THE lack of access to investors, the reliance on international venture capitalists (VCs) and global recessions trends are perceived as threats by respectively 59 percent, 56 percent and 55 percent of respondents; 28 percent of respondents indicated that covid 19 had slowed down investment across the East African start-up landscape, making it the biggest impacting factor over the last twelve months; 54 percent of seed businesses rely on family and friends to provide funding; 74 percent of respondents needed to meet up to 5 investors before securing funds.
A new regional survey of tech start-ups across East Africa reveals that whilst investment levels remained relatively stable over the last twelve months, the heart of Africa’s start-up ecosystem perceives many roadblocks as having the potential to disrupt the region’s growth trajectory.
The survey entitled, A Deep Dive into East Africa’s Start-up Ecosystem: Challenges & Opportunities, attracted hundreds of respondents, with 25.9 percent being seed businesses, 28.7 percent being Series A businesses, 25 percent being Series B businesses and 20.4 percent being Scale-up businesses. The survey, conducted by regional tech event East Africa Com and tech news portal Connecting Africa (www.ConnectingAfrica.com), is part of a benchmark survey mapping barriers faced by regional start-ups as well as opportunities to power nascent tech businesses in the region.
The survey found that access to funds over the last 12 months remained relatively stable compared to the previous period, as 25 percent indicated that year-on-year investment levels remained similar, whilst 25 percent and 19 percent of respondents indicated respectively a slight increase and a slight drop of investment levels.
Although 28 percent of respondents indicated that Covid 19 had slowed down investment levels across the East African start-ups landscape, making it the largest impacting factor for those young businesses, 17 percent of answers collected indicated that the pandemic had also boosted the digitalisation journey of the region, with a potential to create more opportunities for tech start-ups across the board.
The region remains a dynamic hub for start-ups, which explains how 74 percent of tech start-ups only needed to meet up to 5 investors before securing funds. This number drops even further for seeds businesses as 52 percent of them needed less than 3 investors before securing new investments, a number that seems closely intertwined with their reliance (54 percent) on friends and family for fundraising. By contrast, 22 percent of series B businesses only managed to access new funds after reaching out to more than 10 different investors.
The report also establishes that whilst start-ups get investments from 2.1 different types of funding sources on average, the more established the start-ups become (series A, B and scale-ups), the more they can rely on crowd-funding, government-backed loans and bank loans as well as VCs to raise money. By contrast, seed businesses have an average of 3.7 different funding sources, with 54 percent of those young businesses relying on friends and family for funding.
Across all funding stages, entrepreneurs carefully plan the way they are allocating their funds. The survey unveils that the top three priorities of funding allocation focus on investing in equipment (26 percent), entering new geo markets (21 percent) and developing products (16 percent). Scale-ups especially put a strong emphasis on business expansion as 35 percent of them use funds to expand to new geographies.
Talent recruitment still receives 14 percent of the funds received across all funding stages. But attracting new talents doesn’t seem to be perceived as the biggest priority for fund allocation.
Challenges and opportunities
Whilst there is huge tech potential in the region, there are still significant roadblocks that need to be addressed for the region to maintain its competitive edge as a tech start-up powerhouse. After a few years of business disruption, East African start-ups seem tuned in to potential impacts of events happening on the global stage on the region. This is how 55 percent of respondents identify the risk of a global recession and / or national economic situations as a potential threat, with 32 percent identifying this as a very high barrier.
56 percent of respondents also identify the reliance on international VCs as a high risk for business growth, an interesting figure to look at considering survey answers were collected shortly before the SVB crisis unfold.
Most importantly, 59 percent of respondents perceive the lack of access to investors as a business barrier. In light of the SVB crisis, East African start-ups’ appetite to diversify their sources of funding is likely to only increase.
Positive developments are also underlined as part of this exclusive report, with many opportunities for growth being identified by start-ups. The report highlights that greater networks of supporting incubators (57 percent), a widening of the pool of industries receiving funds (56 percent) as well as the rise of local VCs / funding opportunities (55 percent) all represent excellent prospects for growth for East African tech start-ups. The report also highlights that 74 percent of respondents identify sustainability as very relevant for their business mission.
AHUB East, powering East African start-ups during East Africa Com
‘We are proud to present these survey results which help us keep the pulse on East Africa’s vibrant tech start-up scene to better assess how our programme and networking experiences can help deliver solutions for promising tech businesses to access funding, be agile and resilient, whilst remaining both innovative and competitive’ said Ciara McDonald Heffernan, Head of Events for East Africa Com. ‘Start-ups are a driving force towards economic growth in East Africa, but now more than ever we are determined to focus our efforts on creating a favourable environment for tech start-ups to thrive.’
As a result, East Africa Com will host on April 26 an exclusive day dedicated to unlocking new opportunities for the region’s tech start-ups, AHUB East. AHUB East will deliver a powerful mix of content with a focus, among other topics, on the critical role of the region’s tech start-up ecosystem to create a sustainable future across Africa, what the SVB crash means for start-ups across the region, and how to stand out to potential investors. To provide a wide array of perspectives, investors from Ingressive Capital, Wadson Ventures, South B Group, Africa50 and more will take the stage alongside some of the region’s most exciting start-ups, including Waga Tanzania, AFAYREKOD, Lifesten Health and more.
AHUB East will also be home to a lively pitch competition where tech start-ups will battle on stage as they showcase their solutions in front of a live audience of hundreds of tech and telecom leaders. Judging the live pitches and providing 1-2-1 feedback to the competitors will be tech start-up experts Laurie Fuller, Venture Partner at Raiven Capital, Dario Giuliani, Founder & Director at Briter Bridges and John Kimani, Developer Ecosystem Program Manager at Google Kenya.