Why Black African Founders Don’t Raise Money — Part One

Last week I received a WhatsApp message that had the pictures of several founders, depicting the “Kenyan Tech Scene” — I thought the joke was that they were non-Kenyan founders and I was right. The only difference was that it was being made to seem that all Kenyan start-ups worth noting were run by white — non-Kenyans. The conversation then became about the racial bias amongst investors in this market and the fact that they only invest in white-non-Kenyan founded companies. I rarely jump to conclusions and I began trying to understand if this bias was true and if the Kenyan eco-system was purely foreign.

I came to the conclusion — that may seem obvious but wasn’t to me, that two things were definitely happening:

1. Kenyan founders were being passed over at almost every turn

2. Kenyan capital was not being allocated strategically among the different asset classes

The two statements above may seem to have obvious reasons as to why they are true but I beg to differ.

My argument is in two parts, the first dealing with why I think the former happens and then to the latter point, how we can try and convince Kenyan capital to be more strategic and forward thinking.

To deny that racial bias exists would be completely naïve of me. It does! I am currently fund-raising and early on in the process one transaction advisor asked if I could hire a white American and make them a c-suite executive. “They will throw money at you!” He added. However for the sake of having an objective debate, could there be other good reasons that African founders are being passed over?

Several VCs are usually run by individuals that have been trained in the same institutions as the people they fund. If I went to Harvard and I was trying to allocate capital, I would assume that the entrepreneur who has had a similar education to mine is the better option and this becomes part of the de-risking process. It may not be an obvious bias but it does exist. The interesting thing is, everyone does it, particularly in this country. We call it tribalism.

I therefore argue that most of these VCs are usually from one of these institutions and that the founders on the infamous list went to one of these institutions. And in this part of the world they are from the same ‘tribe’ and thus even those that have a similar skin tone to yours but are not from Kenya and work for a VC, are from this tribe!

The other reasons are inferred from several decks I have received over the years when I sat as the investor and my advice from the lessons I have learned being in the game.

1. Rich Valuation — I think lots of Kenyan companies over-value their business. This usually ‘puts off’ a VC or sophisticated investor because it hints at greed, a lack of understanding of what an investor needs are, and an irrational founder. An investor usually invests with the aim of making money and thus one that is taking VC risk is looking for a high return on investment. As a founder, when valuing your business, one needs to ask if the amount of capital they are seeking will deliver at least 25% per annum return for their investor on a best-case scenario. If this is not the case, you are definitely being passed over.

2. Founder and Business are not Visible — Lots of Kenyan founders shun Public Relations and I always wonder why? Public relations has nothing to do with getting you famous or getting a congratulatory message from your mother, but rather to get your story and that of your company in a trusted news source of a potential investor or partner. My boss once told me, “How will you get a promotion if the CEO does not know you?” This does not imply that knowing your CEO will get you your promotion but actually the results of your work. Tell the world every minute detail of your business and story. It builds credibility, shows your true character, and gets you in front of the right people. Always tell the truth and speak your mind. This boldness will let you stand out of the crowd and people will get to hear about you and your business over time. One of the CEOs on the list that was shared is consistently in the news about something positive he is doing and even recently was pictured with the president receiving an award. He runs a fantastic business and I really admire how he manages his team and business. However, his business consistently raises money. If you google him, pages of articles about him and his business appear. If you are an investor, a business like this seems less risky because of the goodwill it has generated.

3. Real Networking ­– Networking is not about exchanging cards and sending the ‘pleasure to meet you email’ it is about forming real relationships with strategic individuals. After every meeting with someone interesting whether work-related or social, I will always make an effort to have a beer or meal with him or her again in a one-on-one setting. Everyone has a passion outside work, or a child in school or hates Man-United fans. That common or shared interest may form the beginning of a lifelong friendship and it might just be with a potential investor. The US usually runs a poll each time there is a presidential election; “Who would you rather have a beer with?” I find this test very interesting. I always wonder if I have missed out on opportunities with the non-drinking demographic? But I have found that the question is not as silly as it seems. An investor is asking the exact same question too. When investors are investing, they are usually cognizant of the fact that they will have to spend the next five years with you and if you fail their beer test then you will surely be passed over.

4. Good Governance ­– Governance is one of those things that most investors love to see. A board shows that you have a network of respected individuals that believe in the vision of the business. A board also shows that as an entrepreneur, you are willing to seek counsel and heed advice from someone other than yourself. A proper organizational structure also shows that you respect systems and processes. These little nuances are observed by savvy investors as additional ways to de-risk their potential investment.

5. Integrity — If you lie and you are caught lying you will be passed over. Do not hide the skeletons in your closet. It may seem counter-intuitive, but most skeletons have been experienced by most investors and they would be very interested to know how you dealt with them and the display this grit and tenacity are always a plus and the act of hiding them would create mistrust.

There are many other reasons, but I am trying to argue that as Kenyan and African founders maybe we need to be better at de-risking investments for potential investors. If at that point we are still being passed over then the racial bias may be worse than we think!