Africa must earn the trust of venture capital



Africa must earn the trust of venture capital

The word “startup” will forever be linked to Silicon Valley, home to some of the biggest tech companies in the United States. The concept started in the United States, but all corners of the world have embraced it. In Africa, the number of valuable startups is increasing.

But what is a startup and why should you be interested in it? An article in Forbes Advisor by Rebecca Baldridge and Benjamin Curry explains that startups are rooted in innovation and aim to fill gaps in existing products or create entirely new categories of goods and services, while disrupting ways of thinking and to do business rooted for entire industries.

According to them, “this is why many startups are known in their respective industries as ‘disruptors’.”

Examples include disruptions in financial services and the media industry by mobile money and social media respectively.

In 2021, Flutterwave, OPay and Andela, all African-owned, were considered one of the most valuable startups or unicorns – companies valued at $1 billion. The others are Interswitch, Jumia, Esusu, Wave and Chippers Cash.

And while many of the most valuable startups are in the financial sector, there are remarkable developments in other sectors. This therefore draws our attention to the importance of nurturing the startup ecosystem to continue attracting venture capital to Africa.

For example, in Kenya, startups like Twiga Foods (agriculture), Little and Lori (transportation) are now likely to join the unicorn club. Egypt, Nigeria and South Africa also have potential unicorns in the next two to three years.

Success stories wouldn’t be possible without venture capital (VC), most of which comes from the western world.

This therefore calls for transparency and accountability from startups in Africa to ensure scalability. Unfortunately, that was not the case. For example, two of Africa’s most valuable startups found themselves on the wrong side of corporate governance.

There were allegations that Jumia had falsified its financial figures in its filings with the New York Stock Exchange. There is also another allegation that Flutterwave CEO Olugbenga Agboola at the start of the company invented a fictional “co-founder” persona to grant himself additional shares.

Such allegations can easily harm the startup ecosystem in Africa. And it could also affect the entire African venture capital portfolio.

Since the many trips I have made to Silicon Valley, the issue of corruption in Africa always comes up, affecting Africa’s VC more. While we champion the African startup scene as ethical, such allegations have fueled the narrative that the continent is corrupt.

It could also explain the funding disparities between white and black founders.

I have heard arguments that there are bad apples in Africa as in other parts of the world. But we have to go the extra mile to convince others that their investments will be in good hands with African startups.

Hence why I support the idea of ​​fostering a start-up environment that can have a positive impact on economic development in Africa.

According to Partech, which tracks annual data, already 600 tech companies with Africa-based operations raised $5.2 billion in venture capital in 2021. In the first quarter of 2022, nearly $1.8 billion in funding of venture capital have been absorbed by African tech startups.

There has been a phenomenal increase in venture capital funding for African startups considering that total funding increased from $366.8 (then considered a record) in 2016 to $5.2 billion in 2021.

It is through such investments in startups that the continent can break away from informal businesses and move on to building more scalable businesses that can create jobs for our youth and contribute to economic development.

The current generation therefore needs to build trust in startups through ethical practices and consistent application of principles and values ​​in decision-making.


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