The struggle is real — anxiety heightens as “Africa’s startup graveyard” grows in size — Disrupt Africa

Venture capital funding has declined significantly across the world in 2023, and though there were initial hopes that the nascency of the African tech ecosystem might mean it avoided too much damage, the growing size of the continent’s “startup graveyard” suggests that is not the case.

Venture capital funding globally almost halved in the first six months of 2023, according to PitchBook data, which highlighted a lack of investor enthusiasm as well as falling demand amid rising interest rates. In Q3, according to Crunchbase, it was down 15 per cent on the same quarter the previous year.

In Africa, Disrupt Africa figures paint a concerning picture. We reported recently that African tech startups raised just shy of US$500 million in Q3 , taking the total for the first nine months of the year to just under US$1.5 billion, down 48 per cent on the corresponding period in 2022. Unless there’s a dramatic upturn, it seems funding in 2023 will be down by around half on last year. A reset indeed.

The lack of liquidity in the market, and the sudden difficulties startups used to regularly raising capital are now facing in convincing investors, has hit a certain type of African startup hard. Well-funded ventures pursuing fast-paced “growth at all costs” strategies are either having to pivot hard, or close up shop. Africa’s “startup graveyard”, until this year relatively empty of “star names”, is filling up fast.

In August, Kenyan end-to-end fulfillment startup shut down operations and announced a fire sale of assets (it didn’t call it that), with reports saying reduced order volumes and fuel price hikes meant it was making deliveries at a loss, and had a monthly burn rate of US$1 million. Sendy raised US$20 million in capital as recently as January 2020, but in the current climate further funding was not to be found.

Next to bite the dust was , a genomics research company that had raised US$45 million across three funding rounds. It was revealed last month that it had started winding down its operations. 54gene, which has had three CEOs in the last 12 months, said it “could not continue to operate financially”. See the trend?

Next up, and most concerningly, was Ghanaian fintech Dash. Founded in 2019, the payments company had raised a whopping US$86 million, but folded in October amid allegations of financial impropriety and false reporting. And this week brought the news that South African mobility startup WhereIsMyTransport, bankrolled to tune of over US$27 million by investors such as Naspers in recent years, was closing down after failing to secure more investment. On a lesser scale, but no less sadly, the death knell has also recently rung for the likes of Kune, Lazerpay, and .

Plenty of previously high-growth ventures plod on, but they are all having to change the way they operate. Kenyan e-commerce company Copia, which raised US$50 million Series C funding last year , announced it was pulling out of Uganda, “consistent with many of the best companies in Africa and across the world which are responding to the market environment and prioritising profit.” Another Kenyan retail-tech startup, MarketForce, is also facing challenges. The company raised US$40 million in funding in February of last year , back in the boom times, but stunningly, certain VCs that had committed funds backed out. In all, US$8 million of that capital was never wired. MarketForce has struggled to raise more capital, announced a bunch of layoffs, and recently turned to crowdfunding to get some cash in the bank.

Worrying times, then, as the flood of funding slows in pace and leading African tech ventures feel the shocks. As the boom of 2020, 2021 and 2022 turns into the pain of 2023, the whole way many entrepreneurs have been running their business has had to change. Instead of “growth at all costs”, it is now about, as Copia put it, “prioritising profit”.

Yet that isn’t actually a bad thing. In fact, as investors pointed out on this episode of Disrupt Podcast , many people have actually — quietly — been running their businesses like that for a while. The decline in funding may well be putting a little bit of necessary prudency into Africa’s startup ecosystem. Valuations had certainly gotten unsustainably high, so a fall is in many ways welcome. And, if there are any positives to be gained from the spectacular collapse of Dash, it may be that, finally, Africa’s startup founders and their boards of directors begin paying a bit more attention to good governance.

Some positives to be taken, then, but undeniably these are some of the toughest times this young, growing ecosystem has ever faced.

New funds, however, herald good news. And a few of those have been announced recently, raised by the likes of Enza Capital , Secha Capital , P1 Ventures , Knife Capital Catalyst Fund . That’s all money that is going to need disbursing over the next few years. And investor sentiment is like the weather — it changes. Economic peaks and troughs are a tale as old as time. Right now, investors are “unenthusiastic”, but quite soon they will certainly regain their enthusiasm. The question startups across the world are asking themselves is “when?”.

It is easy to be over-optimistic, but there are some signs of winter becoming spring. In the US, last month was the first time in 18 months that venture-backed tech companies braved the public markets. The Instacart and Klaviyo IPOs saw both companies down-valued, but the fact they listed at all was a good step. It seems, then, likely that 2024 will be a better one for tech listings, and though that has no direct impact on African investment, the fact US investors are warming up is a positive harbinger for increased capital flows onto the continent in the coming months.

For now, though, we are still very much feeling the chill of winter, and Africa’s “startup graveyard” is getting fuller. Times are tough, but all we can do is manage as best we can, get our houses in order from a profitability and governance perspective, and trust that there are better times to come.

Originally published at https://disrupt-africa.com on October 31, 2023.