Are investors in African Startups biased towards foreign-educated CEOs?

The Big Deal – a substack newsletter that covers startup deals in Africa – recently released data shows that in 2021, 73% of the over $4 billion raised by African startups was by CEOs whose latest degree was a Masters or MBA obtained from a university outside of Africa.

The data shows that both in terms of the number of deals and amount raised, “it is US-educated CEOs who lead the charge, followed by their UK-educated peers.” In the numbers, Startup CEOs who last studied in Africa signed 44% of the deals but raised only 28% of the over $4 billion raised by African startups. This was true for all African countries except Egypt and South Africa. For the two countries, more than 60% of the capital raised in 2021 was by CEOs who last studied in their home country.

The conversation around this has tried to suggest that there might be investor biases or existing prejudices that favor founders who have acquired a degree outside the continent, over the founders who only schooled at home. This may or may not be true, and the authors of the data have agreed that more research would be needed before any such claim can be made.

Let’s talk about it. As an entrepreneur, does where you go to school matter? Are there things you would be taught outside of the continent, that is not being taught in African higher institutions? Are all of this education and certificates even necessary?

The direct answer is a No. The school you attended will not matter in the real scheme of things, because education is continuous especially if you are an entrepreneur. Besides, there are now different ways you can educate yourself without going through the four walls of a higher institution, and some of them are just as effective as any formal education you can get. There are online courses and certifications if you consider all that to be necessary. What counts, and I speak for most entrepreneurs and investors, is your productivity and ability to provide the results that will solve people’s problems.

But how can we explain the lopsided investment pattern that the data reveals for African startup founders? I will attempt to look at it from two angles – perception and reality.

In terms of perception, when people (investors or not) come across someone who has traveled outside the shores of his country to get an education, the perception is that this could be a person who places a higher premium on education and exposure; and so he has traveled thousands of miles in search of it. This may not always be true. A local institution may be offering better quality education of the specific field of study he has, but the discomfort of traveling to school just gives the impression that he or she must have traveled in search of the best.

Now let’s consider reality.

What are investors on the lookout for when they invest? Irrespective of whatever biases or prejudices they have, investors generally want to put their money into a business that has a higher possibility of success. They want to back that CEO who looks like he has what it takes to carry the idea through. This is highly subjective of course, and that is why the same business one investor refuses to fund, can have several others who are willing to inject the needed funds.

Thankfully, data is only showing a slightly imbalanced pattern with foreign schooled CEOs getting 56% of the funding deals, while those who schooled locally signed 44% of the deals. The major difference comes when you begin to consider the funds secured in those deals.

Why are investors willing to throw more money behind CEOs who schooled outside the continent? Here is what I think.

Most times, startups founders in their pitch will talk about plans to expand into other countries and take their business beyond their current locality. Given this, an investor would naturally prefer a CEO who has some exposure outside their current country of operation. Schooling outside of your country or even continent means that the foreign schooled founder has more exposure and multicultural experience.

Most investors might consider it folly, to give you money to expand your business into a country you have never lived in. You may not be familiar with the system there, its market structure, regulatory issues, and the like. In such a terrain, your chances of failure may be higher than your chances of success. If however, you have someone on your team, a partner, or a co-founder who schooled or lives in that location, it could help your case.

On a radio show recently, the CEO of a software company in Nigeria mentioned that he had started his business in the UK even while he was servicing Nigerian clients. During this time, all his efforts at fundraising were futile because investors insisted that he needed to live in Nigeria to serve Nigerian clients or get a partner who had schooled or lived in Nigeria for decades. He had to relocate the business to Nigeria and get a fully Nigerian partner before the funds came in.

This, in my opinion, shows that there may not necessarily be a bias against founders and CEOs who schooled locally. Investors want to ensure that people have been exposed to that environment that they want to play in. If you are proposing a business that crosses a nation’s boundaries, it just helps to have multi-cultural experience, cross-border exposure, and an international network with ex-colleagues or ex-coursemates in other climes. It means you will have a better understanding of the culture, and the people.

Take all these away, and you may be seeing a lot of cultural clashes and knowledge gaps that could become a clog in the wheels of the business. Keep in mind that before any pitch, you should increase your chances of getting funds by getting a partner who has those qualities that you lack. Learning never ends, so there could be other opportunities for studying that could come your way.