Could it be more than a pipeline problem?
8 min read · May 19, 2023
New Power Labs
TL;DR – African founders are disproportionately under-represented in VC funding across Kenya. It's not just a pipeline problem.
White expatriate tech founders are 50,000 percent more likely to receive funding in Kenya than they are in the United States, according to 2018 data. This despite making up less than 1 percent of the country's population, and in some cases, not actually living in Kenya before founding the company.
Looking at the sources of the capital, this discrepancy is perhaps explained by the fact that most of the money invested into African tech start-ups flows from foreign investors. In the last five years, venture firms headquartered in North America accounted for 42 percent of VC deals in Africa, with African-based firms accounting for only 20 percent.
Contrary to the common narrative, the underrepresentation of African founders in VC funding cannot be attributed solely to a pipeline problem. Although African entrepreneurs possess local market knowledge and identify gaps in their communities, they often struggle to secure funding.
Knowledge of the local market matters. Take the example of Kune Foods, a food delivery start-up in Kenya, founded by Robin Reecht three days after he arrived in Kenya, in response to his inability to access affordable meals. The start-up raised $1M in pre-seed funding based on the assumption that there was a gap in ready-to-eat meals services. Many Kenyans, while showcasing the numerous options for affordable meals around the country, argued that Kune Foods was solving a non-existent issue. Six months later, Kune Foods’ CEO announced it had run out of money, exhausted all its options, and would be shutting down.
In Canada, who do we trust and bet on, with our capital, to build and lead? Trusting people who look like us or went to school with us could be a manifestation of 'in-group bias', which is a psychological tendency to favor people who belong to the same group as us. Recall the water and empathy experiment.
Five questions for capital deployers to expose and mitigate in-group bias:
Do we have a diverse team of decision-makers who can bring a variety of perspectives to the table?
How diverse is our deal sourcing? Are we looking for opportunities in a diverse of places, or are we limiting ourselves to familiar networks?
Do we have a structured evaluation process that’s based on the merits of the organization’s strategy market opportunity, and the abilities of the founders rather than personal affinities?
How are we using data to drive decisions based on evidence rather than subjective biases? And what are the limitations, and potential bias that may exist in this data?
Is there a process in place to conduct regular audits of our investment decisions to identify patterns of bias and allow for neccessary adjustments?
Acknowledging bias is not enough. Diversifying investment teams, increasing transparency of the process, fostering networks, and adopting data-driven investment practices that are inclusive, will help to unlock capital to underfunded and overlooked leaders.
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