Startups in Africa

• Department of Economics

This event features a discussion by Tommaso Porzio (Columbia Business School).

High-growth startups are increasingly seen as potential drivers of innovation and structural transformation in Africa, yet systematic evidence on these firms remains scarce. In partnership with the International Finance Corporation, we field a survey of startup founders in 51 African countries, with an embedded incentive-compatible experiment that elicits preferences over financing contracts and investor attributes. We complement these data with a new dataset on venture capital deals linked to founders’ work and education histories. Our analysis proceeds in three steps. First, our experiment shows that entrepreneurs display a strong and pervasive preference for equity over debt and value investors with local presence and experience. Second, we show that, despite these preferences, startup funding in Africa is overwhelmingly foreign and disproportionately flows to foreign and foreign-connected founders. Third, we interpret these patterns through the lens of a model and show that the same frictions that make Africa’s startup ecosystem unusually foreign also reduce startup creation and shape who becomes an entrepreneur.

Co-authors: Emmanuele Colonnelli, Marcio Cruz, Marianna Pereira-Lopez, Chun Zhao