While African venture capital is booming, are the founders losing out?
Former City of London sugar trader Jihan Abass knows the sweet taste of success. A special moment for the 27-year-old entrepreneur to savor came in May 2021, when his Nairobi-based insurance technology startup Lami raised its first round of institutional funding. Initially funded by personal savings, the company raised $ 1.8 million from investors who share the founder’s belief in the power of mobile technology to deliver large-scale financial products to an underserved market.
Jihan Abbas’s story is remarkable, in part because it remains an exception. Venture capital is booming, but it is flowing en masse to male founders: In 2020, 85% of venture capital investments in the United States went to companies that did not have a woman on the founding team. . Africa has also seen a remarkable increase in startup funding, with total investment nearly quadrupling between 2017 and 2020. Yet funding for women founders has remained slow, as a new report from the Africa Gender Innovation Lab suggests. World Bank.
In In search of equity, a collaboration with emerging market intelligence firm Briter Bridges, we quantify Africa’s gender gap in startup finance and explore some of the factors behind it. For the report, we leveraged Briter’s leading industry platform to comb through years of transaction flow data and interviewed a random sample of 172 entrepreneurs operating across the continent. We also spoke to founders like Jihan for testimonials from women fundraising (or struggling to do so) in a male-dominated industry.
We find that only 3% of seed funding since 2013 has gone to all-female founding teams, compared to 76% for all-male teams. This amount is disproportionate: all-female teams represent 11% of companies for which we have demographic information. And While investments in the African tech space have skyrocketed over the past decade, the proportion going to all-female founding teams has changed very little.
Our research also highlights remarkable differences between startups led by male and female founders. On the one hand, women founders are under-represented in the sectors that attract the most funding. This is partly because there are more male founders than female founders in the African tech space in general. However, female founders are also more likely to operate in sub-sectors that attract less investment, such as edtech or healthtech. Still even when working in areas of high investor interest, all-female teams remain less likely to receive funding than all-male teams, and they receive smaller amounts if they do.
Interestingly, the male and female founders in our sample of 172 entrepreneurs also followed different funding paths. The female founders in our sample were less likely to initiate equity investments than their male counterparts. Conversely, female founders were more likely to seek bank loans or prefer growth from retained earnings. Among the companies that raised external funding, however, those with all-male founding teams received higher amounts of equity and debt.
We cannot say whether funding preferences are a cause or a consequence of the funding gap – or neither. The report also raises other questions: We do not examine how the financing landscape varies between the major regional hubs of the African tech scene, nor the role played through investors. Ongoing research from the Gender Innovation Lab in Ethiopia – such as a longitudinal study of women entrepreneurs, experimental research on bias in the financial sector, and a diagnostic of the digital economy – could help us better understand some of these problems soon.
In the meantime, there are a few practical points for anyone working to promote gender equality in startup ecosystems in Africa. Encouraging more women to start businesses may be at least as important as supporting those who are already doing so – but the choice of sector matters. A more inclusive entrepreneurial culture would help accommodate the diverse backgrounds and aspirations of founders, as would funding options that go beyond traditional debt and equity.
More importantly, improving access to funding for women founders deserves to be a priority for all. When all-male founding teams receive $ 25 for every $ 1 donated to all-female teams, Africa lacks great entrepreneurial talent. And founders like Jihan Abass wouldn’t be less impressive if there were more of them.
World Bank Group published this content on October 15, 2021 and is solely responsible for the information it contains. Distributed by Public, unedited and unmodified, on October 15, 2021 01:41:06 PM UTC.