Why venture capital needs to become more inclusive across Africa

A former sugar trader in the City of London, Jihan Abass knows the sweet taste of success. One particular moment to savor for the 27-year old entrepreneur came in May 2021, when her Nairobi-based insurance tech startup, Lami, raised its first institutional financing round. Initially funded by personal savings, the company took in $1.8 million from investors who share the founder’s belief in the power of mobile technology to deliver financial products at scale to an underserved market.

Jihan Abbas’ story is remarkable, in part, because it remains an exception. Venture capital is booming, but it flows overwhelmingly to male founders: in 2020, 85% of VC investments in the United States went to firms that did not have a woman on the founding team. Africa, too, has seen a remarkable surge in startup financing, with total investment growing almost fourfold between 2017 and 2020. Yet funding to female founders has remained a slow trickle, as a new report by the Word Bank’s Africa Gender Innovation Lab suggests.

In In Search of Equity, a collaboration with the 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 deal flow data and surveyed a random sample of 172 entrepreneurs operating across the continent. We also spoke to founders like Jihan for first-hand accounts of women raising funds (or struggling to do so) in a male-dominated industry.

We find that only 3% of early-stage funding since 2013 went to all-female founding teams, compared to 76% for all-male teams. This amount is disproportionally small: all-female teams make up 11% of the firms for which we have demographic information. And while investment in the African tech space has skyrocketed over the past decade, the proportion going to all-female founding teams has changed very little.

Our research also highlights some remarkable differences between startups led by male and female founders. For one thing, female founders are underrepresented in the sectors that attract the most financing. That is partly because there are more male than female founders in the African tech space overall. However, female founders are also more likely to operate in subsectors that attract less investment, such as edtech or healthtech. Yet even when they work in sectors with high investor interest, all-female teams remain less likely to receive financing than all-male teams, and they receive smaller amounts if they do.

Interestingly, male and female founders in our sample of 172 entrepreneurs also followed different financing paths. Female founders in our sample were less likely to pitch for equity investments than their male counterparts. Conversely, female founders were more likely to apply for bank loans, or to prefer growth from retained earnings. Among companies that raised external financing, however, those with all-male founding teams received higher amounts of both equity and debt.

We cannot say whether financing preferences are a cause or a consequence of the funding gap — or neither. The report raises other questions, too: we do not look at how the funding landscape varies across the main regional hubs of Africa’s tech scene, or at the role played by investor bias. Ongoing Gender Innovation Lab research in Ethiopia — such as a longitudinal study of female entrepreneurs, experimental research on bias in the financial sector, and a digital economy diagnostic — may help us better understand some of these problems soon.

In the meantime, there are some practical takeaways for anyone working to promote gender equity in Africa’s startup ecosystems. Encouraging more women to launch entrepreneurial ventures may be at least as important as supporting those who already do — but the choice of sector matters. A more inclusive entrepreneurial culture would help accommodate the diverse backgrounds and aspirations of founders, as would financing options that go beyond traditional debt and equity.

Most importantly, increasing access to finance for female founders deserves to be at the top of everyone’s mind. When all-male founding teams receive US$25 for each US$1 going to all-female teams, Africa is missing out on major entrepreneurial talent. And founders like Jihan Abass would be no less impressive if there were more of them.