African Startup Funding Suffers from Racial Profiling in the USA and Europe

This month the UK’s Guardian International Edition carried a report on the challenges faced by African entrepreneurs trying to raise investment in the USA and Europe. North American HQ-ed investors have accounted for 42% of all African venture capital deals in the last 5 years, according to the African Private Equity and Venture Capital Association. Only 20% of venture cash came from Africa-based investors. Of the top 10 African-based startups that received the highest amount of venture capital in Africa last year, 8 were led by white foreigners. In Kenya, for instance, only 6% of startups that received more than $1m in 2019 were led by locals, according to an analysis by Viktoria Ventures. In Nigeria, 55% of the big-money deals went to local founders and 56% for South Africa. Global heavyweights such as Goldman Sachs, Stanford University, the Chan Zuckerberg Initiative, Andreessen Horowitz and Sequoia Capital have all invested in startups started by white founders in Africa more frequently than they have invested in firms led by black Africans.

To add to this dismal news, the general consensus is that the amount of funding available to African tech startups will decrease dramatically as a result of COVID. Disrupt Africa’s annual African Tech Startups Funding Report suggests that, while startups on the continent raised more than US$100 million in funding in January and February, there was a sharp decline in investment as the crisis took hold, with less than US$30 million raised in March and April. There have been some signs of recovery in the last few months, but those in the know suggest funding will be harder to come by as the economic impact of COVID-19 hits investors pockets and affects attitudes towards perceived risk. Regardless, some investors are remaining active throughout the crisis, and startups still have avenues to go down if they need funding. Regardless of the COVID-inspired slowdown, 2020 is still on course to beat last year’s record and become the best yet for investment into African tech startups, and more deals will be done over the course of the year. The simple fact of the matter is that plenty of investors have funds that need to be invested, and Africa is being seen as a potential market.