African Entrepreneurs suffer from venture capital shortage

African EntrepreneursLocal Entrepreneurs in Africa are disadvantaged by a lack of venture capital

In an article for Computer World, [November 2013] journalist Rebecca Wanjiku suggests several factors that may be contributing to a shortage of funds for new technology start-ups. There is no parallel with the vibrant venture capital hubs such as Silicon Valley in America or the University spin-off science pars flourishing in Cambridge [American or English versions].

The perceived challenges of businesses operating in Africa as well as the higher costs of due diligence and inexperience of the investors and entrepreneurs in the region have all worked to dampen the growth of venture capital funding for tech start-ups and mid-level businesses on the continent, according to industry insiders.
Local start-ups have held discussions and wondered whether their lack of success in raising big money had racial overtones. Companies run by whites seem to be luckier in securing funds. The problem, however, seems to be more about the perception of inexperience and a lack of contacts than race.
“I don’t think it’s about being white or black, it’s about your network; highly networked Kenyans have an easier time too,” added Erik Hersman, founder of the iHub Nairobi, a co-working space for techies.
“Innovative early stage ventures with the potential to yield high social and environmental impact and requiring less than $500,000 in financing remain the most difficult segment of the SME pipeline to reach,” said Ben White, founder of VC4Africa. VC4Africa is an online portal that brings together 13,000 entrepreneurs, VCs and angel investors interested in Africa. It was kicked off at the annual congress of the African Venture Capital Association in Dakar, Senegal, in 2007. Last year, VC4Africa start-ups secured $80,000 in funding while companies seeking expansion secured an average of $237,000 in funding.
VC4Africa works with entrepreneurs in 40 African countries but the number of start-ups and growing companies seeking funding outstrips the available capital. The lack of in-country funding mechanisms and lack of tech-specific financial facilities from the public sector most likely means that the problems will persist.

Leadership challenges

Leadership challenges abound. The contrast with the developments emerging in China, is stark. A similar sense of the availability of entrepreneurial venture backing is reported in India.

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