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If you’ve been reading startup tech blogs and news outlets, you might think it’s an exciting time to be a fintech startup in East Africa and India. There are some notable exits coming out of India, like the 2016 acquisition of Citrus Pay by Naspers’ PayU for $130 million, one of the largest-ever acquisitions for the country’s fintech industry. There is also a narrative, eagerly picked up by tech optimists, about the innovative technologies spreading across Kenya and other East African countries, like Safaricom’s M-Pesa mobile payments platform .
The reality is different. Despite all of the hype, most startups in India and East Africa are failing to attract the investment capital they need to grow and scale. For example, although startup investment in East Africa is at an all-time high, in the past two years 72 percent of venture capital went to only three startups. The vast majority of startups in these regions are not being given a fair shot.
Why? As my firm found through interviews with dozens of entrepreneurs, investors, researchers, and entrepreneur support organizations, there is a fundamental disconnect between entrepreneurs and (often foreign) investors in East Africa and India. All too often, investors are using a “one size fits all” mental model of venture capital – made for Silicon Valley-style consumer technology companies – to invest in markets that operate under an entirely different set of rules.
There are three major barriers to scale for entrepreneurs in East Africa and India. Each barrier stems from investors’ reliance on these patterns, which were developed in the United States and other established markets.
1. Speed of return. The first barrier to investment, and scale, has to do with investment structure. Investors in India and East…
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