The Digital Predator in the New World Order

How did we move from using arrows and spears to missiles, nuclear bombs and other weapons of mass destruction? From commuting with Camels to driving exotic, luxurious cars? or even from hunter-gatherers’ band to being highly industrialized and technologically modernized.  At the heart of all these transformations lies innovation

Innovation is brought about by the ingenuity of entrepreneurs who play a prominent role as prime movers of the economy and development of any kind. But for any entrepreneur to become successful, they would have to overcome a number of issues, one of which is funding or raising capital. In Africa, funding is a major headache encountered by most startups - in particular tech and energy companies where a high level of capital is needed for any scalable growth. No thanks to banks in Africa and the government that hold on to capital needed by these startups thus making them highly susceptible to the carrots dangled by venture capitalists.

A growing trend in recent years to overcome this hurdle is raising capital through venture capitalism. It is almost impossible not to have heard about this against-all-odds, ever-winning successful Silicon Valley entrepreneur (Venture Capitalist) who seeks endless pursuit and resilience matched only by the West scramble for Africa.

Venture capitalism can be defined as the provision of equity and debt financing to young, privately held firms. This could be venture capital proper or in the form of an angel investor. Venture capitalists seek to invest in innovation by funding worthwhile ideas that can create enduring impact and make a profit. These investors not only just provide finance but may be involved in the direct affairs of the enterprises making available their expertise to bear on the operations of the enterprise.

An example of this is Facebook, which was founded in 2004 by Mark Zuckerberg and got an initial venture capital of $500,000 from Peter Thiel, co-founder of PalPay and President of Clarium Capital. Jumia, one of Africa’s most prominent success stories, raised an initial series A funding of E40M from its Parent company- Rocket Internet - to its most recent investor - MTN and Goldman Sacs.

Venture capitalists can be an engine of economic growth, but they can also be an engine of economic dependency and perhaps even a form of neocolonialism if not properly managed. This happens when external interests influence the business model to the point of robbing the host country of a valuable, scarce resource. For example, Andela, a tech company located in Lagos with an initial investment of $24 million from Mark Zuckerberg. Its mission statement is building a future of African Tech Engineers and empowering the Nigerian Youth. However, the engineers are focused on building projects for non-African software companies, having lopsided contracts that question the company’s motive of cultivating the next generation of founders and CTOs of great companies across Africa. Because of this, some have argued that Andela is just providing a cheaper source of labour for companies in the West, at the expense of scarce talents required more locally. Can this happen in more developed climes such as China?

In defence of venture capitalists, intentions have always not always been hidden. Motives and interests have been more than obvious in many cases. However, when they are, they are branded in exciting, clipped motivational words such that total intention and impact are barely thought upon.

African startups must learn that the best time to apply for venture capital is at the “adolescent stage” of the life of the startup. The entrepreneur should not build castles in the sky as venture capitalists may not be White Knights in Shining Armour. More so, Entrepreneurs will be better prepared to obtain venture capital financing if they understand the process, the anticipated deal terms, and the potential issues that will arise. Before approaching a venture capitalist, try to learn whether his or her focus and values align with your company and its stage of development.