Navigating the Current Fundraising Landscape: Insights and Strategies

Keynote Speech: AfriTech Basecamp London, 22 Feb 2024

The journey of a tech founder, especially within the African context, is akin to navigating a vast ocean. The waters are sometimes calm, often unpredictable, but always full of potential. Today, I want to share with you my own insights on how we can sail these waters, leveraging the winds of innovation, partnership, and determination to reach our desired shores.

African founders often face hurdles that their counterparts in more established markets might not, including limited access to capital, regulatory complexities, and a lack of infrastructure. Yet, despite these obstacles, African startups are finding inventive ways to thrive, marked by unprecedented growth and dynamism, leveraging their unique strengths and the growing interest from global investors.

Let’s take a closer look at some of these unique funding challenges…

Limited Local Angel Investment and Venture Capital: The pool of local investors and venture capital firms willing to invest in early-stage startups is relatively small in many African countries compared to more developed markets. This can make it challenging for startups to secure seed funding and early-stage investments.

Perceptions of Risk: International investors often perceive investing in African startups as high-risk due to concerns about political instability, regulatory uncertainties, and currency fluctuations. These perceptions can deter potential funding, even for startups with strong business models and growth potential.

Regulatory and Bureaucratic Hurdles: Navigating the legal and regulatory frameworks in African countries can be complex and time-consuming. Startups may struggle with issues ranging from company registration to understanding and complying with local tax laws and regulations.

Access to International Markets: For many startups, scaling often means expanding beyond their home markets. However, accessing international markets requires overcoming logistical challenges, adapting to different customer preferences, and competing with well-established players.

Now let’s delve into the heart of the African startup ecosystem and how our startups are overcoming these funding challenges. In 2023, the top sectors by investment funding were fintech, cleantech, e-commerce, healthtech, logistics & mobility, agritech, education, insurtech, gaming, and media & entertainment.

Each sector tells its own story of resilience, innovation, and the relentless pursuit of impact by the amazing founders, investors and entrepreneur support ecosystem around them but have some similarities in their funding solutions. So what exactly are they doing to overcome the funding challenges you might ask? Well they are…

Building Strong Local and Global Networks: Startups like Insighteq and TropoGo have formed strategic partnerships with institutions like the University of Oxford and Farm Africa, respectively. These alliances not only validate their business models but also provide them with credibility and exposure to international networks.

Leveraging Technology and Innovation to Attract Attention: Startups are using technology not just as a part of their product offerings but also to demonstrate their capability for innovation and scalability. Healthtracka’s partnership with Babylon showcases how leveraging technology in telemedicine can attract international partnerships and funding.

Showcasing Scalability and Market Understanding: Demonstrating a deep understanding of their market and the scalability of their solutions is crucial. Zoho’s partnership with the UK government exemplifies how demonstrating potential for wide-reaching impact can attract support from significant international players.

Using Non-Traditional Funding Sources: Startups are increasingly turning to alternative funding sources, including crowdfunding, diaspora networks, and development finance institutions. Afrik LPG’s partnership with CDC Group is a prime example of how non-traditional investors can provide the capital needed to scale. My article last year on Customer-Funded Startups gives additional insight into this particular approach.

Focusing on Social Impact: Many African startups address critical societal challenges, making them attractive to impact investors. Msun’s collaboration with Solarcentury and SolarAfrica’s partnership with Practical Action highlight how solving social issues can open doors to funding from investors interested in social return on investment.

Engaging in Accelerator Programs and Competitions: Participating in accelerator programs and competitions can provide startups not only with seed funding but also with mentorship, exposure, and networking opportunities. These platforms serve as a launchpad, helping startups to refine their business models, gain visibility, and attract funding.

As an angel investor, my role extends beyond funding to mentorship, sharing insights, and helping startups navigate the intricate dance of growth and scalability. It’s about believing in the vision of founders and empowering them to execute that vision with precision and grace. In navigating the current fundraising landscape, remember that resilience, adaptability, and a clear long-term vision are your best navigational tools. Embrace the ecosystem through networking events like this, accelerators, and even pitching competitions. Engage with the community, seek mentorship, and never underestimate the power of a compelling story.

As of today, February 22nd, 2024, there are 7 confirmed African unicorns, meaning startups valued at over $1 billion. They span various sectors and countries, demonstrating the diverse and growing tech landscape on the continent.

1. Interswitch (Nigeria): Founded in 2002, this fintech giant provides digital payment and commerce solutions across Africa.
2. Flutterwave (Nigeria): Another major fintech player, Flutterwave facilitates cross-border payments and other financial services for businesses.
3. Jumia (Nigeria): Operating as an e-commerce marketplace, Jumia connects buyers and sellers across Africa.
4. Wave (Senegal): This mobile money platform is quickly dominating the Senegalese market and expanding regionally.
5. OPay (Nigeria): Another fintech champion, OPay offers mobile payments, loans, and other financial services in Nigeria.
6. Andela (Nigeria & US): While Andela has dual headquarters, its focus on connecting African tech talent with global companies makes it relevant to the African tech scene.
7. MNT-Halan (Egypt): The newest addition to the unicorn club, MNT-Halan provides “buy now, pay later” services and other financial solutions in Egypt.

These ventures underscore the transformative power of innovation and collaboration and remind us that with the right strategy, support, and mindset, the possibilities are limitless.

In conclusion, while the funding landscape in Africa presents founder’s with unique challenges including navigating complex regulatory environments, building scalable business models, and overcoming international investors’ perception of political risk and regulatory uncertainty, the continent’s startups seeking to make their mark on the global stage are leveraging their ingenuity and strategic partnerships to overcome these obstacles. By focusing on innovation, scalability, and social impact, they are attracting attention from a diverse range of investors and paving the way for a new era of growth and opportunity in the African startup ecosystem.

So as we look towards the future, let’s commit to forging stronger connections, sharing our collective wisdom, and supporting one another in our quest for growth and impact. Together, we can navigate the currents of the fundraising landscape, turning the challenges of today into the successes of tomorrow.

Thank you for being part of this journey. Together, let’s continue to innovate, inspire, and impact the world.

Best regards,

Tomi Davies (TD)

22/02/2024