Founders don’t operate in silos. One of the most important things for a founder to be aware of is the vast ecosystem that needs to be in place for their business to grow. At Founder Africa, we see the ecosystem as a critical ingredient in the success of the founders we promote and inspire.
This article presents our observations of the African startup ecosystem in recent years. It is the first of what will be a quarterly update.
The African startup ecosystem has seen several notable events in the last three years. It has received much attention and resulted in more funding capital on the continent. It can be argued that Africa has now caught the world’s attention, and events across the continent have triggered this. For example, since 2019, we have seen Stripe’s acquisition of Paystack; Flutterwave’s valuation of $3 billion, Trella’s $42 million raise; Worldremit’s acquisition of Sendwave, SweepSouth’s acquisition of Filkhedma, as well as 64 African startups’ selection into Y-Combinator’s world-famous accelerator program. All this is just the tip of the iceberg.
The ecosystem sees many more founders taking bold steps to build products and services. While most of these are built out of necessity, it is encouraging to see the growth of the talent pool in Africa. We see more founders taking opportunities to create value with advancing (or more accessible) technology. With the rise of internet penetration in Africa, founders can now create value for more people who can easily access digital products or services.
Also interesting are the changes in the investor landscape…..
First, the number of Angel Networks on the continent has increased significantly. ABAN reports that the number of registered Angel Networks has risen to over 55 Angel Networks on the continent, with some arguing that the number is over 100. In real terms, this means a significant rise in “smart capital” for founders. This is critical for founders in Africa, as most do not have access to the first $50,000, which typically comes from friends and family in more advanced ecosystems, to help them build MVPs
Secondly, the rise of Angel Funds like (Launch Africa, Syndicate by CCHub, Future Africa, etc.) is very much welcome for the ecosystem. These funds are stepping in to make the seed investing experience a bit less risky than it would have been. For a new Angel Investor, having direct access to the same deals that experienced entrepreneurs and Angel Investors have, is priceless. These individuals have earned their stripes, and leveraging their network and experience is something any budding angel investor should take advantage of.
Thirdly, early-stage VC funds are providing much-needed catalytic funding to scale startups – taking them from gaining the first group of customers to more refined and sustainable businesses. The ecosystem can now boast of multiple African VC firms that have raised tens of millions individual funding rounds. This could only bring great excitement to the ecosystem as this capital is deployed efficiently and effectively across the continent. More importantly, more VC funding usually correlates positively to more exits which can only be good for the ecosystem.
However, the ecosystem faces some challenges too…
The scarcity of good talent in the ecosystem is a real issue. With the spotlight now on African startups, more capital is coming into the continent, which means that competition for good talent is increasing, driving wages up and making talent more expensive and scarcer.
Also, the rise of remote work means that the best talent can now work for foreign startups (or multinationals) that tend to pay much more than local ones; this not only makes it difficult for funded startups to scale but also increasingly difficult to find technical founders that can commit to building something new from scratch. More than ever, founders must have a compelling value proposition (and good share options) to recruit the best talent.
Another challenge in the ecosystem is that with so many startups popping up on the continent, it is becoming increasingly difficult to tell the good and committed teams from those trying to ride the wave. It is even more critical for early-stage investors to assess founding teams properly and diligently examine business models for realistic product-market-fit opportunities.
Angel Investors need to leverage the growing number of Angel Funds/Syndicates to help mitigate this risk. For more active investors, there is no escaping from doing the proper work of selecting startups (and founding teams) that have real potential.
Founders now need to up their pitching game. Gone are the days of fancy slides with inflated market sizes and unrealistic growth stories. As a founder, your pitch needs to be concise, clear, and backed by realistic numbers. In simple words, founders need to put in the work to research their markets and communicate the value proposition. We have written ten tips to help founders pitch as a way to assist founders who want to learn how to make a great pitch.
We can’t wrap this update up without noting the significant increase in startup valuations, mainly due to the high demand for African startups in the last 18 – 24 months. This rise is exacerbated by the heightened fear of missing out (FOMO) from investors keen to have a stake in the next big thing out of Africa. Inflated valuations are causing many problems for the ecosystem. Still, ironically most pain is for founders, as overvaluation puts an incredible amount of added pressure on an already very stressful job.
While the current downturn in the global market is readjusting African overvaluations, it is essential to note that quite a few founders (and investors) may find themselves going through some rough seas in the foreseeable future.
We have some tips on how founders can prevent (or deal with) overvaluations, and we will publish these in an article soon. Subscribe here to get it as soon as it is out.
In summary, the African startup ecosystem is gaining momentum and maturing rapidly. It still presents many risks, but at the same time, it can potentially deliver rewards that cannot be easily matched in any other ecosystem. More and more founders are taking on Africa’s most significant challenges and creating value for Africans, and more investors are bravely backing these founders.
We are delighted to have a front-row seat and participate in what some have described as the “African innovation revolution”. We are determined to promote and inspire the next generation of African change makers.
We will continue to tell the stories of African founders to the world!!!
