Overcoming Investor Bias in African Startups

SDS 057: Overcoming Investor Bias in African Startups

Hey! thank you for reading issue 057 of Startup Definition Sunday (SDS). You can read past issues here.

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For those who may not know, I was born and raised in Ghana. I had the incredible opportunity to move to the United States for university, pursue my master’s degree, and eventually work as an investment banker in London.

No matter where I went, one thing stayed the same: the way people—whether friends, professors, or supervisors—viewed Africa.

One thing became immediately clear to me: the perceived risk of Africa is often far greater than the reality.

Nearly five years ago, I made what many people called a "risky" decision to move back home. Since then, I’ve been working in Africa, and I’ve seen firsthand how this misconception about the continent’s risk persists.

Ask any successful African founder, and they’ll tell you the same thing: they’ve had to repeatedly justify their innovative ideas to investors who are skeptical about the risks of building in Africa.

This is not to say that launching a startup in Africa is without challenges. But today, I want to share three common risks African founders must be prepared to address when pitching to investors—and strategies to overcome these challenges

Currency Risk

Africa is home to a wide range of economies, each with its own currency. Unfortunately, many of these currencies can be highly volatile, which raises concerns for investors. Currency fluctuations can significantly impact the valuation and profitability of investments, making this a key issue to address.

As a founder, it’s critical to understand the currency landscape in your market and develop a clear plan to mitigate this risk. Here are some strategies that can help: peg your pricing to a more stable currency, build USD-denominated revenue streams, and explore hedging strategies to manage currency volatility.

While these approaches can reduce currency risk, they won’t eliminate it entirely. That’s why it’s equally important to build a business capable of achieving rapid revenue growth—outpacing the effects of currency fluctuations. Startups in Africa often need to grow faster than those in developed economies to remain competitive in the face of volatile currencies.

Political and Economic Uncertainty

Political and economic instability is a major concern for investors, and in many cases, their fears are justified. Over the past three years, some of Africa’s largest startup ecosystems—Egypt, Kenya, Nigeria, and South Africa—have faced significant challenges tied to political and economic uncertainty.

As a founder, you must demonstrate a deep understanding of your local market and show investors how your business model is designed to thrive, even in uncertain conditions. While you can’t control government policies, you can build strategies to mitigate these risks. Here are two approaches that have proven effective:

1. Focus on key industries: Build your startup in sectors that are major contributors to your country’s GDP, such as agriculture, energy, or financial services. These industries are often prioritized by governments for economic stability, which can provide an additional layer of protection.

2. Diversify beyond one market: Expanding your business into multiple countries can reduce single-country risk. While this is easier said than done—many startups take at least five years to scale into new geographies—the recent cross-border expansions of successful African startups demonstrate the value of this strategy.

Regulatory Uncertainty

Africa’s regulatory environment is notoriously complex, varying widely from country to country and often subject to sudden changes. For founders, navigating this landscape can be one of the most daunting aspects of building a business on the continent.

To address regulatory concerns, you’ll need to:

• Stay informed about the latest laws and policies in your market.

• Build strong relationships with relevant government agencies to stay ahead of changes.

• Engage legal and compliance professionals early on to ensure your business operates within the legal framework.

Founders who can demonstrate a clear understanding of the regulatory landscape—and show they have systems in place to adapt—are more likely to earn investor confidence. Proactive compliance is not just a safeguard; it’s a competitive advantage.

My Two Pesewas

While these risks are real, they are far from insurmountable. By addressing these key concerns head-on, you’ll be better equipped to convince investors of the immense opportunities for innovation and growth in Africa.

The truth is, Africa’s perceived risk often exceeds the actual risk. So, approach every conversation with confidence and a clear plan to mitigate concerns. With the right strategies, you can not only attract investment but also build a thriving business that reshapes the narrative about Africa’s startup ecosystem. 

If you found this advice helpful, be sure to share this newsletter with other emerging founders in your network. Together, we can change the narrative and unlock the full potential of African innovation.

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That's all for today. As always, thank you for being an engaged reader. Let me know your thoughts on this issue. I’d love to hear your experiences or tips on navigating tough decisions in leadership.

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Until next time,

Jasiel

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