The Funding Grind for Black Travel Startup Founders in Africa

The Funding Grind for Black Travel Startup Founders in Africa

Travel entrepreneurs know the grind when it comes to funding a startup. But the ability to get financial backing and support is said to compound when you are a founder bringing unconventional solutions for emerging markets, predominantly Black markets, that don’t fit the usual Silicon Valley bill.

This is something Rwandan-Canadian Charles Shima, the founder of Africa-centric online travel marketplace ZaNiheza, said he has discovered as he sets about creating a platform to bring diversity to Africa’s travel experiences.

As a definitive safari destination, Africa has created a disconnect for its cities and people, said Shima, who believes part of the problem is that people can’t find the experiences that would ultimately help change their perception about travel to the continent. He used the example of his country of birth Rwanda, “People come to Kigali, and they are immediately off to see the gorillas. They don’t stay to experience Kigali, and so much is happening there.” 

Africans Returning Home

Shima left Rwanda in 1994 at the age of 16 during the height of the ethnic genocide that claimed more than 1 million lives. He only returned in 2018 to rediscover a country he now wants to share with the world. In his struggle to find the kind of tours and experiences he wanted to do as an African heritage traveler returning home, Shima said he was inspired to “connect travelers to the immersive cultural and heritage experiences” he knew existed but couldn’t find online. 

“There is a huge perception that traveling to African cities is unsafe. That’s why travelers escape to the resorts. Instead, we need to create travel experiences that encourage regular travelers to these cities, travelers who want to spend time with the locals,” said Shima.  

While doing his business research, Shima said he was inspired by how Klook had created an Asia-centric online platform for tours and activities. Similarly, he believes ZaNiheza, founded in 2019, has the potential to be an “Africa-centric digital travel mall offering travelers an interactive way to shop through virtual interactions with tour operators, before even travelling.”

ZaNiheza offers tours and experiences across North, South, East and West African regions across 13 countries, including Morocco, Ghana, Tanzania, Uganda, Namibia and South Africa. Shima’s vision is to extend to all 54 countries on the continent. 

He said he was doubling down on growing the experiences supply chain right now, as this would ultimately set the platform’s offering apart. As a self-funded founder, Shima has secured a few grants, most notably $7,400 (CA$10 000) as part of the Amex Black, Indigenous and People of Colour Business Mentorship Program. But, ultimately, he said securing funding for this emerging travel market startup concept remains his biggest challenge. 

Where are Africa’s Travel Sector Unicorns?

Industry data shared by TechCrunch showed that Black founders secured less than 1 percent of all venture capital investments in the U.S. during 2022. U.S. Black founders raised an estimated $2.254 billion out of the $215.9 billion in U.S. venture capital allocated last year. It’s a marked improvement from 2016 when Black founders raised $568 million out of around the total $70 billion allocated to U.S. founders. In 2020, it took 391 deals for Black founders to secure $1.301 billion, out of a total investment of $164 billion in that year.

Magnifying to the funding pool concentrated in Africa, Briter Bridges and The Big Deal data showed African startups had secured record funding in 2022 at $5 billion, including undisclosed deals. 

According to Big Deal data, Nigeria topped African venture capital investments with $1.2 billion, followed by Kenya with $1.1 billion, Egypt is third with $820 million and South Africa came in fourth with $555 million. However, most investments went into fin-tech, energy and agriculture startups, and emerging unicorns were sadly lacking from the African startup landscape during this funding period. 

Gender equity further ripples the startup funding pool, with PitchBook data indicating less than 2 percent of venture capital funding in the U.S. went to all-women-founded teams in 2021, who raised a record $6.4 billion in that year. In Africa, female founders who secured funding during the same year dropped to 1 percent, as male founders continue to dominate. However, founding teams with women and men members accounted for 17 percent of venture capital raised in Africa in 2021. 

According to Big Deal data, Nigeria topped African venture capital investments with $1.2 billion, followed by Kenya with $1.1 billion, Egypt is third with $820 million and South Africa came in fourth with $555 million. However, most investments went into fin-tech, energy and agriculture startups, and emerging unicorns were sadly lacking from the African startup landscape during this funding period. 

Hamza Farooqui, a South African founder and CEO of Millat Investments who spoke at the African Tourism Investment Summit in Cape Town last week, during World Travel Market Africa, told Skift that Africa lacked travel-sector unicorns because it needs to get the fundamentals right towards travel and tourism.

