The United States (US) is the best destination for African startups looking to incorporate overseas, but more should be done to tempt investors to fund companies that remain based in their home countries.
That is according to industry stakeholders taking part in a panel on scaling African startups globally at the AfricArena event in Cape Town earlier this week.
Iyinoluwa Aboyeji, co-founder of Andela and Flutterwave, and now an angel investor, is no stranger to scaling African businesses overseas, and though he says it can depend on what a startup is trying to do, generally he believes the US is the best destination due to the openness of its investors to supporting African companies.
“I have a preference for the US because it is a deeper capital market with more experienced investors. Sometimes with Europe there is a colonial overhang, and they have small expectations for African businesses. They are not willing to have a frank conversation about how to scale. A European investor is worried about the downside, they still have that mindset. US investors are like: “We want to be a billion dollar company, let’s do it in two years”. And for us that’s helpful,” he said.
Zachariah George, co-founder and chief investment officer (CIO) at Startupbootcamp AfriTech, agrees, and says the reasons go beyond the ability to attract capital.
“The US tends to be the biggest and the most obvious choice. Also from an IP perspective, a tax perspective… It is a lot more open to African startups scaling there,” he said.
“The cost of moving to the US, as opposed to Europe or Asia, is miles apart.”
Ryan Harrison, investment associate at the SA SME Fund, had a more nuanced view, however, suggesting that investors would fund startups regardless of where they are incorporated as long as the company is good enough.
“The path of least resistance is incorporating in Delaware. It is easy,” he said. “But if they want to badly enough they will invest anyway. The nice thing about forcing an investor to come to your country is that they are aligned with your values. It can be empowering. Pushed enough they will come into your country and invest.”
Other panellists were less optimistic. Aboyeji said Nigeria, for example, has very bad foreign exchange regulations, while South Africa is also less than attractive to international investors. He said he is working on setting up a free trade area in the West African region, and thinks more countries should pursue these policies in order to attract international investors.
“My hope is for more countries to go down that route rather than force investors to change,” he said.
George agreed, but said there has been some progress in that regard.
“We are seeing a lot of countries in Africa and outside create these special economic zones to help people invest,” he said.