Startups are staring at a difficult year ahead in terms of fundraising as financiers put in place stringent conditions.
This comes at a time when African startup funding has fallen from the highs of 2021 and 2022.
According to Disrupt Africa’s African Tech Startups Funding Report, investment in African startups fell by around 27 percent in 2023, while the number of investors dropped by half.
Kenyan start-ups attracted $800 million (Sh114.5 billion) in venture capital in 2023 surpassing, Egypt, Nigeria and South Africa to top the continent.
Experts from Founders Factory Africa predict a further drop in funding to African Start Ups this year, as investors become more demanding.
Rology Chief Financial Officer Jason Musyoka, co-founder and general partner at Seedstars, Bruce Nsereko-Lule and founder and CEO of Senga Technologies, June Odongo said with money no longer as cheap as before, investors prioritise fundamentals and sustainability over pure potential.
This, in turn, requires founders to have a clear roadmap with achievable milestones, pilot, funding rounds and contingency plans.
“As investors, we’re looking for a plan but you also need to model in variation. Aim to go with the plan but let’s model it if we need to spend a little bit more, for example,” says Nsereko-Luke.
They unanimously agreed that it’s still critical for startups to be reasonable in choosing the investors they approach for funding.
“In doing so, however, they say that founders should also be aware of investors’ shifting priorities and adapt their fundraising strategies accordingly,” he added.
Additionally, investors are emphasising due diligence and seeking ventures with strong fundamentals and realistic growth plans, moving away from solely chasing high-growth potential.
The experts noted that while international investors may offer substantial funds, local investors often provide invaluable contextual understanding and networking opportunities.
Odongo pointed out that local investors can open doors to senior executives and facilitate business opportunities that founders may struggle to access alone.
Founders must align their investment strategy with their business goals, distinguishing between lifestyle and scaling aspirations.
“From an investor perspective, it’s important that you do your due diligence very well whilst you’re investing in a company so that, when you’re putting in the money, you don’t get unexpected surprises,” said Odongo.
This also means that founders may have to shift their business position. Rather than aiming for the kind of accelerated growth that characterised the post-2008 financial crisis, low-interest environment, startups should aim for sustainable growth.