Africa, the second largest and second-most-populous continent globally, has experienced enormous technological ecosystem growth over the years. With over 600 tech hubs, Nigeria is the largest, with 85, followed by 80 in South Africa and 55 in Kenya. Tunisia, Egypt, and Morocco have also flourished in the tech scenes in recent years. A report by Endeavor Nigeria says that “Africa’s digital economy is large and growing, with an estimated market size of $115 billion expected to reach $712 billion by 2050.”
By 2050, Africa will be home to a third of the world’s young people, and the continent is urbanising faster than other regions. This technological growth can contribute to the growing consumer market due to population increase, the promising growth rate of the Gross Domestic Product driven by urbanisation and industrialisation, and increasing digital and mobile access.
The African tech space has also attracted many entrepreneurs because of its untapped potential, and tech founders have benefitted as a result, one such benefit is venture capital funding. Between January 2020 and December 2021, funding for African digital startups grew two times faster than global rates, and between July and September 2023, VCs invested $300 million into African startups.
Although they have been a funding decline since the first quarter of 2023, of all the venture funding available to all African tech entrepreneurs from 2013 to 2021, less than 5% of the total $12.6 billion to Africa’s tech startups went to all-female founding teams compared with 82% to all-male teams, data shared by Briter Bridges showed. Female tech founders are taking their place in a male-dominated African tech boom. Still, gender inequality makes it harder for them to access funding and grow their businesses.
Reasons for Unequal Access to VC Funding in Africa
Unequal access to funding by female tech entrepreneurs has been the status quo for so long, reinforced by the following.
● The fraction of male founders to female founders is disproportionately small: research showed that of about 2,400 tech companies for which demographic information is available in Africa, about 11 percent are all female founding teams.
● Female founders are underrepresented in sectors that attract the most financing: the most funded sectors like Fintech, Cleantech, Agrictech, and E-commerce have male founders dominating them compared to health tech and Edtech, which are among the least funded, and they tend to have more female founders. However, even when they work in sectors with high investor interest, female founders are still less likely to receive funding than male founders, and they receive smaller amounts if they do receive financing.
● A confidence gap: some development partners believe women need more confidence in launching themselves in these tech sectors. They think men would excel best in them and need more confidence in successfully running the firm and pitching to investors.
● Male and female founders follow different financing paths: female founders are less likely to pitch for equity investments than their male counterparts. They are also more likely to apply for bank loans or bootstrap their businesses.
● Investors Bias: Investors have been seen to have conscious and unconscious bias while making financing decisions, leading to female startups raising less and receiving lower valuations. Investors are also more likely to invest in founders with previous exits, and fewer women have experience being serial entrepreneurs. Research also showed that investors follow perception patterns and continue to be attracted to the same kind of companies they have supported before, leaving behind the female founders.
● Social norms and stereotypes: In 2023, most African communities still describe the role of women in society as secondary. They believe that women are responsible for caring for the home and must be discreet and submissive to their husbands.
Other factors responsible for this include lack of collateral, barriers to participation posed by legal and regulatory policies, prohibitive interest rates, and high lending risk. Women are also excluded from digital jobs, networks, and business associations that can connect them to investors in the tech industry. Exclusion from these means that women-led tech startups need help finding and successfully pitching funders, impeding the ability to start or scale their digital businesses. With many female tech founders, there are more role models for young girls to look up to and seek out mentorship; hence, this problem must be solved.
A Call to Action: Closing the Funding Gap
Suppose African female founders continue to face barriers in accessing business funding; the existing inequality will continue to widen and exacerbate gender disparities in earnings, wealth, and leadership. Specific policies that allow women to start their businesses and access funding must be implemented to curb this. All relevant actors have essential roles in ensuring women are granted the same access as men in the digital ecosystem. Stakeholders need collaboration to address the resource and funding gap, and the ecosystem should favor more female fund managers in financial institutions.
Initiatives such as incubators, accelerators, venture capital funds, and startup funds for women-led startups should be organised. More venture funds run by women should be encouraged to provide critical support. Also, there should be adequate support for local investors, giving them the required tools and skills to understand how to navigate the venture capital ecosystem.
Governments and pension funds in the continent must trust the local venture capitals and invest in supporting local tech startups. Investors should be enlightened on the benefits of funding female-led startups to reduce investor bias, and investment firms should ensure an equitable distribution of funding, which includes implementing unbiased funding processes and hiring more women to work in capital investment and venture capital.
Finally, women’s networks and mentorship programmes should be established to encourage women to take up STEM careers. These programmes should also focus on changing the stereotypical narrative about women belonging in the kitchen, and they should be assisted in taking up their place in the corporate world. Orientation programmes should also be organised to enlighten men about the benefits of women taking part in the digital ecosystem.
Impact of Bridging the Funding Gap
A gender-inclusive tech sector aided by equal access to funding offers enormous opportunities for achieving development and economic growth and accelerating business and market integration on the continent. Closing the funding gap is essential for harnessing African innovation and leadership potential.
A report by the Center for African Studies at Harvard University says that Women’s full participation in the digital and tech economy will result in more diverse product creation, higher financial returns, and access to new markets and sectors. It has been proven that women-led firms, especially in the technology field, experience a 34% higher return on investment than those led solely by men.
Women-led tech startups can help reach the women and girls who have historically been left without access to digital markets. Also, female entrepreneurs pay it forward as they are twice as likely to hire women and four times as likely to employ female managers. As a result, more women are encouraged to pursue STEM-related careers.
Women-led digital ventures have a social impact. African women and social entrepreneurs have made significant progress in innovating to address development challenges that disproportionately affect women and girls. Female tech founders are more likely to consider the needs of women as consumers and end users of any tech product.
Since women are known to be better managers than men, there would be good use of the funds they receive to run their businesses, which will, in turn, increase the continent’s GDP and yield positive investment outcomes and opportunities.
It is not surprising that a stark funding gap exists in the African tech ecosystem, and it is worrying that the imbalance is sobering. Bridging the gap is imperative to harnessing Africa’s full digital potential, and it requires an all-hands approach. Not taking the steps to solve this