Despite the favorable demographic freight train and a mounting portfolio of profitable innovations by African entrepreneurs many investors remain skittish about entering into ventures on the continent. Such investors assume that Africa remains filled with unstable governments, wide-spread corruption, and wars. Most of those conditions are gone, or in decline.
African Entrepreneurs Fear too
What investors do not realize is that African entrepreneurs are also often uncertain and fearful about partnering with Western investors. They assume their trepidation is justified, because of a historical disadvantage they experienced when dealing with the West.
After all, Africans were often taken advantage of by colonial powers. They took their land and forced them into labor. In many cases, at independence they were left dependent on the colonial masters for manufactured goods and processed food products. It is only in the last few decades that some African countries have developed their own systems and mechanisms to push forward a steadily increasing gross domestic product. Based on this history, it is not uncommon for Africa entrepreneurs to lack trust Western investors. They feel that they will not be fairly treated and even steal their ideas, products or services .
African entrepreneurs in the technology sector are very confident about their coding and creative talents, but perceive they are weak in financial matters. They may find it difficult to accurately calculate the potential value of their innovation. Or, they may not be confident in knowing how to decide what share of their business they should give would-be investors for their infusion of cash. This leaves some African entrepreneurs feeling vulnerable. Whether or not these fears are justified, they are real for many.
Overcoming the Fears
Entrepreneurs, African or non-African, ought to be cautious when entering into relationships with investors. Just because entrepreneurs need funds to grow their venture does not mean that they ought to let a Western investor dominate negotiations. In fact, if an entrepreneur demonstrates a lack of self-confidence, the investor might even back out of a deal.
There are some steps an African entrepreneur can take to mediate some of these fears. Taking these steps will put them on more of an equal footing with investors.
An African entrepreneur ought not jump quickly into raising funds or seeking investors. The entrepreneur should first have progressed well beyond the idea stage. He should have a prototype or an real business up and running before soliciting investment. Investors seldom put down cash for just an idea, no matter how novel that idea might be.
If you are an entrepreneur who is ready to seek investors, you should get down to the due diligence of researching the reputation and experience of a potential investor. A good place to start is with networks and communities such as VC4Africa that have already vetted their pool of investors. Review a prospective investor’s profile on LinkedIn and other professional social networks. Does their experience match your innovation? In the past, who have they invested in? You would to do well to contact some of those who have partnered with the investor and get their impressions of him. You ought not be looking for just cash from an investor. Investors have deep pockets because they are successful. Seek out an investor who can bring useful knowledge and contacts, as well the finances.
When you reach the stage of looking at an agreement or contract, unless you have some background or education in law, it would be best for you to have an advocate look at the paperwork before you sign it. You want to make sure that you completely understand what you are giving. You want to also be clear on what your partner (the investor) will be held accountable for delivering.
Realize that the most helpful and trustworthy investors want you to take these steps. They make your relationship a true partnership. There is no need to be secretive in taking these steps. Transparency is always good. Letting the potential partner know that you are doing research on them and having documents perused by an advocate will increase the investor’s confidence in you.
Cross-Cultural Communication Reality
Investors and African entrepreneurs do have fears, yet, as is the case with most fears, they seldom ever come into fruition. A larger, real problem that most Western investors and African entrepreneurs experience is miscommunication. Cross-cultural communication is difficult. Even if the investor and entrepreneur have both completed higher education and speak English, that does not wipe away the fact that they come from different cultures. Mentors who have experience in cross-cultural communication are helpful to both parties.
What are some other fears or reservations held by investors or African entrepreneurs? List them in the comment section below.
Cross-cultural communication is one of our strengths at Africa Mentor.