Reflecting on 2023: A Year of Challenge and Change
In 2023, startups across the globe, particularly in Africa, faced a tumultuous environment. The year marked a significant downturn in the lifecycle of many innovative ventures, largely due to a critical lack of funding. This issue was more pronounced in Africa, a continent that receives only a minuscule proportion of global venture capital investments. This scenario created a “great reset” within the entrepreneurial ecosystem, highlighting a parallel challenge for investors – their struggles in raising funds to back promising startups and an abrupt change to their investment thesis.
The Unspoken Truth of Desperation
Amidst these challenges, an often unspoken truth emerged. In their desperation, entrepreneurs sometimes inflate their traction and reduce their valuations (sometimes so much that earlier backers are set at a loss) to lure investors. Conversely, some investors led entrepreneurs on without actually having the funds to support them. They deploy the tactics of “We will get back to you”, and “Ghosting” when they could say we do not currently have the funds to back you, just as how the entrepreneurs could say we are not performing as well as we hope. This created a vicious cycle, leaving even the most talented entrepreneurs chasing unattainable goals, and investors with available funds in a state of confusion over sound investment decisions.
2024: Resetting the Court
As we pick up the pace into 2024, it’s crucial to learn from the past year’s shortcomings. Experts are already making predictions, but a critical element remains unaddressed – the dysfunctional relationship between entrepreneurs and investors beyond the mere exchange of funds and equity.
Playing a Fair Game: Strategies for Entrepreneurs
1. Operational Readiness: Entrepreneurs must focus on being operationally ready. This involves having a clear growth strategy, understanding market needs, and being adaptable to changes. Go lean and understand the size of your team does not necessarily communicate success- hire only for critical roles, if you cannot afford it slash it.
2. Transparent Metrics: Honesty in reporting metrics and progress is vital. Overstated valuations or achievements only lead to mistrust and eventual downfall. A great investor partner will understand that Africa is a dynamic market an overnight blowout is a rare condition and slow growth does not always signify incompetency.
3. Sustainable Growth Model: Instead of chasing rapid, often unsustainable growth, aim for a model that promises long-term stability and scalability.
For Investors: Wise Decisions on the Court
1. Due Diligence: More than ever, thorough due diligence is essential. This means looking beyond the surface numbers and understanding the real potential of a startup. Practice saying “NO” with a reason and a potential advice-if you like a startup founder enough to get to Due-Diligence be kind enough or respectful enough to say “NO” and give a reason why not- this is a kind act that goes a long way. DO NOT JUST GHOST- it is an unfair treatment, building a startup in Africa is already hard enough.
2. Building Relationships: Investors should strive to build a supportive relationship with entrepreneurs, offering mentorship and guidance, not just funds. The Power Law should be accompanied by an intentional support system- do not only support the companies you think in your portfolio will make it with your mentorship and industry access. Avoid leaving the rest of your portfolio companies in limbo with the only contact point being “send me metrics for this quarter”. They need you more than they need your money, be PRESENT or simply say “NO”.
3. Diversifying Portfolio: Given the unpredictability of markets, a diversified investment portfolio can minimize risks. Your investment thesis like the startup itself can always pivot- being stiff in a thesis means that you will mostly lose in on some great founders. Even if you cannot, always extend the opportunity of an introduction or better still mentorship and industry access (the benefit it having one more startup as part of your success influence).
Conclusion: A Match Worth Playing
2024 is not just another year; it’s an opportunity for entrepreneurs and investors to align their goals and work towards a more sustainable and prosperous ecosystem. Remember, it’s not just about getting ready to bat; it’s about playing a thoughtful, strategic game that benefits all players on the field