Dissecting the African Tech Landscape: Why Companies Folded in 2023
Unearthing the Reasons Behind African Tech Companies’ Demise in 2023: Funding, Competition, Management, and HR Values Explored.
As conversations echo through boardrooms, Twitter, and just about everywhere, the year 2023 has undoubtedly left an indelible mark on the African tech industry. The VC funding in the African ecosystem declined by 48% compared to the corresponding period last year at just the end of the sixth month of the year. With this sort of news, and considering economic downturns all around the world, doom is a topic that’s on everyone’s lips, and a persistent lingering sense of the untimely demise of once-promising companies still lurks. This phenomenon, though disheartening, serves as a stark reminder of the challenges that persist in this dynamic space.
The Grim Reality: African Companies Going Under
So far in 2023, several African tech companies, including Laserpay of Nigeria, Dash of Ghana, Sendy of Kenya, Kune of Kenya, and so many more have faced the harsh reality of folding. These once-promising startups were poised to make significant impacts in their respective niches, but somewhere along the way, their journeys took an unforeseen turn.
The Triple Edged Sword: Funding, Competition, and Management
1. Lack of Funding
It’s sad to note that a staggering 70% of startups in Africa grapple with the challenge of securing adequate funding. This financial bottleneck proved a formidable obstacle for Laserpay and Sendy, both of which held immense potential. Sendy for example, a groundbreaking logistics company had to close up and consider selling its assets, after running out of funds to continue running, this is after a 10% cut of its workforce last year. Despite innovative solutions, their inability to secure the necessary capital impeded their ability to scale and adapt to an ever-evolving market.
The Grime Truth
- Limited Access to Capital
One of the prevailing issues that startups face in Africa is the limited availability of venture capital and angel investments. According to the same report, early-stage funding remains elusive for the majority of startups, with only 20% successfully securing seed funding. This scarcity of initial capital significantly hampers the ability of startups to develop and refine their products or services.
- Scaling Challenges
Inadequate funding poses a critical barrier to scaling operations. The inability to secure growth-stage funding inhibits startups from expanding their reach and penetrating new markets. Without sufficient capital infusion, many innovative solutions with immense potential find themselves constrained, unable to realize their full impact on a broader scale.
2. Fierce Competition
In an era where technological advancements are rapid and boundaries are blurred, competition in the tech sphere has never been fiercer. Zumi, a b2b e-commerce startup, faced the daunting task of standing out in a market saturated with similar offerings. According to the co-founder and CEO Willaim Mccaren in an article on Disrupt Africa “The current macro environment has made fundraising extremely difficult, ad unfortunately, our business was not able to achieve sustainability in time to survive” he said
The lack of differentiation and a clear value proposition led to dwindling market share and eventual closure.
This challenging backdrop, combined with a lack of a distinctive value proposition, ultimately resulted in Zumi’s market share eroding and, regrettably, the eventual shuttering of its operations. This sobering tale serves as a sad reminder of the imperative for startups to not only navigate the competitive landscape but to also define a unique value proposition that sets them apart in a crowded market.
3. Poor Management: The Achilles’ Heel
Dash, a prominent Ghanaian company, exemplifies how subpar management can erode the potential of even the most innovative ventures. Despite offering a groundbreaking solution, amidst embezzlement and outright fraud, Dash fell victim to a lack of effective leadership and strategic guidance, ultimately leading to its untimely demise. Astonishingly, according to Disrupt Africa’s Report, a whopping 85 % of South African startups end up failing and only very few make it past their first year, and only 50% of those make it past three years. This sobering statistic and many others across Africa underscores the pivotal role that effective leadership plays in the success and sustainability of tech startups, as Dash’s unfortunate experience vividly illustrates.
An Appraisal of HR Values
The fall of these companies also casts a spotlight on the HR values prevalent within the African tech space. A survey conducted by Bendada highlighted that 67% of talents start contemplating their exit less than 6 months before they left showing startups struggled with talent retention and development, indicating a critical gap in HR practices. This, coupled with a lack of emphasis on organizational culture, has been a recurrent theme. Such shortcomings inevitably lead to dissatisfied teams and hindered productivity.
Charting the Way Forward
In the wake of these sobering realities, the African tech space must undergo a collective introspection. It’s important to foster an ecosystem that supports startups through sustainable funding models and mentorship programs. Additionally, companies must prioritize effective HR practices, investing in talent development and creating environments conducive to innovation.
The burden also falls on governments and private investors to play a more active role in nurturing and sustaining the tech ecosystem. By providing tailored support, regulatory frameworks, and access to funding, we can ensure that the next wave of startups doesn’t meet the same fate.
In conclusion, the fall of all of these startups serves as a reminder of the many challenges that African tech companies face. While the road ahead is not without its own obstacles, it’s through collective effort and strategic investments that we can pave the way for a thriving, resilient tech ecosystem in Africa. The time for action is now.
