The African tech landscape is thriving, with over ten thousand innovative businesses working relentlessly to address some of the continent's most critical challenges. These startups have piqued the interest of both international and domestic investors, with total venture capital funding increasing from less than $190 million in 2015 to more than $3 billion in 2022, altering entire industries and bolstering African economies. However, an unusual trend has evolved in which many of these tech startup founders choose to run their businesses from abroad or even relocate their company's headquarters to the West. This move has sparked a heated debate about what exactly qualifies as an "African tech startup" and the wider implications of this trend for the African tech sector.
Although there is nothing wrong with citing one's business headquarters wherever one deems fit or operating a business from wherever one deems convenient, especially in light of technology now bridging national boundaries, the recent struggles of the likes of 54Gene and PATRICIA, which were incorporated in the UK and Estonia, respectively, are a serious cause for concern as many consider such moves to be status symbols rather than business strategies.
It is worth emphasizing that the emergence of African tech startups reflects the continent's entrepreneurial spirit as well as a desire for tech solutions. They are addressing crucial concerns like financial inclusion, access to healthcare, food sufficiency, and decent education, all while creating employment and improving the economy.
What is an African tech company?
One of the most difficult aspects of the continuing debate around African tech startups is defining them precisely. After all, how do you classify a company as "African" if it is incorporated outside of Africa yet primarily services the African market? This legal distinction greatly complicates the situation. Many tech founders believe that where a company is based is less important than what it contributes to the continent.
As the practice of relocating headquarters gathers momentum, some of Africa's most prominent startups have relocated their headquarters abroad throughout the years. Andela, which was founded in Nigeria but is now headquartered in New York; Flutterwave, which has roots in Lagos and a current home in San Francisco; Paystack, which transitioned from Lagos to San Francisco; Branch, which is now based in San Francisco; Helium Health in Cambridge, USA; Kuda in London; Opay in London; Zipline in San Francisco; and Moniepoint in London are all notable examples. This exodus of African tech firms has a wide range of repercussions for the African digital ecosystem.
The Positives of Global Headquarters
Many startups moved their headquarters to the West for practical reasons. One of the most frequently mentioned factors is the need to offset the impact of volatile African currencies. This is not to be discounted lightly, since African businesses are well aware of the currency volatility that can have a negative impact on their bottom lines. Having a headquarters in a more economically stable region protects corporations from this volatility and allows them to better manage their finances.
In addition, establishing a presence in the West might provide access to a larger network of venture capitalists, investors, and potential commercial partners. This network frequently provides better access to finance, knowledge, and worldwide commercial possibilities, which can help these firms develop and exit faster.
While these justifications appear to be logical on the surface, they do not always correspond with the realities of many African companies.
One of the main concerns about the trend of taking headquarters to the West is that these companies may lose touch with their core client base. Most African startups cater to local customers who pay in local currency. The ostensible benefit of currency hedging becomes meaningless if the company operates largely in and generates income from local markets. While it may help in balancing the books, it does little to help the African customers who endure the burden of economic insecurity.
In addition, several of these firms were founded to address problems particular to the African region. The problems that many Africans experience on a daily basis sparked the entrepreneurial spirit that propelled these businesses. Startups may accidentally lose touch with the intricacies of local markets, the pulse of their customers' requirements, and the nuanced understanding of the challenges they set out to solve by living far from the markets they intend to serve.
Furthermore, the impact on local talent and employment generation should be considered. The African tech sector has been a driving force in the creation of job opportunities for an increasing number of young Africans. According to Disrupt Africa data, the number of jobs created by funded startups across the continent climbed to 34,201 in 2022, up from 17,915 in 2021. However, as firms opt to establish themselves in other countries, they frequently rely on a primarily foreign workforce, limiting the opportunities accessible to local tech talent.
The Silver Lining
Despite these challenges, it is critical to understand that there is potential to be beneficial. Companies may discover new prospects for success by expanding their reach into global markets. Access to larger investment, larger client bases, and worldwide alliances can accelerate the growth of not only individual businesses but also the African digital ecosystem as a whole. Some say that the issue is not where the company is based, but rather its dedication to solving African problems and contributing to the continent's growth.
Furthermore, the debate over what constitutes an "African tech startup" is prompting us to reconsider our assumptions. It promotes a more inclusive and fluid definition of entrepreneurship, recognizing that it is not only about the location of the headquarters but also about the startup's influence and reach.
There are no clear answers to the argument over where the headquarters of African tech firms should be located. The most important aspect, however, should always be the influence these startups have on the African continent. If their aim is to empower people, solve local problems, and contribute to Africa's growth, their location may become secondary.
What matters most, perhaps, is that these startups, whether from Africa or elsewhere, collaborate to improve the continent's tech environment, exchange expertise and resources, and collaborate on solutions that move Africa forward. The road to an African tech startup is complicated, full of problems and opportunities. However, the goal should remain the same: a better future for Africans.