Startups in Africa

We build new data on startups in Africa. We combine a continent-wide founder survey, an incentive-compatible experiment, and investment deal records matched to founders’ education and work histories. Africa’s startup ecosystem is concentrated in a few hubs and led by highly educated founders. Startups strongly prefer equity to debt and value local investors’ support. Yet equity is supplied mainly by foreign investors and flows dispropor-tionately to foreign-exposed founders. About 80 percent of VC funding involves a foreign investor, and two thirds of funded founders have studied or worked outside Africa. A simple accounting framework shows that this foreignness reflects costly local equity, a thin pool of local entrepreneurs at the financing margin, and limited access of local entrepreneurs to foreign investors.