Africa’s technology scene is booming and this has been driven largely by its recent transformation into a hub for big tech investment. Companies such as Microsoft, VISA and Mastercard among others are all making venture investments in African start-ups. So far, the continent boasts of over 600 tech hubs that range from incubators and accelerators to co-working sites. These have provided the ‘backbone’ of Africas tech ecosystem and in turn accelerated an outstanding investment growth of platforms such as e-commerce, health, fintech, agritech and renewable energy. However with the coronavirus pandemic shutting down economies, this is likely to result in a sharp fall in funding inflow. Start-up accelerator, AfricArena, estimates total funding in African start-ups this year could drop by as much as $800 million or 40 per cent with a severe slowdown expected to become more visible in the next two quarters of the year. The report’s worst case scenario also suggests effects of the economic slowdown could last through 2021 with recovery only expected to come full circle by 2022. This could be detrimental for firms seeking start-up funding as investors could become more risk-averse. Financial experts reveal that turmoil in supply chains can bear significant consequences for start-ups across a diverse range of sectors, including technology given that these supply chains tend to be concentrated through only a selected group of vendors. This will consequently lead to decline in revenues majorly due to the fact that the crisis has hurt industries these start-ups serve. According to Charles Shyaka, the General Manager of 250STARTUPS, a multi partner tech incubation and acceleration platform supporting start-ups to become investable, the current situation will definitely make it harder for entrepreneurs to raise funds and that even if an opportunity was to present itself, the terms would be much worse. He points out that Governments that are supportive of tech start-ups, innovations and that have enough resources may be able to fund early stage start-ups but due to the limited financial resources available (especially with the current situation), only a few might be offered funding and other promising ones might be overlooked, something that would affect the economy. Founder & CEO of Africa Foresight Group, Yasmin Kumi is quoted on Forbes highlighting that global investment volumes will shrink. She predicts that these could shrink by 15 per cent which means that development assistance budgets, like the budgets of the World Bank, USAID, and DFID will likely be slashed as well. A decrease in investment implies lack of innovative solutions which the tech industry heavily relies on, Patrice Nostalgie, a tech entrepreneur says. He adds that when the economy is unstable, investors tend to shy away from businesses that have not yet proved their concept. “But thats all innovations are all about, they are uncertain in the beginning but they turn up to be profitable once they have received investments. Without funds to support them, chances for survival let alone take-off are very slim,” he says. How should tech entrepreneurs prepare? On the other hand, private capital, especially for businesses that can demonstrate resilience to unplanned global disruptions, will still be available. Kumi advises businesses to plan their fundraising with that in mind. Shyaka is of the view that entrepreneurs need to rethink their solutions to fit the current needs of the market that have emerged from the COVID-19 pandemic in order to attract customers or funding. Other start-ups that might still be able to provide services in sectors (although not considered essential) still have an existing demand and they would be able to generate enough profits to sustain their growth, he adds. “However, the challenge will arise from the initial capital as they would need to either get a loan from financial institutions or bootstrap. All in all, start-ups should mainly focus on their customer making sure they respond to the changing needs while reducing costs, and looking for other funding alternatives.” He also recommends looking out for ‘angel investors’ who might emerge in the form of high net worth individuals that would support early stage start-ups, noting that this would compensate for the withdrawal of venture capitalists that are trying to mitigate risks. For entrepreneurs to survive, Nostalgie says they will need to understand their burning rates, and find a way to survive for longer in the business. “This is the right time to reflect on your systems and processes and upgrade them better for a good performance. This is not the time to make unnecessary expenses.” “Embrace the changes; as an entrepreneur keep your eyes open for any opportunities that might rise. Do this by informing yourself about the current trends, the world is changing, and so we should adapt,” he adds. He also calls onto the Government to recognise the essence of having a strong start-up ecosystem and allocate some funding and if possible, avail tax exemptions.
