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Foreign tech investors face culture shock in Africa

Vince Matinde | May 8, 2015
Issues involved grow in importance as foreign VC funding in Africa increases.

With venture capital into Africa on the rise, tech startups are excited about the increase in funding from developed countries, but relationships with foreign investors are not always smooth.

Differences among cultures, economies and business environments are a big reason why many investments don't yield fruit as planned. The issues involved may only grow in importance as foreign VC funding in Africa increases.

According to VC4Africa, an online entrepreneurship platform formed to bring together investors and startups, funding for startups is particularly high in South Africa, Nigeria and Kenya, relative to other countries on the continent.

In 2014,19 companies in Kenya received an average of US$250,000 each, while in South Africa 11 companies received an average of $250,000, according to statistics from companies registered with VC4Africa. The country with the greatest number of companies receiving investment was Nigeria, with 24 startups getting a $57,000 each.

Overall the amount invested in Africa companies registered with VC4Africa jumped to $26 million in 2014 from $12 million in 2013, with 44 percent of all startups receiving external capital.

However, it can take time for non-African investors to understand the local landscape, said Simeon Ononobi, the founder and CEO of SimplePay, a payment platform startup in Nigeria. SimplePay has received funding from SeedStars Africa -- part of a global network of investment companies -- which concentrates on African startups.

Lack of continuous electricity, unreliable Internet connections and bureaucracy in getting businesses registered are some of the shocks that welcome foreign investors to Africa. "They seem to want to compare local African markets to European markets and that has not worked," Ononobi said.

Non-African investors also tend to stress lean company structure and can be hesitant to hand over promised investment funds all at once, Ononobi said. "We had investment but could not get access to the funds for a very long time," Ononobi said.

Expectations on both sides need to be put in perspective and managed.

"One thing I have learned is that investors are different in their expectations and being able to either meet or surpass that expectation, helps the relationship," Ononobi said. All investors want growth, Ononobi said, and the bulk of the responsibility for success falls on the business owner.

Ononobi said that over time he has learned how to deal with external investors. He urged local companies to give investors time to learn about the cultural and economic differences between Africa and other regions. Apart from looking for capital from investors, businesses should also look for expertise, he said.

For Johnni Kjelsgaard, an investor with GrowthAfrica, a consulting and investment group in Nairobi, investing in Africa has been a 15-year journey. Kjelsgaard, who hails from Denmark, invested in companies as a way of entering the African market in the 1990s.

 

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