African Tech Startups Face Funding Hurdles Amid Economic Downturn
In 2023, African tech startups encountered severe funding challenges, leading to a steep decline in venture capital, operational scale-backs, and increased company closures.
Casey Parker
- 2024-01-05
- Updated 03:49 AM ET
(NewsNibs) - Venture capital for African tech startups has plummeted, marking a stark reversal from a decade of sustained growth. High-growth companies are coping with market corrections after years of abundant financing and inflated valuations. The decline has had tangible repercussions, including bridge rounds, down rounds, and reports of fire sales. Prominent casualties include South Africa's mobility company WhereIsMyTransport and Kenya's logistics platform Sendy, both of which shut down after failing to secure new investments. WhereIsMyTransport previously raised $27 million from notable investors like Google and Toyota Tsusho Corporation, while Sendy's $20 million Series B round in 2020 included Toyota with Atlantica Ventures leading.
The Ripple Effect on Employment
The funding contraction has forced many growth-stage ventures to shrink their operations as investment strategies pivot from growth-centric to profit-focused. A host of companies, including fintech Chipper Cash, saw layoffs due to cash shortage worsened by the collapse of FTX and Silicon Valley Bank, which led their Series C funding round. Cellulant reduced its workforce by 20% as part of a product-led growth strategy shift. Similarly, health-tech mPharma and Copia Global made tough decisions to lay off workers and, in Copia's case, withdraw from Uganda, impacting hundreds of employees. MarketForce and Twiga also downsized, and Wasoko and MaxAB are reportedly considering consolidation strategies. These cutbacks underscore a significant retrenchment across the African tech sector, impacting employees and economies at large.
The Search for Sustainable Business Models
With over three-quarters of venture funding in Africa sourced from foreign VCs, the growing selectiveness of these investors is prompting startups to seek alternative financing options such as private equity and debt financing. Experts suggest that in these challenging times, companies should hone in on customer value and profitable paths. The tough market conditions reveal which business models can withstand economic pressures, particularly exposing those with poor unit economics, like B2B e-commerce. Founders are also encouraged to achieve product-market fit prior to pursuing significant funding. Despite the downturn, some industry observers, like MaryAnne Ochola of Endeavor Kenya, see this as a chance for resilient businesses to prosper amidst reduced competition. As forward-looking measures, growth- and late-stage startups are exploring buyouts, mergers, diversified funding sources, and potential IPOs, with companies like Flutterwave making strategic moves in anticipation of going public.
Adjusting to a New Economic Reality
