A global pandemic almost derailed Felix Orwa and Meka Este-McDonald’s startup dream.
The two Black co-founders — one, a Stanford-educated African-American, the other, a Kenyan who came to the U.S. to train to be a pilot — had connected four years earlier over a shared mission to make trade logistics in Africa more efficient.
Their company, Sote, is a tech-enabled platform that helps industrial import and export businesses in Africa manage complex trade logistics like clearing customs and managing shipping containers. In the founders’ view, it’s not only a massive business opportunity, but a chance to have a wider positive impact for Africa, a continent that boasts one of the largest and fastest-growing economies in the world, yet is habitually ignored by Western investors.
Orwa and Este-McDonald began last year feeling optimistic. They had some funding in the bank for Sote and a path to closing their first formal seed round as part of an accelerator program.
Then the COVID-19 pandemic hit, and “not only did we not raise a formal seed round at the end of the accelerator, we struggled to raise anything,” said Este-McDonald.
While 2020 would go on to be a blockbuster year for venture investment, in the spring, investors were still scrambling to understand the new landscape and shore up their existing portfolios.
“The VC world kind of shut down for a little bit, and not only did it shut down completely, but certainly Africa was always kind of on the fringe of what they were willing to do. And the idea of doing Africa in this super uncertain environment — there were just no takers for that,” said Este-McDonald, who serves as Sote’s chief product officer and is based in Berkeley, California.
The founders took out a loan from the Paycheck Protection Program, a federal relief program for small businesses, to tide them over. They asked staff if they could delay paychecks.
“Everybody was just really stressed and the world felt like it was falling down. And it was a combination of things where it felt like, ‘Man, are we going to be a casualty of COVID?’ ” Este-McDonald said.
The vast majority of startups fail, and the Sote founders had always known the odds were against them.
“But I’ve always said, you know, I want to fail because I failed, because my unit economics never worked out or I just couldn’t figure it out,” Este-McDonald said. “But to fail because of macroeconomic factors beyond your control and a once in a lifetime situation? ”
By the middle of the year, venture investment had started to pick up again. And then in May 2020, George Floyd was murdered by a white Minneapolis police officer, sparking widespread racial justice protests and a reckoning for Silicon Valley’s disproportionately white investor class.
With racial justice on the national consciousness last summer “the desire to invest in African-American founders was at an all-time high,” Este-McDonald said.
In June 2020, tech entrepreneur Sahil Lavingia posted a message on Twitter saying he was looking for Black founders to invest in. Este-McDonald responded — and received $500,000.
Still, it was important to Este-McDonald that the company was backed by investors who believed in the business itself.
“I’m not looking for people who are looking to do charity for African-American founders,” Este-McDonald said. “I think we are sitting on something that is bigger and more real than most things that are getting funded right now, but I also didn’t want the business to die. So, I said ‘You know, let’s have this conversation, but just to be very clear, I’m not looking for charity.’ ”
As two Black entrepreneurs, Orwa and Este-McDonald are working against the statistical odds: Less than 1% of the record $150 billion in venture capital that was invested into U.S. startups in 2020 went to Black startup founders.
‘Growth mode’
In late 2017, Sote received its first funding, a $150,000 pre-seed round from Unshackled and two angel investors Este-McDonald knew personally, Liz Dunn and her husband Dorion Carroll.
Sote continued to raise funding “in dribs and drabs” from various investors while Este-McDonald stayed in the U.S. and Orwa returned to Kenya.
In the background, the funding environment had also slowly started to change since that first coffee meeting in 2016. Accelerator programs like Y Combinator were increasingly investing in startups from Africa. And in 2018, McKinsey, the influential global business consulting firm, named Africa “the world’s next big growth market.”
Then in late 2020 — at the end of a long and difficult year in which they thought their business might fail — Sote raised its seed round: $3.6 million led by MaC Venture Capital, a firm that Orwa and Este-McDonald had been introduced to by the first VC firm that invested in them, Unshackled Ventures.
Along with the funding, MaC Managing Partner Marlon Nichols and Backstage Capital Managing Partner Arlan Hamilton joined SOTE’s board.
Sote now has about 40 employees, mostly in Kenya, with a few other workers distributed in California and Vancouver, Canada. It’s raised $4.4 million to date and launched into 2021 with a runway of capital.
“The name of the game is growth at this point,” Este-McDonald said.
Of course, with that momentum comes the “expected growing pains” of scale, Orwa said: “Customers, people, and technology.”
