Failure Of African Tech Startups And Impacts On Future Funding Opportunities For Upcoming Startups

?Africa is home to some of the most innovative and dynamic tech startups in the world. Yet despite this, recent reports have shown that many of these startups have failed. But why is this the case? What does this mean for the future of African tech startups? It?s no secret that startups all around the world face many struggles. But what about tech startups in Africa? and what is the way forward for long-term success and investor confidence?

African start ups face numerous challenges in within the African startup climate but despite the struggles, African tech startups have found creative ways to make the most of their resources. Many have developed strategies to reduce their infrastructure costs, such as using cloud computing and accessing remote storage. The have also found ways to attract investors, such as through crowdfunding platforms or incubator programs.

In the past few years, the African tech startup scene has been growing rapidly. From fintech to e-commerce, edu tech, legal tech, medical tech, Agrotech etc the opportunities for entrepreneurs to make an impact are immense. The success of African tech startups has had a major impact on the continent. The growth of these companies has been linked to an increase in job creation, economic growth, and improved access to services, such as healthcare and education.

Despite the promise of success, however, many of these startups have recently failed. According to a report by the African Development Bank, the failure rate of African tech startups is alarmingly high, with nearly 80% of startups failing in their first year. This is in stark contrast to the global average of 50%. It?s also estimated that approximately 90% of African startups fail within the first 5 years.

There are several factors that contribute to the high failure rate of African tech startups. Poor management, inadequate funding, and lack of access to markets are all major causes of failure. In many African countries, there is a lack of reliable internet and electricity, making it difficult to launch companies that rely on the internet or store large amounts of data.

In April 2023, Nigerian crypto and web3 company, Lazerpay shutdown its operations after its inability to raise additional funding. Dash a Ghanaian start up folded after raising $86 million in seed funding. It was reported that?s there was a shortfall of at least $25 million unaccounted for with a revenue burn rate of $500,0000 per month and no revenue.

Kenyan logistics startup Sendy that enabled retailers to purchase FMCGs directly from manufacturers, among other services shut down its operations despite obtaining a $26 million funding. Also, 54gene a Nigerian biotech and health start up raised $45 million in three funding rounds to achieve the extraordinary for African genomics. However, the company shut down in a cloud of controversy within 5 years of operation.

It was rumored that Payday founder was paying himself $15,000 monthly, before the company packed up. Another founder was paying himself $50,000 monthly, leading to the company packing up. Both of them, on investor funds. This financial recklessness has gained weight due to the leverage of insecurity and absence of monitoring mechanisms of seed funds given to startups. These founders have been given unlimited powers to use funds at will without adequate framework in place to guide the use of these funds.

The failure of African tech startups has serious implications for the future of the industry. With investors wary of investing in African startups, access to funding is becoming increasingly difficult. This has led to a decrease in the number of new startups being created. At the end of the first six months of 2023, VC funding in the African Tech ecosystem declined by 48% compared to the previous year.

Unethical practices, lack of due diligence and the lure for instant personal gratification has become the bane of most African startups. The absence of a unified legal framework to guide tech start ups in Africa as well as the lack of punitive measures for fraudulent misuse of funds by Founders has also contributed to this increasingly closing of start ups after huge funding as the perpetrators often go unpunished without reparations of funds misused.

There is, however, hope for the African tech startup scene. By focusing on better management, increased access to funding and markets, and improved access to resources, entrepreneurs can increase their chances of success. There is need for a robust innovation friendly approach framework to boost investor?s confidence and curtail financial abuse by founders.

Governments can also play a role in improving the success rate of African tech startups. By providing tax incentives and other forms of support to startups, governments can create an environment that is conducive to success. The African tech ecosystem must be regulated to improve innovation yet reduce and tackle fraud and unethical practices. The era of Founders apportioning to themselves huge salaries at the expense of their start ups should be discouraged by the introduction of legal framework for start ups which will outline the working mechanisms and financial ethics for tech start ups as well as the need for financial prudence, transparency and accountability

Conclusion

Despite the challenges, African tech startups still have a chance to succeed. By focusing on the right strategies and taking advantage of the available resources, these startups can succeed and create a positive impact on the African economy. The potential of African tech startups is undeniable. With the right framework in place, these companies can become major players in the global market. They can create jobs, spur economic growth, and improve access to services within and outside Africa. It is time for the African start up ecosystem to learn from the challenges of failed start ups and lean towards making Africa a profitable and financially prudent start up destination.