2022 saw a record-breaking boom in capital raised by African tech startups, with the eighth edition of the annual African Tech Startups Funding Report released by Disrupt Africa in January reporting 633 startups raised a combined $3.3 billion over the course of the year.
Despite the positive outcomes of 2022 in terms of capital, 2023 has yet to see such a positive yield. In the year's first quarter, startup funding fell by 57.2% compared to the previous year's period. Less than half the number of startups secured funding in the first quarter compared to the year before, with those startups securing a total of $649 million, down from $1.5 billion in April 2022.
With fewer local and international funds likely to be driven through Africa, experts advise that the focus now must be on capital and growth efficiency to ensure survival over the next 12 to 24 months. "The important thing now is to either get free cash flow or show that you have a path to profitability," advises Clive Butkow of Kalon Venture Partners when speaking on Disrupt Africa's The Month in VC podcast.
It's possible for startups to grow during this period, but the focus should be on being smart about where existing funds are being directed to encourage sustainable growth. Previously companies may have focused on rapid expansion across ten or so countries. Within this slower period, the focus should still be on expanding but doing so in a more measured manner that can then be scaled accordingly.
One key approach is to focus on relationship building and networking with current and future investors. Preparing to demonstrate a unique value proposition and growth ability through an articulated growth plan and strategy is key to attracting and building solid investor relationships. In an article written for TechCabal by Claudine Moore, an award-winning global PR leader, Claudine identifies the need for more strategic and intentional PR efforts as a tool for building these needed relationships. While many will be quick to cut back on efforts within communications, Claudine encourages a pivot towards strategic media coverage that are more niche and focus on specific sectors.
With an uncertain future, looking for funding outside traditional spaces, such as grants and crowdfunding, is important. Grants are often available for organisations and programmes focused specifically on social impact or supporting often overlooked communities. Crowdfunding may be most viable for those with consumer-facing products or a strong community following.
Looking outside of traditional VC firms and focusing on high-net individuals who can serve as angel investors can greatly help early-stage startups, says Ife Durosinmi Etti, CEO of Herconomy. After Herconomy's fundraising success in late 2021, which saw them raise $600,000 in just twenty-four hours, this non-traditional approach to fundraising has shown proven results.
While predictions for 2023 look less promising than those in the previous year, there are actions startups can take to ensure this year is one of foundation-building and strengthening. Through a combination of strategic planning, relationship building, and willingness to apply agile funding techniques, tech startups within Africa can continue to grow and thrive, even in the face of challenging market conditions.
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