Africa Doesn't Have a Startup Problem, It Has a Trust Problem

Venture capital (VC) firms only back founders they trust.

And why not?

When you're putting millions of dollars into a venture, you can do as much analysis as you like, but in the end, one question decides where the money goes: do you trust the founders?

Why pattern matching, not product, decides who gets funded

This isn't to say product market fit, scalability, uniqueness, timing, and exit-ability aren't important. But time and again, when you ask top investors what drew them into their latest unicorn successes, the answer is almost always the same, they didn't just like the product, they loved the founders.

And since most major investment firms are made up of men from similar backgrounds, it shouldn't be surprising that they find it easier to trust people who kinda look like, sound like, and act like them, and who match the profiles of founders from previous rounds of success.

This bias, or pattern matching, if we're being polite, leads to a feedback loop where "Stanford engineer, ex-Googler, White male" becomes a shortcut for trust.

And it's perhaps this loop that allowed the likes of Mark Zuckerberg (Harvard), Sergey Brin (Stanford), and Jeff Bezos (Princeton) to find the funding they needed to build the Metas, Googles, and Amazons of the world.

Which is why, if any of these incredible entrepreneurs had spawned their ideas in garages and backrooms in Nairobi, Accra, or Cape Town, that's exactly where those ideas would've stayed.

The numbers: 1% of global capital, and far less for women

So, when you think about how people with money invest, it's no surprise that so little finds its way to Africa.

For context, African VC investments in 2024 amounted to a little over $3 billion, that's a paltry 1% of global allocations.

And of that, and I promise I'm not making this up, only about $48 million was allocated to female founder-led startups.

So, what, if anything, can be done to build trust in the African opportunity?

One idea is to send the best and brightest students to top Ivy League schools and universities.

China, for example, sends around 300,000 students to the U.S. every year. One of them was Robin Li, who studied in New York and then received U.S. VC funding to start Baidu.

Africa, by comparison, sends a mere 50,000 to 60,000 students per year, from across the entire continent.

Why African corporates, not just foreign VCs, must fund the trust gap

Much as I think we need to find ways to 10x these figures, it will still likely make a limited difference if we don't look at other options to build investment momentum.

One lever Africans can control is for African corporates to start backing more ventures.

Overseas, this idea is far from new. More than 80% of Fortune 100 companies have established corporate venturing arms that curate, partner with, and invest in startups.

And the data is clear: companies that engage in corporate venturing often see direct gains in both share price and profitability.

Take Google's acquisition of Android for just $50 million, a deal that went on to generate hundreds of billions in revenue. It's a poster child for what's possible when corporates back innovation early.

In Africa, by contrast, you'd be hard-pressed to find more than 10 or 15 material corporate venturing arms.

Among the most visible are ShopriteX (Sixty60), Next176 (Old Mutual), and Safaricom's Spark Fund.

After that, the list tapers off quickly.

What Would It Take to Close Africa's Trust Gap?

As per some reports, Africa's top 50 companies control more than $500 billion in assets, imagine if just an extra 1% or 2% of that was channeled into startups.

Africa isn't short of founders, or capital.

Tens of thousands of startups launch each year to tackle real problems in education, healthcare, security, agriculture, and more.

And corporates have the capacity to back many, many times the number of startups they do today, with capital, knowledge, and distribution.

The democratization of access to artificial intelligence also means that African ventures can be just as sophisticated and scalable as anything you'll find coming out of institutions such as MIT.

Do African Corporates Trust African Founders?

So maybe it's time we stopped wishing for international investors to trust Africans, and asked our corporate CEOs to start trusting us.

Trust, after all, is contagious.

And Africa's future ultimately depends on African leaders investing in their communities first.