In 2021, African startups raised over $4 billion, and in the first three months of 2022, up to $1 billion has been raised. While this looks great for the African tech ecosystem, one can’t deny that there exists a funding gap in the African continent.
A quick look will show you that investment in the African tech scene is focused on Nigeria, Egypt, Kenya, and South Africa, raising the question of why the other 50 countries on the continent hardly get a mention.
Is there a funding gap on the continent leading to unequal distribution of investment? What are the big four African countries doing right that the others are not probably getting? Even these big four that are getting funded, how many of their locally based startups are in the funding journey?
To answer these and other related questions, we had a chat with Segun Cole, a man of multiple hats as a founder, mentor, serial entrepreneur, and investor.
He started his career as a New mobility Consultant advising Governments on micro-mobility policies. He is a member of the policy commission member(NESG) and New Urban Mobility Alliance(NUMO) well as a Tony Elumelu Foundation Mentor.
As an investor, he sits on the Board of various African Tech Startups. Being the Co-founder of ekocab, an on-demand mobility marketplace for high-end rides, Segun narrated the challenges of trying to raise funds for an indigenous startup.
What led to the creation of Fund the Gap Alliance?
I am the CEO/Co-founder at Fund the Gap Alliance a Pan African network that addresses the issues of local founders’ under-representation in the allocation of venture capital funding.
Our Pan-African network has two mandates, the first is increasing access to capital for local founders and the second is to also work with startups to make sure that they are investment-ready.
This journey was not an isolated context, it started from a “personal immersion”, immersion in the sense that I had founded ekocab, a ride-hailing marketplace and being the founder of this indigenous local firm, I understand what it means in playing in this space where the early funding landscape was more of foreign.
Being a local founder that is trying to attract foreign capital, we were told by foreign VCs that they can’t invest in startups incorporated outside the United States or we had to be part of an accelerator program like Y Combinator before they can invest in us. We also had VCs who were demanding unrealistic traction too.
That frustrating experience of trying to fundraise and coupled with the local investments, community, or ecosystem that appears non-existent makes it more challenging.
It didn’t even end there as we have VCs telling us that we needed to acquire some form of Western education. All these demands from the VCs are meant to place African founders in a Funding-friendly position.
Asides from a western education, you need to belong to a Western alumni network. I was thinking this experience was an isolated one until founders from Nigeria, Kenya, Zimbabwe, Ghana and others began talking about these challenges.
“It now dawned on me, is this what everyone is going through? How do we curb this? How do we help the next generation of founders not go through what we’re going through?”
So it started as a conversation, truly there’s a gap, but before you fund the gap, you have to identify the gap, and since we’re beginning to identify this gap, how do we fund this gap? Thus the name Fund the Gap Alliance was formed.
We address how more capital goes to black founders, and that’s how the whole Fund the Gap Alliance started.
You mentioned “funding-friendly”, can you throw more light?
It’s a mixture of investment criteria and bias. Like I said earlier on, some of these investors we talked about wanting to see that you are incorporated in the United States.
They want your accounts domiciled in the US, while the ones for operating expenses can be in Nigeria for example, not also forgetting that you must have passed through an accelerator program like Y Combinator.
These investors strongly believe that participation in a program like Y Combinator makes it easier for them to fund African startups
This is the reason you see African startups doing everything possible to get into Y Combinator, even to the point of African startups who are graduates of these foreign programs helping other upcoming African startups incorporate in the United States.
These are some of the things that make African startups funding-friendly, even startups that have founders with elite education, attended Ivy League programs and belong to an alumni network stand high chances of investment because the investors believe they can relate with them.
Now, some groups of funders are no longer interested in calling for pitches as they now rely on their referral network.
They’re taking deals from their VC and alumni network while ignoring general applications.
We now see how these things shape African founders as they now work toward the pattern of trying to join Y Combinator, incorporate in the US, and have a white co-founder so as to increase their chances of raising funds.
Investors want to be sure that their money is in a place that is protected as they are trying to reduce risk while getting superior returns.
As an International Partner of WABF Angel Investment Fund, what are the uncommon requirements for investment?
The World Angel Business Forum was created to address issues like financial inclusion while making sure that countries were connected to global investments.
The forum also ensures increasing access to capital in each economy around the world. That’s the role I play basically connecting the Nigerian tech ecosystem to global investments.
One crucial question startups are supposed to be answering is, ‘Is my startup ready for VC funding?’, presently in the early funding landscape, it can be hard to access funding as a lot of early-stage startups are reaching out to VCs.
VCs aren’t interested in early-stage startups. In Mid March 2022, mobility fintech startup Moove raised $105 million, but you will see a lot of startups that don’t even have traction sending thousands of emails to VCs.
A lot of startups don’t even know they should be looking toward angel networks like WABF to help them to access early-stage investments
To get VCs’ attention, at least, they need to be able to build their products, gain traction, scale and then look into the way of venture capital.
As simple and basic as it sounds, you have lots of startups not following this path. Startups need to understand the stage they are in and who should invest in them at that stage.
“You can’t be in health tech and you are reaching out to an investor whose interest is in fintech. Before reaching out to investors, understand the sectors they are interested in, their investment criteria.”
Some investors would even consider if you have non-Africans in your team before investing. As a founder you will also need to build relationships even before reaching out for funding, because in some cases, investors may not consider your traction or pitch deck but rather the individual i.e they prefer to invest in the person because the relationships have been built over time.
Investors don’t fund ideas, you need to get at least an MVP, for your startup to be taken seriously.
What has been the Fund The Gap Alliance Milestone?
As I mentioned earlier before you fund the gap, you have to identify the gap. We have a successful collaboration with our other ecosystem players and identified several gaps.
Through advocacy and research, we have come to understand a lot of funding gaps that are out there.
Since we began our advocating we’ve been able to bring global attention and awareness to a lot of funding gaps, most especially the female funding gap, which is the $42 million female funding gap in Africa.
We’ve been able to secure quite a number of strategic partnerships that have gone into investment readiness programs while making sure that startups are fundable. We are looking at how we can fund more local founders by increasing access to funding.
It’s been more of like a shift in mindset, where we’ve had a lot of ecosystem enablers reaching out to us on how they can partner with us in addressing this local funding gap issue.
Also through this fund, we have been able to connect and breach the tech ecosystems, for example, the Brazilian and Latin America consulate, working with the Nordic groups, where we learn how tech ecosystem is developed over there to grow and scale, then we bring this knowledge to Africa.
Another funding gap has been the concentration of funding in four key tech ecosystems, namely Nigeria, South Africa, Egypt, and Kenya.
We have 54 African countries, right, not just 4 African countries. So we’ve been working in partnership with development partners and other ecosystem key enablers like regulators to see how we can drive investments into other tech ecosystems outside the big four.
What is the challenge with female funding and how can the bias be bridged?
One key challenge is if you look at the early-stage investment, it’s being more of male investors than female investors and that’s why you start hearing terms like gender lens investment, where there is investing through a gender lens. And in order to invest in a gender lens, there is a need for more female general partners, and more female-focused mentor capital-driven programs.
We have a partnership with Dream VC to democratize Venture Capital education across the African continent. Educating the next angel investor and also addressing the biases in investing in female funds and founders. Until then we would continue to see the same issue.
Featured Image: Segun Cole
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