Investors should be wary of unconscious bias affecting their decisions
November 8, 2023
Adam Wakefield

An investor’s cultural heritage and past experience can unwittingly lead them to favour founders that look and sound like them.

This is not a surprise. A large body of research exists that testifies to how people are attracted to others like them due to consensual validation, cognitive evaluation, and the certainty of being liked, among other reasons. Yet, within an ecosystem context, these unconscious biases can have a material effect on which ventures investors choose to fund. Deserving ventures may not receive the funding they need, creating an opportunity cost for investors.

This topic was raised by our Venture Sourcing Analyst, Adelaide Njoki, during a panel discussion at the AfricArena East Africa Summit 2022 in Nairobi on Wednesday, 5 October. The panel’s overall focus was What is the path to ecosystem maturity in East Africa?, with its other speakers Christine Namara [The Boabab Network], Anthony Kimani [Enza Capital], and Ngetha Waithaka [Norskenn22]. The panel was hosted by Jason Musyoka [Viktoria Ventures].

The panel covered several subjects, including the importance of locally-based investors, access to finance, and the role of regulators within the ecosystem.

Below are some other thoughts Adelaide shared with her fellow panellists and the audience in Nairobi:

On pre-set bias within the investor ecosystem

“It’s fascinating but in most cases, when you’re investing, it’s mostly based on your previous experience, especially in this ecosystem where we don’t have a lot of information about the startup. We don’t have three years of revenue; we don’t have EBITDA; we don’t have proper valuations. Sometimes, it’s also based on other people [referrals] that you know are doing the same thing. So it easy to get trapped in pre-set internal or external biases of what can work and what cannot work.

If I went to California and met a Kenyan, I’d be drawn to a Kenyan more than anyone else. We as investors [should be] aware of our biases and…immerse ourselves in the market…so it’s not a blind bet.”

On expat venture builders versus local founders

“We still have the same capital allocation to expat founders [as we did 3 years ago]. I strongly believe that the closer the tech builders are to the solution they are trying to solve, the more efficient the solution might be. Of course, like everything else, there are outliers. The trend has been that sometimes, you have great entrepreneurs, great experience, and good education. Still, it tends to be overlooked because of inbuilt biases between those looking for money from those who have it. Sometimes, you get founders who are too humble and try to be ‘rational’, who are probably thinking, ‘Maybe if I build this quietly, without external support, it will create enough validation before I get external support?’

In this case, be ‘irrational’ and speak about your business, get the support you need now, and validate quicker. If you have a challenge, talk about the challenge because I could know someone who went through the same thing. I could have some advice for you. So, make some noise about what you’re doing and where you are. I’m saying this [yet] I’m also a founder. It’s not on my profile, so I must take my advice.”

On legislation and market interoperability

“I’m not a regulation expert…yet…but I get really depressed when I see these businesses scaling to different markets. It is very difficult because we largely operate in silos, our policies are in silos, so interoperability becomes a real challenge. Often, [for example] we are excited about a Kenyan business, and you expand to Nigeria. You think it’s going to be smooth sailing but you get there and find yourself battling with 16 regulators, and it’s just impossible. For me, when we get to the point where our policies are interconnected, or our legislations cater for more cross-border operations, I think that is when we can say, ‘This is it. We made it!’ from a regulatory standpoint.”