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Foreign Investors Prefer ‘African’ Startups Led by Whites To Those Led By Blacks, Data Shows

Matt Flannery, a white American behind two Africa-based startups, Kiva and Branch International. [PHOTO/ COURTESY]

African entrepreneurs have decried humiliation, discrimination, stereotyping and racism while pitching and seeking funds at the hands of some of the world’s most renowned investors.

In the last five years, investors in North America accounted for 42 percent of African venture deals. Only 20 percent of funds came from Africa based investors, forcing potential African entrepreneurs to turn to the West for funding. This is according to the African Private Equity and Venture Capital Association.

The Guardian analyzed public data to reveal that out of the 10 African based start ups that received the highest amount of funding, eight were led by foreigners (whites).

Last year, only 6 percent of Startups to receive more than $1 million in Kenya were led by locals. In Nigeria, 55 percent of big money deals were awarded to locals and 56 percent in South Africa.

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Highly sought after global heavyweights such as Goldman Sachs, Chan Zuckerberg Initiative, Stanford University, Sequoia Capital and Andreessen Horowitz have invested locally in startups led by white foreigners more than those led by Blacks.

White privilege has been cited as a reason as they are deemed to have better background in elite education and better access to US dominated funding channels.

“It’s obvious that I come from a privileged standpoint,” says Matt Flannery, a white American behind two Africa-based startups, Kiva and Branch International, which have collectively raised more than $270m, according to Crunchbase. “I grew up in a relatively wealthy place, I went to Stanford University, I live in the Bay Area. I have dozens of venture capitalists as friends, and obviously that helped me raise money,” he told the Guardian from his home town in Oregon.

Flannery raised his concerns regarding the funding gap in Africa and has since committed to working towards bridging that gap by expanding access to funding. A study by Village capital in 2017 revealed that in East Africa, only 10 percent of funding went to the local founders.

Twiga Foods, for example, is a seven year old Start up connecting food producers and vendors to markets. The company has so far raised $67 million. It has a Kenyan founder, Peter Njonjo, who studied at Oxford and is a former senior executive at Coca Cola. Peter’s co-founder, Grant Brooke, who is originally from Texas, says that he is “aware of the underlying biases and advantages” of his background.

“I’ve seen this in real time. When I talk to a venture capitalist who looks like me and has the same educational background, even when I mess up something, they’ll just correct me and write it off as a conversation among colleagues,” he said. “If a black African founder were to do the same, they would see him as ignorant and judge him differently. I don’t even think that’s conscious, but they do it.”

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According to Brooke,who met his co-founder while both were studying at Oxford, it is easier for expatriates to set up shop in Kenya. “There’s a lot of young westerners who can afford to take off a year or two of their life and not have income and try to start something because their parents will support them,” he says. “Kenyans can’t even move to America without having a job, yet Americans can move to Kenya legally.”

However, Stephen Gugu, a co-founder of ViKtoria Angel Business Network in Kenya, sees it differently. He has followed the flow of capital into the so-called Silicon Savannah but noticed that foreigners sell their vision better. “In all honesty, the expatriate founders pitch better than we Kenyans do. They’re able to paint this picture of an Africa that is full of opportunity,” he said. “Local founders are not as aggressive in their pitches. At times there’s no substance but they [foreigners] are good at telling the story even when they have no context.”

Seattle-based author and entrepreneur Roble Musse calculated that a white founder is 47,000 percent more likely to be funded in Kenya than in the US, based on 2018 disclosures. White people make up less than 1% of the Kenyan population and 65% of expatriate founders mainly from the US, the UK, Italy, Denmark and Germany have never lived in Kenya prior to starting their companies.

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Written by Vanessa Murrey

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