Does Silicon Valley style investment work for African start-ups?

The Silicon Valley funding model has been widely adopted by Africa's tech sector, but is it truly the best approach for the continent's unique challenges and opportunities? Tony Chen, Managing Director at Kinyungu Ventures, sheds light on the mismatch between traditional venture capital practices and the realities of doing business in Africa. In a recent report titled 'Chasing Outliers by Context Matters for Early Stage Ventures in Africa' Chen highlights the need for investors to prioritize structures and practices that reflect the diverse African landscape. Chen points out that assumptions made by Silicon Valley investors, such as large markets, easily attracted customers, and abundant funding, do not always hold true in Africa. This mismatch poses significant challenges for investors looking to achieve the rapid growth typically associated with the venture capital model. Markets in Africa are often fragmented, customers are price sensitive and switch easily, and there is a lack of consistent funding across the startup life cycle. These factors contribute to a more complex and unpredictable business environment, requiring a different approach to investment. Chen suggests that a longer-term view of investing and alternative instruments such as revenue sharing or debt instruments could better suit the needs of African start-ups. Rather than focusing solely on rapid growth, investors should consider durability, resilience, and maneuverability when navigating the African market. In East Africa, there is a growing trend of investors writing smaller checks and successful entrepreneurs reinvesting their capital and expertise back into the ecosystem. These developments are expected to bring about a shift in the investment landscape and encourage more tailored approaches to supporting African start-ups. While Silicon Valley's venture capital model may not be the best fit for Africa, new models and approaches are emerging that take into account the continent's unique challenges and opportunities.