My response to TMS Ruge's 'Why Venture Capital hasn’t taken off in Africa'

This is a response to TMS Ruge’s Article titled 'Why Venture Capital hasn’t taken off in Africa'. To his expression about what he calls White-Fronting. This is when an African startup recruits a white person as a co-founder to get VC financing. While as the definition says African startup, I prefer to say developing economy. And, for the white-person, I prefer to say 'someone from a developed economy'.

 

This also includes related ideas I had already given thought before reading TMS’. VCs haven’t shown as much appetite in developing economies compared to the developed. To explain that, you need to understand their key selection criteria.

 

Every VC web-page or VC-blog you read shows that they accord almost 90% to the founding team. Most VCs or Accelerators will fund a great team, even with a lousy idea or model. And for a 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". They believe the strength of the founders has much to do with increasing chances of success.

 

But, 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 from developing economies neglected most of the time?

 

Again, to understand this, you need to know what 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 about the quality of education you received, but sums-up your knack to succeed - generally.

 

It speaks about your past. You don’t get admitted to top universities without standing out of the crowd. Africans trained from these top schools stand on almost equal footing with peers from Developed Economies. But why is this gap there, anyway?

 

There is still a knowledge-gap between Developed and Developing Economies. This stretches over half a millennium. It could be more considering that the church mandated free education in the 1100s AD in Europe. While the first formal African school 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 paid for education, this slave school had to reward pupils - adults - for their presence. They, each received a glass of brandy and two inches of tobacco daily.

 

We generally had to be colonized to receive life-changing knowledge. Yes, we had an education before but it was not only undocumented but also rudimentary. Training fermentation, weaving, backcloth making etc was verbal and by observation.

 

But this is the killer. To communicate between villages and kingdoms swift runners had to relay information. And, it was verbal. The developed economies had there fair share of these rudiments in the BC era.

 

The knowledge gap is why top-ranking universities - over 400 - are from Developed Economies. 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 are from developed economies because of earlier exposure to knowledge.  The white man's forefathers used their knowledge superiority to their advantage. But, colonization like all things had it’s advantages and disadvantages.

 

Since we are in the information era, knowledge gap is the cause of almost all other differences. Even when the Internet has done wonders in closing it, it still haunts us. It might take another century to close in on it if at all.

 

The more knowledge you have about a subject the better the ways you are going to use it to better lives

 

Children in Developed economies get exposed to knowledge very early. Compare the day of an American teen, say, Zuckerberg and Gates, to that of an African. While the former is tinkering with computers and reading, the latter is in the garden til midday. Then plays football or other games after lunch, fetches water and firewood in the evening.

 

While the American goes to top schools, the African gets a medium quality education. But, the best in developing economies. So, at what point will the African catch-up?

 

With all the wealth of knowledge, someone in a developed country gets exposed to. What are the chances that he will build a global company? And, if you are a VC, 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 necessarily have to carry a ‘Made in Germany’ label. The stark difference in quality alone makes it the preferred choice. And, 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 or PC, how many local apps do you have? I guess none. I have no more than 2 local apps on my phone and none on my PC. This is the case anywhere you go, except China.

They call us developing countries, because of this knowledge-gap between DEVELOPED and DEVELOPING economies.

It means we have a developing health, financial, social and everything sector. Including the software-development sub-sector. It also means the products and services are developing or immature.

 

So, the idea of “white-fronting” TMS Ruge describes in the above article is to the VCs’ a more realistic bet. Their ambitions are in safer uncertain waters because of this knowledge advantage. Those that “white-front” get to tap into the knowledge wealth of developed countries. But, also be part of building global companies.

 

I don’t know about the startups that have white-fronted so far. But, I would court the right developed-country citizen as co-founder(s). Not to get Venture Capital, but to harness this knowledge advantage. To build a defensible global company and maximise the impact of a startup’s benefits.

 

 

Knowledge can get transferred through close interactions with more knowledgeable people. So, this would be another opportunity. To close the knowledge-gap above, and also transfer it 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? (See also: KENNETH LEGESI takes a look at the Alternative Sources of Funding for Ugandan Startups)

It is because the people who would be in a position to own African VCs lack knowledge of the importance of VCs. The knowledge to manage thriving VCs. So, we have to rely - for now - on VCs in developed economies. The very ones that are averse to our startups because of this knowledge-gap.

 

If 10 in 100 startups that have white-fronted manage to hit global markets in 10 to 20 years, we will see 5 to 10 African VCs.

 

As the VC bubble shudders to burst on US startups - ReutersGV - developing economies are ready to develop solutions to worse challenges. With so many global challenges, we don’t need another selfie or photo-sharing app. Yet, US VCs will still invest millions in such ventures.

By Semakula Abdulwahid and it first appeared on his Blog.

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