Farooqui said innovation and creating real disruption needs maturity in the actual underlying sector, adding that disruptive unicorns are created around user efficiency, customer efficiency and improving the customer journey.

He used the example of Careem, which was acquired by Uber in 2019 for US$3.1 billion to make it the first unicorn startup company in the Middle East.

“What really drove Careem to become what it is today in the Middle East, and why it ultimately got taken out by Uber was actually the fact that people’s movement, travel and all of those elements were very well established and developed.”

“Disruptive technologies within the tourism and travel space are by-products of a very efficient travel, tourism sector and very mature markets, which frankly are lacking in our part of the world and are hopefully areas, which are going to change and really grow as we get the fundamentals right,” said Farooqui.

A Silicon Valley Pattern

While diversity in funding is happening, the data shows its not happening fast enough, with the so-called winning Silicon Valley pattern leaving little space for the grind of Black founders. 

The Silicon Valley pattern is a real thing, said Edrizio De La Cruz, a Y Combinator visiting partner and co-founder of Arcus, a fin-tech company that Mastercard acquired in 2021. As a financial tool for immigrants to manage finances and savings sent home, Arcus is said to have paved the way for greater financial inclusion in Latin America.

De La Cruz described the Silicon Valley pattern as beyond the reach of Black business owners, “who do not have an Ivy League education and essentially lacked connections that often facilitate successful funding rounds in Silicon Valley.”

De La Cruz said it was a case of favoring a winning pattern over “the grit and journey of Black founders and founders of color” who bring different business solutions to the table. He said his involvement in the current round of the US-based Y Combinator, that has previously invested in former startups such as Airbnb and Coinbase, added awareness to the challenges Black founders faced.

When De La Cruz started out more than 11 years ago, he said there was no consideration of diversity as there were hardly any founders of color. Now having been through the process successfully as a founder and an investor, he understands both sides of the investment coin. 

“As a Black founder, you can’t just expect funding as a right. You have to make it a sport. It’s harder for people of color and sometimes you have to be even more prepared and ready to go the distance,” he added in the face of stereotyped perceptions and unconscious bias

Funding Solutions for African Startups

The market maturity and basic fundamentals for travel and tourism require a leapfrog of innovation, and the seemingly lack of interest in investment into travel-tech solutions for African businesses demands it.

Howeve, De La Cruz suggested that the travel tech sector is highly saturated, making differentiation difficult, with “a risk-averse funding environment.”

“Travel is seen more as a vitamin and not a painkiller. Funding happens when there are solutions for hair-on-fire moments,” he added. 

And it certainly reiterates the point about market maturity for Africa, compared to other travel markets, as investors continue to chase billion-dollar companies.

Farooqui  stated, “The reason why you’re not going to find Asian, Indian, or Middle East activities in our parts of the world is because our fundamentals aren’t right. We have governments that are hugely backward. Innovation is frowned upon, and access to capital is challenging.”

“If Africa’s going to have the Kareem’s, Ubers, and Airbnbs of the world, which they can have, the point is they need a basic foundation. How are you going to have an Airbnb when we can’t even have the basic elements of safety, the basic elements of all those parts mentioned to make a technology disruptive force work.”

“The window is running short. If our part of the world is really to make an impact.”

He has advocated for the creation of an independent growth and development fund geared towards tourism entrepreneurs, said, “Inevitably, when there is money to lend, it ends up in the hands of bigger, more established players. The strategy is understandable, but unfortunate and we need a new approach.”

He believed creating tourism-specific funds would be a game changer. Still, it needed to happen on a country-by-country basis with the proper regulatory framework, support and action from the relevant governments, as opposed to a Pan-African investment fund approach.

“It’s not about race or being Black. Access to capital for tourism is challenging. It’s a hugely difficult business, because there are so many variables and unknowns. But for Black entrepreneurs, the added challenge is not having a track record. In South Africa, it is a subset of where the country comes from and that needs to undergo change.”

Farooqui remains bullish on South Africa, stating that a non-negotiable for travel entrepreneurs is understanding what they are trying to achieve with their business.

“You need to have a problem-solving approach. People may not like the way that you solve the problems, meaning they might not identify with it, but if you can solve the problems, then you are on your way.”