In recent years, African tech startups have garnered significant attention and investment, but the leap from seed funding to Series A remains a formidable challenge.
Data from publicly available funding trackers reveals a staggering statistic – fewer than 5% of seed-funded startups from the past two years have successfully progressed to Series A rounds.
In 2022, 105 startups received seed funding, yet only five have moved on to secure their Series A, resulting in a disappointing 4.76% success rate. The typical timeframe for this transition spans 12 to 36 months, leaving 95.24% of these startups still searching for the next step.
Investment amounts also show significant variation. For context:
- In 2022, the average Series A round was $15 million
- In 2023, it declined slightly to $14.9 million
- For 2024, it is currently at a $8.7 million average
The harsh reality for many startups is that without further investment, they often face dire consequences. Many can run out of capital, leading to shutdowns or prolonged stagnation.
Uwem, Head of Investments at Launch Africa Ventures, notes that this situation isn’t surprising for those familiar with the ecosystem:
“It’s a tough landscape, and I’ve seen countless promising startups fizzle out, often through no fault of their founders.”
As the startup ecosystem continues to evolve, the challenges become evident.
Many startups struggle to secure follow-on funding due to a lack of clear exit strategies, a common issue in African markets. Without reliable pathways to exits like IPOs or substantial acquisitions, Series A investors often view these ventures as high-risk.
Among the few startups that have made it to Series A are:
- Jabu
- Jambo, Powered by People
- NALA, and
- GoMetro
These companies are predominantly in high-demand sectors like:
- Fintech
- eCommerce, and
- Logistics
where strong operational metrics and proven business models attract investor interest.
🇹🇿FUNDING | Tanzanian Fintech, Nala, Raises $40 Million in Series A Following 10x Revenue Growth and ~500K User Growth
“To the 200+ Mobile money, bank partners, regulators and investors, your support has been invaluable to us in enabling fast and secure payments cross border… pic.twitter.com/zYoYU243H5
— BitKE (@BitcoinKE) July 10, 2024
Despite these successes, the overall environment is tough. Economic pressures have tightened funding flows, making it essential for startups to demonstrate clear traction and scalability to attract venture capital.
REPORT | Funding to African Startups Declines Over 50% YoY to $780 Million in H1 2024
The decline in startup funding continues the downtrend witnessed in 2023 when Africa’s technology startups raised a total of $3.5 billion across 547 deals representing a 46% decline compared… pic.twitter.com/HDqRSX1Dep
— BitKE (@BitcoinKE) July 5, 2024
Zachariah George, Managing Partner at Launch Africa Ventures, one of Africa’s most active pre-seed, seed, and Series A venture capital funds, emphasizes that the rising cost of raising Series A capital is a significant hurdle.
“The amount of available early-stage capital has dried up,” he explains.
“Many startups are running on empty and need to extend their runways, often delaying their Series A attempts until they hit substantial revenue milestones.”
For many startups, the costs associated with a Series A – often ranging from $50,000 to $100,000 – can be prohibitive. This gap can lead to extended timelines, with some startups waiting five years or more before they can approach Series A.
The trend of diminishing Series A funding is alarming.
In 2022, the total raised was $437.8 million, which plummeted to $179.7 million in 2023 – a 59% decrease. So far in 2024, only $69.7 million has been raised, indicating a continued contraction in available funds.
Although fintech and eCommerce remain dominant sectors, the funding landscape has shifted.
NORTH AFRICA | Fintech and Web3 Startups Lead in #MENA Funding for August 2024
Web3 startups in the MENA region raised $13.5 million becoming the second dominant sector after fintech.
Egyptian startups, which led MENA investments in July 2024, saw a drop in August 2024,… pic.twitter.com/HbQ4BFhmfm
— BitKE (@BitcoinKE) September 11, 2024
Series A valuations have declined, with many startups now valued at $15-20 million pre-money, a stark contrast to previous highs.
To navigate these challenges, Uwem advocates for a broader continental perspective, highlighting the potential of the African Continental Free Trade Area (AfCFTA) as a valuable opportunity for startups. He stresses the need for government support to facilitate faster implementation of favorable regulations.
WORLD BANK REPORT: AfCFTA Could Boost Regional Income by $450 Billion and Pull Millions Out of Extreme Poverty in Africa, Says a July 2020 World Bank Report: https://t.co/1oGtgUX0Uq @AfCfta @WorldBank @WorldBankAfrica @WorldBankKenya
— BitKE (@BitcoinKE) July 29, 2020
As the startup landscape evolves, it’s clear that while some companies are making significant strides, many still grapple with substantial operational and financial hurdles. The path to Series A is littered with challenges, but those who persevere could emerge stronger and more resilient in the long run.
The startup ecosystem in Africa is dynamic, and while challenges persist, the potential for growth and innovation remains vast.
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