Asymmetric network ties to elite American universities create differential access to venture capital in Africa

Abstract

Why is the venture capital (VC) flowing into Africa concentrated in a handful of countries? I reject the popular notion that market size is the primary reason why VC investments only end up in a few countries. Because ties with elite universities are the primary way in which African startup founders build social capital with U.S. VC firms, which are the largest purveyors of venture funds on the African continent, I advance a novel network theory. It is predicated on a new form of core-periphery relationship wherein capital domiciled largely in the United States drives uneven startup ecosystem growth on the African continent. I argue that this market failure, characterized by concentrated VC investments, stems from an asymmetry in elite U.S. school network ties between the top four recipient countries (Nigeria, Kenya, South Africa, and Egypt) and the other 50 African nations. I collected statistical evidence of the funding differential between countries and the imbalance in U.S. elite university attendance by country. I used a linear model to show that attending a school in the top 20 of U.S. ‘News World Report of Best Universities’ might significantly increase the venture capital amount the country of a graduate is expected to receive. My research contributes to the literature on network capitalism and development.