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Silicon Valley’s racial funding gap

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The Writer: Abdul-Karim Mohamed

Date first published: 10 March 2019

Africa’s entrepreneurship ecosystems have long been in the business of emulating Silicon Valley, from Silicon Savannah to Yabacon Valley. However, these efforts have also brought with them Silicon Valley’s funding disparity that privileges white founders. Impact investing, which often interacts with African entrepreneurial networks, is fueling a racial funding gap whereby white founders receive the majority of impact investing capital in Africa.

At a social entrepreneurship conference last year, I recall attending an event dubbed “Disrupting the Status Quo”. The event organizers were speaking of their new inclusive funding program that was allegedly better at selecting local social entrepreneurs like Michael, their shiny example on stage. Following the event, I found Michael to ask him more about this inclusive process….and our conversation led to him stating, “I had one of them help me out”.

them: the white, predominantly European or North American, faces that are overrepresented staples in Africa’s entrepreneurship ecosystems.

There has been recent noise, and thankfully action, to address the pitiful reality that less than 1% of American venture capital funding goes towards black founders. However, it has only taken the general public 70+ years since the birth of Silicon Valley to openly acknowledge and discuss the rampant racial disparity. What I find more disheartening, is the same trend is well underway in the world of impact investing in Africa.

In 2017, Village Capital released a study highlighting that 90% of East African funding was awarded to expat founders. I recently analyzed the investment trends of Global Impact Investing Network (GIIN) membership base (a total of 286 transactions), and concluded that 52% of funding goes towards white founders. White founders in Africa receive funding at a rate 29X higher than their Silicon Valley peers, while representing less than 1% of the content’s population. In an effort to create Silicon Savannah and Yabacon Valley, impact investors are fueling a system fraught with inequality, onto a continent that’s not in need of more external meddling.

Africa has a long and violent history of outsiders conquering, colonizing and extracting from the continent. The net result is that Africa loses $58 billion more to the rest of the world than it receives in the form of loans, foreign investment and development aid. There’s endless research, including recent reinforcements, that white savior mentality is still central to the aid industry. Africa is home to precious metals and oil, but external actors control over $1 trillion in African resources, exporting them to fuel development in their own regions. As potentially the next frontier of capital flow, impact investing brings with it an appealing safety net, for who could find fault with social entrepreneurship or with ‘doing good and making money.’

Up to $1 trillion in impact investing funds are expected to be placed this decade, doubling the size of development aid. Without course correction, I fear that impact investing will become another tool to benefit the haves, another tool that worsens inequality, and another tool that enables outsiders to control the future of Africa.

In my research, I also came across a few organizations that have seemingly avoided all the biases, silly unconscious pattern matching and condescending attitudes and are doing something right. What did these firms have in common? Racially diverse investment teams, often with staff on the ground.

So I conclude with two calls of actions:

  1. To GIIN, Tonic and other researchers/conveners/associations in impact investing: I implore you to start measuring the racial funding gap in impact investing.
  2. To impact investors: Make a concerted effort to source and fund local entrepreneurs. Add it to your KPIs and investment thesis. Having conducted due diligence on 500+ early social enterprises, I assure you local entrepreneurs with brilliant ideas are plentiful. But to do this, you’ll need to:
  • Come and visit us in the field….come see our business working” in the words of Michael.
  • Be open minded, engaged and free of biases when local entrepreneurs are pitching you. Stop expecting a theory of change to be spelled out on the second slide of a slick pitch deck.

As Anand Giridharadas wrote in his new book, Winners Take All:The Elite Charade of Changing the World, I too feel “like a casual participant in — and timid accomplice to, as well as a cowardly beneficiary” of the ecosystem in which I work. This critique is the second in a series highlighting, the good, the bad and the ugly of impact investing.

source: linkedin