There is a huge debate right now, and it’s about what constitutes as being an African tech start-up. One of the many reasons why it is so difficult to say for sure is because a lot of the African start-up companies are not incorporated on the continent. Take Paga, Paystack, Andela and even Flutterwave, for example. You will soon see that they are some of the fastest-growing companies in Africa right now. They are choosing to domicile in other places. Where are they choosing to go? What are the factors?
Delaware
It’s interesting to think that 70% of the start-ups, incorporated outside of Africa choose the US. More specifically, they choose Delaware. Like other parts of the US, Delaware has tried to do everything they can to keep their corporate tax rates as low as possible. This is helping them to be competitive, but when you look at the modern corporate statute as well, you will find that they stand apart for other reasons as well. Registering a business in the state of Delaware, you will find is far more affordable, and your business is going to be way more protected going forward. A lot of tech entrepreneurs, such as Tej Kohli are also continually making investments in upcoming companies and being in the US helps to get more exposure.
America
America is known for being one of the deepest pools of capital in the entire world. If you are trying to raise capital, then it makes sense to domicile your company in America. This will increase your chances of getting funding, if you intend to grow your venture capital. And if you want to build a company that will be globally relevant, then you have to make sure that you look at the best Angel investors and incubators. When you do this, you will soon find that they are all in America. There are also other reasons why the state of Delaware is so popular. One of them is because you can form a company in 24 hours and for less than $500. You don’t even need to have a lawyer either. You can be generally be assured of getting a fair court system and property rights if you are in America.
Although there is absolutely nothing wrong with incorporating an entity on the continent of Africa, you will soon find that Delaware is much less risky. You can get a high level of investor confidence, and you can also get assurance from the regulations that are in place too. There are so many billion-dollar start-ups, and most of them have incorporated themselves in Delaware. The main issue with founding a company in Africa is that there is a shallow pool of capital, and you also don’t have much room for investment or even an exit. You may even find that the ownership of your company is subject to political interference too.
