TIC: How African startups can navigate the funding winter

When it comes to tech entrepreneurship in Africa, securing funding is both an art and a science. As founders strive to transform their innovative ideas into thriving businesses, they often find themselves navigating a complex terrain of investor expectations, market uncertainties, and economic fluctuations. The need for guidance and insights on securing investment has never been more critical.

Funding to the continent began to dry up by Q3 of 2022, with startups raising 58% less than the previous quarter. Deals dropped from 74 in Q1 2022 to 61 in Q2 and then Q3 saw 43 deals, ushering the continent into what is popularly referred to as the great market reset or funding winter.

To support African founders as they strive to navigate the funding market after a reset as this, we launched The Investor Clinic and the September edition brought together three seasoned investors, each with a distinct perspective on Africa's startup ecosystem.

With a shared goal of fostering entrepreneurship and innovation across the continent, these investors offered their invaluable insights and candid advice to founders who joined the event.

In this article, we delve deep into "The Investor Clinic" conversation to unravel the wealth of knowledge and wisdom shared by these investment experts. We explore investment philosophies and the key takeaways they offered to the eager audience of founders, innovators, and aspiring entrepreneurs.

Current market realities and how to navigate it

Olivia Gao

"From our point of view, I think this year has been interesting because last year we actually did a lot," She said.

According to Olivia, the environment is slowing down and the bar for getting Series A funding from their assessments is getting higher with more scrutiny on the fundamentals.

Many seed-stage companies that raised seed rounds before are raising seed extensions which means that they probably had challenges hitting their targets and they expected to raise a Series A at this point, but they couldn't, so they have to resort to doing a bridge or extension,

"But it also speaks to, the fundraising strategy if you are already post-seed or if you are raising your seed - which is to raise as much as you can because the likelihood of the markets turning warm again is very unlikely until at least till H1 2024," Olivia said.

Olivia advised that conserving your cash as much as you can is the best strategy and is what Verod-Kepple portfolio companies are doing. "One of the cases is where one of the companies we invested in Egypt, was on a very high growth trajectory, but because of the lack of venture debt in local currency, they switched the mode to be aiming at breakeven, by the end of this year."

"That move definitely slowed down the growth, but we think that's the right thing to do, in a very uncertain market situation." She concluded.

Kristin Wilson

"I am a fan of solid unit economics, and this is important because venture in a place like Africa's emerging market context and the lack of resources, I don't think that the spray and pray approach both to investing as well as to building is really strategic," Kristin said.

The first thing is having a product and building a company that's solving problems because that allows you to be resilient having revenue as your north star, and pursue profitability intentionally.

"Because the truth of the matter is that survival is a key metric, in seasons like this in the winter, right? And this is, this is the law of the land. This is the law of the jungle, right?" Kristin said laughing.

Kristin added that time is a precious resource. "People have a habit of wasting people's time. And that's true for investors, it's true for founders, it's true for players in the ecosystem. And so you have to actually become a fierce, protector of your time and do your research."

"I think the earlier you start to have a data-driven approach to fundraising, the earlier you start to have an approach where you talk to investors because you understand their thesis of the fund or as an angel or whoever, and you are able to present a clear thesis around why you are also fit, why you are also aligned" Kristin advised.

"I think that shortens the time to decision making. And it also allows you to make sure that you are, you are actually using, a really critical resource, which is your time."