5 reasons why getting funding for African startups is still hard

African-Startups

One of the reasons fronted for the stagnant progress with Startups on the African continent is mainly lack of capital or funding from family, friends or financial institutions.  For comparative reasons, consider a report from PricewaterhouseCoopers LLP (PwC) that indicates that Venture capitalists invested $17.5 billion in 1,189 deals in the second quarter of 2015 in the US market. We have no stats for how much was invested on the African continent.

At the recently concluded African Technology Summit, an event  organized by MEST,  Seedstars World’s CEO Alisee de Tonnac gave insights into the investment landscape in the continent. According to Alisee, inexperience from investors and entrepreneurs on fundraising, lack of competition among investors, lack of standardization are some of the reasons why startups still find it hard to raise capital from family & friends or Venture Capital firms. Here are all the other reasons;

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  • There is a lack of experience, both from investors and from entrepreneurs on how to run a fundraising process
  • Government and tax regulations are still burdensome and disincentivize startup investing
  • There is a lack of competition among investors, lowering valuations and delaying decision times
  • Wealthy people still prefer to invest in real estate or other traditional industries with guaranteed returns
  • There is a lack of standardization in the fundraising process, making it unnecessary burdensome and lengthy.

Despite the hurdles, there’s been much optimism in the African market especially in the technology sector. Africa has attracted a number of VC firms, incubators, accelerators and innovation hubs that are spread across the continent. For instance in the investment circles, there’s Meltwater entreprenuerial school of technology, Techstars, Omidyar network, 500 startups, Newgen angels. 2015 alone saw some startups raise about $1million in VC investment and they include Paga ($13m), Andela($10m) and Hotels.ng ($1.2m).  Here’s a link to the full presentation on Slideshare.

Image: butterflylondon.com