The question of what qualifies as an African startup continues to occupy the cynosure of attention, especially in recent times, as startups on the continent capture increased investment. The first time these concerns emerged was in 2019, in the wake of Jumia’s listing on the New York Stock Exchange. At the time, the versatile e-commerce company had been incorporated in Germany, had its headquarters in Dubai, and its core team in Portugal. As such, the company would have been paying its taxes outside of the continent, while having its operations in Africa. With foreign founders, the situation becomes even a lot more tricky as its identity as an African startup came into serious question. These questions have been far from assuaged, as concerns increase following more and more funding announcements.
In 2022 so far, startups on the continent have drawn in a remarkable $2.7 billion over about 400 deals. This number far overshadows the raises at this same period last year, on the continent.
However, as various platforms track these raises across various parts of the continent, a disparity of methodologies offers varying results in terms of the size of the African tech ecosystem. Most of these disparities exist with regard to the distinction of the term, ‘African startup’. While platforms like Briter Bridges, avoid utilizing geography to define which startups are African or not, some others like Partech Africa define African startups as businesses whose primary market is based in Africa, and not merely in terms of where they have been incorporated or headquartered. Africa: The Big Deal, on the other hand, prefers a distinction as African that encompasses startups with headquarters in Africa, or with African founders who run startups headquartered outside of the continent.
Last year, Briter Bridges, following its methodology, reported African startups to have raised a total of $4.9 billion in investment, differing from Partech Africa which places this figure at $5.2 billion, and Africa: The Big Deal at $4.33 billion. In spite of these differences, it is clear that Africa is recording significant ecosystem growth, even amidst the global skepticism that is festering with the volatility of the markets.
African startups vs Startups in Africa
As Mathew Marsden, Co-Founder and CEO at GetLion highlights, the question of what makes a startup African revolves around four interesting considerations:
- Is the startup incorporated or headquartered in Africa or not?
- Does the startup have an African founder, even if it is located and operates outside of the continent?
- Does the startup primarily serve the African market, irrespective of where it is headquartered or the nationalities of its founders?
- Does the startup’s workforce consist majorly of Africans, and does it deliver value to local communities in Africa?
While each of these considerations appears relatively compelling, many people would argue on any of these points with regard to how to properly characterize an African startup. These concerns are even more weighty in light of Africa’s checkered history and the overarching question of African identity. Ali Mazrui, the famous East African scholar characterized the African as a hybrid of many cultural experiences.
In today’s world where the internet has blurred the lines of geographies, and the phenomenon of globalization has penetrated markets, and increased collaboration, these issues become more complex.
Leveraging information technology, and the growth of trade and interactions between countries, globalization has equally become a phenomenon of contemporary business. As goods and services are produced, the components that constitute the final product are shared across different countries, in what is termed the ‘unbundling’ of production, ensuring collaboration in value chains across countries.
Likewise, the diverse activities of businesses and startups today operate sequentially. As value creation processes are evened out across countries, so also there is a natural sequencing of stages (Antras and Chor 2013). According to Fung (2013), many businesses today have advanced their processes and operations, leveraging technology and enabling policy environments, to internalize across multiple locations and increase efficiency, lower their costs of production and enhance these processes of value creation drastically.
As such, it is not uncommon to find startups operating across diverse geographical markets, or incorporated and headquartered outside of the African continent, operating primarily in the African market. However, it becomes important to understand what criteria would be critical for a startup to be qualified as African. Debates as to which of these criteria from 1 to 4 are necessary and sufficient for distinguishing African startups yet about. However, it is apposite to note that an African startup would differ from a startup in Africa.
Using a stakeholder perspective: What is an African startup?
Prima facie, the very first important distinctions of African startups have to come from the market they play in. Every business exists to serve a market, and the firm’s customers are its first stakeholders. Freeman’s (1994) stakeholder theory helps us understand that every firm must prioritize its service to its stakeholders, it is in this manner, that the business rightly finds its relevance and identity. Following this distinction, it is easy to see how an African startup can be characterized by its primary market. Many years back, Locke, in his theorization on labor and identity rights, had made this simple, by stating that whatever we mix our labor with is what characteristically acquires the status of belonging. However, while this distinction appears necessary for African startups, it is hardly sufficient.
As a follow-up, it is crucial that the startup has African founders. What these imply is that the founders are part and parcel of the African community, and not alien from its experiences, its cultures, and its peculiarities. This is crucial as development initiatives are more impactful when driven by glocal interests – thinking globally and acting locally. Apart from having African founders, the startup is also rightly African in its workforce, by employing local talent. This aspect, with reference to the stakeholder theory, helps us identify how the startup’s employees (whether founders or staff) are African.
Summarily, therefore, an African startup would rightly entail a startup that has African founder(s) and employees, was launched in Africa, and primarily serves an African market. Any other subtractions from this may entail distinctions of startups operating in Africa.