Response to: Why Venture Capital hasn’t taken off in Africa
This is a response to TMS Ruge’s Article specifically to his expression about what he calls White-Fronting which is where a start-up from Africa (I prefer Developing Economy) intentionally recruits a white person(again i prefer “Developed Country” citizen) as co-founder just to get VC financing. It also includes related ideas i had already given thought about and intended to write about before reading TMS’ post.
To understand why VCs haven’t shown as much appetite in developing economies as anywhere else, you need to understand their KEY selection criteria. Every VC web-page or VC-blog you read shows that VCs accord almost 90% to the team. Most VCs/Accelerators will fund a great team even with a lousy idea/model. And perhaps for good reason, i mean given an early-startup with an unknown future what is your next best ‘right-now’ gauge? The Team.
One blog i read said in a world where 9 in 10 startups fail, VCs will choose the ones that are less likely to fail and they believe the strength of the founders has much to do with increasing chances of success. But i think this is much in theory and rationale otherwise why do more startups fail even with great teams?? You definitely need a great team but there has to be a Balance, the idea needs to be great as well.
So the BIG question is why are teams entirely from developing economies neglected most of the time?
Again to understand this you need to understand what VCs mostly look for in an individual on a team. Education is the key here, if you have a Harvard, Stanford, MIT, Oxford, Wharton, Caltech and other big names, it speaks a bunch not just about the quality of education you received, but also sums-up your knack to succeed generally.
It speaks about your past, i mean you don’t just get admitted to top universities without standing out of the crowd. Actually if you are an African trained in these top Universities, you just might stand at an almost equal footing with your Developed economy peers. But why is this gap there anyway?
There is still a knowledge-gap of over half a millennium between Developed and Developing Economies. Arithmetically it could be more considering that free education was officially mandated by the Church in the 1100s AD in Europe. While the first formal African school was opened in 1658 in Cape Town never mind it was a school for slaves as the white man sought to make slaves more useful to him.
As some Europeans were paying for education, this slave school had to reward pupils (mainly adults) for their presence, they each daily received a glass of brandy and two inches of tobacco. We generally had to be colonised to receive life changing knowledge.
Yes we had education before but it was not only undocumented but also rudimentary, things like fermentation, weaving, backcloth making etc were transmitted across generations verbally and by observation. But this is the killer, communication between villages and kingdoms was done by swift runners who relayed information verbally. The developed economies probably had there fair share of these rudiments in the BC era.
This knowledge-gap is the reason the top-ranking universities (over 400) by all metrics are from Developed Economies but a handful. It is the same reason top global corporations are from Developed Economies. You can extrapolate this to all social, health, economic and political sectors and the best of these will be from developed economies in general sense precisely because of earlier exposure to knowledge.
The whiteman’s forefathers might have used their knowledge superiority cruelly to their advantage, but colonisation like all things had it’s advantages and disadvantages.
Since we are in the information era, this knowledge-gap is perhaps the cause of almost all other differences between Developed and Developing economies even when the Internet has done wonders in closing it, it still haunts us and might take another century to close in on it if at all. This is the day Makerere University Kampala will rank among the top 10 universities in the world?? zzzz…zzzz… someone wake-me-up.
The more knowledge or exposure thereto you have about a subject the better the ways you are going to use it to better lives.
Children in Developed economies are exposed to knowledge very early on. Compare the daily tasks of an American teen say, Zuckerberg, Bill Gates to that of an African entrepreneur. While the two were tinkering with computers and code, and reading fairly advanced text, an African in their times wakes up to go the garden until midday and play football or other games after lunch fetch water from the lake and firewood in the evening.
The two go to advanced primary and top secondary schools and top universities and the African is limited to medium quality education (but best in developing economies). SO at what point really will this guy catch-up with all the wealth of knowledge someone in a developed country is exposed to, and what are the chances that he will successfully build a global company? And if you are a VC or accelerator who is more likely to deliver the returns your profit-hungry investors pay you to make?
My observation is that even people in developing-economies prefer ‘DEVELOPED’ products and services, right from the tooth-pick, if one can afford a European made tooth-pick, they won’t buy one made in Uganda. And it doesn’t have to be labeled ‘Made in Germany’ the stark difference in quality alone makes it the preferred choice. And I think this is a natural and logical disposition, I mean why should I buy a tooth-pick that will prick my gum to increase my dental budget when I can afford a better designed one?
For example, How many products made in a developing country do you use, on your phone, PC, even domestically? I guess none, I personally have no more than 2 local apps on my phone and none on my PC, and this is the case anywhere you go, maybe the exception could be China.
The main reason we are called developing-countries is because of this knowledge-gap between DEVELOPED and DEVELOPING economies.
This means we have a developing health-sector, developing financial-sector, developing social-sector, developing education-sector, developing, developing, developing, everything is just developing, and this includes the software-development sub-sector. It also means the products and services from developing economies are DEVELOPING” or immature products and services.
So i think the idea of “white-fronting” TMS Ruge describes in the above article is to the VCs’ a more realistic bet that their ambitions are in safer uncertain waters because of this knowledge advantage but to the Startups who so “white-front” they get the chance to not only tap into the knowledge wealth of developed-country citizen but also be part of building global companies.
I don’t know about the startups that have white-fronted so far but i would gladly court the right developed-country citizen as co-founder(s) not to purposely get Venture Capital but to harness this knowledge advantage to build a defensible global company to maximise the impact of a startup’s benefits.
Like Entrepreneur First CEO Matt Clifford says “Maximising impact is the essence of ambition, so ambitious individuals seek out paths that give access to their era’s dominant ‘technology of ambition’.” Since knowledge is also transferred through close interactions with more knowledgeable people, this would be another opportunity to close the knowledge-gap above, which can be transferred to future generations.
Why are we actually not talking about African VCs?
Don’t you think it takes knowledge to understand the importance of VCs but also to manage a successful VC? We don’t have African VCs because we lack money, but because the people who would be in position to own African VCs lack knowledge of the importance of VCs, but also knowledge to manage thriving VCs and so we have to rely (for now) on VCs in developed economies who are also averse to our startups precisely because of this knowledge-gap. If 10 in 100 startups that have white-fronted manage to hit global markets in 10–20 years, perhaps we might see 5–10 African VCs.
But as the VC bubble shudders to burst on US startups (Reuters, GV), the rest of the world especially developing economies are waiting arms wide open to develop solutions to impeding worse challenges.
I stand with those who believe that with so many global challenges glaring at us, we don’t need another selfie or photo-sharing app yet US VCs will still invest millions in such ventures.
