spree, buying rivals or being bought themselves. In Nigeria, Africa's powerhouse with 200 million people, tech startups have reportedly attracted $737 million in funding in 2019, representing 37 percent of all VC money that flowed into Africa that year. Activity has soared so much that startups in Africa even struggle to find local workers to fulfill admin and software roles.
A disturbing reality
Behind this rosy-looking boom of Africa's startup scene lies a deeply uncomfortable reality. The majority of funders who are receiving VC cash are white founders who are coming from the West: California, London, Tokyo and other major cities, to set up a base in Africa.
It is a story as old as humanity itself – white entrepreneurs getting money ahead of Africa locals even in the continent itself.
The story of Robin Reecht, a French startup executive in Kenya, illustrates the seething anger behind race and the startup cash ecosystem in Africa. Reecht caught the fury of Kenyans when Techcrunch revealed in June last year that Kune, his on-demand food startup to operate in Kenya, had swooped $1 million from investors.
However, Nigeria, the African tech powerhouse, seems to be taking an enterprising route – letting African tech startups become the VC funders themselves rather than wait for Westerners. In Africa’s booming tech scene, the founders have become funders, revealed Rest of World on how local Nigerian e-commerce startup Fashpa became one of the funders of the $3.5 million seed round of Paystack, a local Nigerian fintech startup. Paystack, has grown exponentially globally in recent years.
But for some, the ultimate display of white privilege – how dare those white tech startup executives come to Africa and get VC capital ahead of locals – seethed Kenyans on social media.
VC cash favouritism
“It’s easier for white startup executives to come from Paris or Miami and get their online pet food startup funded in Johannesburg, South Africa, than for a local startup in South Africa to be funded,” Tawanda Chitiyo, an African tech entrepreneur who is creating Zimbabwe’s first block-chain solar auction, told The Plug.
Chitiyo said he struggles to convince VC capital funders as far as Denmark without attracting the confidence of funders who are usually Western, European and white.
“I can’t wrap my head around my suspicions that if you’re Black it’s hard to be heard,” Chitiyo said.
Data seems to bolster claims of racism in the way VC capital funds are allocated in Africa. Only six percent of startups that were funded for more than 41mn in Kenya in 2019 were led by locals, according to Viktoria Ventures, a startup money management firm in the capital Nairobi.
To paint a more dismal picture, 70 percent of startups that received more than a million dollars in Kenya in 2018 were managed by white founders, though white people make up only 0.15 percent of Kenya’s population.
Kenya is an important marker because along with Nigeria, it is Africa’s hottest tech destination, with globally acclaimed humanitarian open-source apps like Ushahidi being created there.
“I don’t want to imagine that white skin gets you ahead of the queue in the VC funding arena. Do white startup executives make better pitches? It’s a mystery to me,” Maxwell Chimedza, a social tech analyst who gained global fame for running an entirely WhatsApp-based classroom in his native Zimbabwe, told The Plug.
This is a phenomenon that is not unique to Africa but in the US itself, which is the biggest global source of tech VC funds, according to Carter Mavhiza, an independent public accountant in Johannesburg, South Africa who advises African startup founders on cross-border taxation and audit matters.
“It’s not better overseas,” Mavhiza told The Plug.. “Silicon Valley is famous for cutting edge-tech but famous too for giving fewer VC cash to Black or Latinx tech startups.”
A Potential Solution
Mavhiza said that financial risk is partly the reason that Western financiers coming to Africa prefer to give cash to mostly white Western startups that are already domiciled in Africa.
“Most of offshore capital coming into Africa is sourced from Western investment banks, and no one wants to risk shareholders' money. But fear of risk doesn’t explain why mostly white-skin startup executives in Africa get VC capital ahead of locals, leaving us to speculate, race is at play,” Mavhiza said.
Nigeria, the African tech powerhouse, seems to be taking an enterprising route – letting African tech startups become the VC funders themselves rather than wait for Westerners. In Africa’s booming tech scene, the founders have become funders, revealed Rest of World on how local Nigerian e-commerce startup Fashpa became one of the funders of the $3.5 million seed round of Paystack, a local Nigerian fintech startup Paystack, which has grown exponentially globally in recent years.
“I’m so excited about this approach: African startups in Nairobi, Lagos, Cairo funding, closing bids of other African startups, rather than bank entirely on Western money that has high interest rates and tinker of racist allocations,” Mavhiza said.