Dissecting the African tech landscape: why companies closed their doors in 2023 | by Olokede winner | LIGHTING | October 2023

by MMC
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Discovering the reasons for the disappearance of African technology companies in 2023: exploring the values ​​of financing, competition, management and human resources.

photo by Andrew Neel on Unsplash

As conversations resonate in boardrooms, on Twitter and just about everywhere, the year 2023 has undoubtedly left an indelible mark on the African technology industry. Venture capital funding in the African ecosystem declined by 48% compared to the corresponding period last year, as of the end of the sixth month of the year. With this kind of news, and given economic downturns around the world, doom is a topic that is on everyone’s lips, and a lingering, lingering sense of the premature demise of once-promising businesses still lurks. This phenomenon, while discouraging, is a stark reminder of the challenges that persist in this dynamic space.

So far in 2023, several African tech companies including Nigeria’s Laserpay, Ghana’s Dash, Kenya’s Sendy, Kenya’s Kune and many others have faced the harsh reality of bankruptcy. These once-promising startups were on the verge of making a significant impact in their respective niches, but at some point, their journey took an unforeseen turn.

1. Lack of funding

It is sad to note that a staggering number 70% of startups in Africa meet the challenge of obtaining adequate financing. This financial bottleneck proved to be a formidable obstacle for Laserpay and Sendy, both of which held immense potential. Send for example, a revolutionary logistics company had to close its doors and consider selling its assets, after running out of funds to continue operating, following a 10% reduction in its workforce last year. Despite innovative solutions, their inability to obtain the necessary capital has hindered their ability to scale and adapt to an ever-changing market.

The dirty truth

  • Limited access to capital

One of the main problems facing startups in Africa is the limited availability of venture capital and angel investments. According to the same report, seed funding remains difficult to obtain for the majority of startups, with only 20% successfully securing seed funding. This scarcity of initial capital significantly hinders the ability of startups to develop and refine their products or services.

Inadequate financing poses a major obstacle to expanding operations. The inability to secure growth-stage funding prevents startups from expanding their reach and entering new markets. Without a sufficient injection of capital, many innovative solutions with immense potential find themselves limited, unable to deliver their full impact on a larger scale.

2. Fierce competition

In an age of rapid technological advancement and blurred boundaries, competition in technology 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 co-founder and CEO Willaim Mccaren in a article on Disrupt Africa “The current macroeconomic environment has made fundraising extremely difficult and, unfortunately, our business has not been able to achieve sustainability in time to survive,” he said.

The lack of differentiation and clear value proposition led to a decline in market share and eventual closure.

This challenging environment, combined with the lack of a distinctive value proposition, ultimately led to an erosion of Zumi’s market share and, unfortunately, the eventual closure of its operations. This sobering story is a sad reminder of the imperative for startups to not only navigate the competitive landscape, but also define a unique value proposition that sets them apart in a crowded marketplace.

3. Bad management: the Achilles heel

Dash, a leading Ghanaian company, illustrates how poor management can erode the potential of even the most innovative companies. Although it came up with a revolutionary solution, amid embezzlement and outright fraud, Dash fell victim to a lack of effective leadership and strategic direction, which ultimately led to its untimely demise. Surprisingly, according to Disrupting the Africa Report, as many as 85% of South African startups end up failing and very few of them make it past their first year, and only 50% of them make it past three years. This sobering statistic and many others across Africa highlight the central role that effective leadership plays in the success and sustainability of tech startups, as Dash’s ill-fated experience vividly illustrates.

The fall of these companies also highlights the HR values ​​that predominate in the African tech space. An investigation carried out by Bendada highlighted that 67% of talent starts considering leaving less than 6 months before leaving, showing that startups are struggling to retain and develop talent, indicating a critical gap in HR practices. This, coupled with the lack of emphasis on organizational culture, is a recurring theme. Such shortcomings inevitably lead to dissatisfied teams and hampered productivity.

Faced with these sobering realities, the African technological space must be the subject of collective introspection. It is important to foster an ecosystem that supports startups through sustainable financing models and mentoring programs. Additionally, companies must prioritize effective HR practices, investing in talent development and creating environments conducive to innovation.

It is also up to governments and private investors to play a more active role in developing and sustaining the technology ecosystem. By providing personalized support, regulatory frameworks and access to financing, we can ensure that the next wave of startups does not suffer the same fate.

In conclusion, the fall of all these startups is a reminder of the many challenges facing African technology companies. Although the road ahead is not without obstacles, it is through collective efforts and strategic investments that we can pave the way for a thriving and resilient technology ecosystem in Africa. The time to act is now.

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