TLDR:
– Record 20 start-ups closed in Africa last year due to funding drought, leading to job losses
– Start-ups faced challenges in securing follow-up funding rounds, leading to closures and scalebacks
A record 20 start-ups closed down across Africa last year, and many more scaled back operations due to a general funding drought that impacted many countries on the continent, leaving a trail of job losses. Last year, the amount of funding raised by start-ups on the continent declined by 31 percent to about $4.5 billion, from the $6.5 billion raised in 2022, significantly impacting cash flows for budding companies. According to the African Venture Capital Association (AVCA), a number of start-ups, which had previously raised significant amounts of funding from investors, last year closed down after failing to raise follow-up funding rounds. “This funding drought led several early-stage companies to either significantly downscale operations or shutter completely,” said AVCA in its latest Venture Capital Activity in Africa Report.
In Kenya, for example, including logistics firm Sendy and business-to-business e-commerce platform Zumi, struggled to secure follow-up funding, leading to closures. Start-ups across the continent faced similar challenges, with firms laying off up to 30 percent of their workforce to stay afloat. The slump in start-up funding last year also impacted operations, as high inflation and interest rates in the US disincentivized investment in budding companies in Africa. AVCA predicts that the number of start-up closures may continue to increase if funding challenges persist.
Last year, majority of start-ups that received investor funding in Africa were founded purely by Africans, a shift from previous years where foreign nationals dominated the African innovation scene. The trend of more confidence in start-ups with only local faces is changing the dynamics of the African start-up landscape. While foreign investors still play a significant role in funding African start-ups, the rise of African investors is narrowing the gap that existed previously.
