Over the past six months, the African tech startup scene has witnessed the closure of several companies, with some opting to scale down operations or pivot their business models. This article highlights the challenges faced by these startups and provides insights into their closures and transitions.
VC Funding Decline and its Impact:
The African tech ecosystem experienced a significant decline in venture capital funding during the first half of 2023, with a 48% decrease compared to the same period in the previous year. Peter Oriaifo, Principal at Oui Capital, attributes this decline to the impact of the economic downturn on US investors, who have been a major funding source for African startups. Oriaifo emphasizes the need for diversification of funding sources to ensure long-term sustainability.
Tech Startups That Closed Operations:
- Lazerpay:
Nigerian crypto and web3 company Lazerpay ceased operations in April due to its inability to secure additional funding. The closure followed layoffs in the previous year after a lead investor withdrew interest. Lazerpay, similar to Stripe but for crypto, provided businesses with channels to accept crypto payments. - Paxful:
Global Bitcoin marketplace Paxful temporarily suspended operations due to mass staff exits and regulatory issues. However, the company relaunched in May, with Roshan Dharia appointed as the interim CEO. Ray Youssef, the former CEO, resigned citing legal challenges. - Zumi:
Kenyan B2B e-commerce startup Zumi closed down in March after failing to secure additional funding. Zumi, initially a female-focused digital magazine, pivoted to become an e-commerce platform in 2020. It connected retailers with suppliers and facilitated end-to-end transactions. - Hytch:
Nigerian logistics startup Hytch closed operations in February after facing challenges in raising funds. Initially a ride-hailing company, Hytch shifted focus to offer fulfillment services for healthtech companies. Despite building traction and processing numerous deliveries, the startup was unable to close its funding round. - Wabi:
Coca-Cola-backed e-commerce startup Wabi ceased operations in January in five African markets, including Nigeria, Kenya, and Egypt. The company, however, continues to operate in other countries worldwide.
Startups Scaling Down or Pivoting:
- Pillow:
Crypto startup Pillow exited Nigeria due to the current regulatory climate and its impact on associated financial infrastructure. Pillow allows users to save and invest using digital assets. - Hover:
Hover, the parent company of Stax, transitioned from a full-time team to an open-source community due to funding challenges. Stax, a universal money app, enables borderless payments in Africa. - Copia:
B2C e-commerce company Copia closed its Ugandan operations in April, citing the economic downturn. The company, however, plans to focus on expanding its operations in Kenya. - Nestcoin:
Nigeria-based Web3 and crypto-focused company Nestcoin downsized its workforce after suffering losses from the 2022 FTX crash. It is now pivoting to build Onboard, a community-owned digital finance platform.
Future Funding Challenges:
Oriaifo predicts that valuations of African startups will continue to decline as local funds become dominant and offer lower valuations compared to global peers. He suggests that efficient operations are crucial for survival, as alternative funding options are limited, with debt becoming more expensive due to currency devaluation and inflation’s impact on overall demand.
Conclusion:
The closure of several African tech startups during H1 2023 reflects the challenging funding landscape and economic downturn. As startups face funding difficulties, they may have to make difficult decisions such as scaling down, shutting down, or pivoting their business models