Read time: 3 minutes

Call for more local investment in African startups

Call for more local investment in African startups

Support from within Africa is the key to unlocking the potential of startups that are emerging across the continent according to an assessment of the African ecosystem by speakers at Demo Africa 2016 in Johannesburg late last week.

The call for an increase in backing for African startups by Africans themselves is being proposed as a way to provide much needed backing to thousands of African startups, including the 21 that failed to win Demo Africa's 2016 prize of a trip to Silicon Valley awarded to five of the promising startups that pitched during the event.

Collins Onuegbo, President of Lagos Angels Network believes the poor level of investment in African startups globally should inspire domestic intervention despite the perceived risks.

"If you look at the structure of venture capital funds they are often made up of retirement funds from different countries, so why would somebody who has a retirement fund in New York ask for the money to be invested in Africa? I think we can sit here and blame them for not putting private equity money in Africa, but I think the challenge for Africa to ensure that the legislation and the laws allow the venture capital funds to raise money locally and invest African countries."

Onuegbo said it was the realisation that most of the seed funding sourced from outside Africa is insufficient that led to the founding of the Lagos Angels Network almost four years ago with the aim of encouraging local investment. "Part of our job is to make sure that we create an exciting story for people from the continent to invest in startups from the continent...I think we need to talk to our people and our government and get them to understand that startups are the way to create jobs."

Lia Mayka, Regional Manager in Sub-Saharan Africa at Village Capital, echoed Onuegbo's call for home-brewed investments.

"It is evident that there is a huge upside in Africa in terms of untapped market. It would be a shame if all of that upside went to investors from Silicon Valley because that money would go back to into their pockets in the US. It should be going to the pockets of Africans and creating more capital to put more funds in. I think it is great that these angel networks like Lagos Angel Network and Business Angel Network in South Africa are trying to solve this problem of getting African people who are wealthy out of investing in bonds and property and investing in the best ideas coming out of their neighbourhoods and cities."

Mayka and Onuegbo also said Asian investors in Africa show bias for infrastructure projects and are often limited by a lack of distribution networks and logistics suppliers, among others.

"Three US cities take up half of the venture capital in the world. When you break it down to who is getting the venture capital in those US cities you learn that only five percent are women and only three percent are people of colour. Do we think that is because only white men in Boston, San Francisco and New York have great ideas? No, we don't think that way and we think that is a problem that needs to be solved. It is a problem because it is not representative, but also because the people that get funding are often solving problems that affect people like them because of the demographic they represent, and they are therefore a small percentage of a very small percentage. If they are solving bigger problems they do not have a lived experience of these situations and might therefore not be the best people to solve them."explained Mayka.

Mayka also recommended that funding begin at the seed stage in order to support more of the big ideas that solve problems experienced by large numbers of people in underserved markets like Africa before the ideas are abandoned. These ideas she added, are largely found in sectors agriculture, financial technology, energy, education and health.

Read more
Daily newsletter