The Evolution of Startup Funding in Africa: Navigating New Realities (Part V) - Rina Hicks
In recent years, the dynamics of raising capital for startups in Africa have undergone a significant transformation, especially in the aftermath of the COVID-19 pandemic. Pre-2020, the continent, particularly emerging economies, was deemed highly attractive for investors due to the promise of substantial returns. With interest rates in developed markets at historic lows, Africa presented an opportunity to yield impressive returns on investment, often exceeding 10%.
However, the onset of COVID-19 led to unprecedented challenges. Governments globally responded with economic stimuli, injecting money into their economies to counter the effects of lockdowns and business closures. While this kept economies afloat, it also resulted in an oversupply of money, triggering inflation in many countries. To curb rising inflation, central banks raised interest rates, signaling a shift from years of near-zero rates.
This change had a profound impact on emerging markets, starting with challenges faced by economies like Sri Lanka. Investors, once drawn to Africa for high returns, became more cautious. The crisis of exits emerged, with concerns about political instability, economic decisions, currency fluctuations, and significant debt burdens.
The era where startups could easily secure funding based on potential alone came to an end. The environment shifted, making it more challenging to raise capital. Investors now demand viability and a demonstrated ability to navigate the complexities of a changing economic landscape. The days of easy capital for African startups are behind us, and the current climate requires entrepreneurs to showcase not just potential but a solid and sustainable business model to attract investment.
