In recent years, Africa’s startup ecosystem has witnessed remarkable growth, driven by rapid technological advancements and a rising demand for innovative solutions tailored to the continent’s unique challenges.
Major hubs like Nigeria, Kenya, South Africa, and Egypt fondly called “The Big Four”, have become focal points for entrepreneurial activity, attracting significant attention and investment from investors.
However, despite this surge, several startups across the continent have shut down due to several challenges. A recent report revealed that 53 startups have shut down across seven African countries in the last decade, between 2013-2024, with Nigeria leading the pack with a total number of 25 startups shutdown.
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These startups, which operated in various sectors such as fintech e-commerce, and healthtech, faced significant challenges that led to their downfall. Factors like difficulty in raising capital, market liquidity issues, and internal company conflicts were cited as a major factors.
Followed closely after Nigeria are East African countries Kenya and South Africa which also experienced notable closures with 12 and 7 startups shutting down respectively.
Check Out The Full List of African Startups That Have Shutdown in The Last Decade (2013-2024)
- Nigeria (25 Startups Shutdown)
- Kenya (12 startups shutdown)
- South Africa (7 startups shutdown)
- Egypt (4 startups shutdown)
- Ghana (4 startups shutdown)
- Uganda (2 startups shutdown)
- Tanzania (1 startup shutdown)
Several of these Startups shut down for several key reasons:
1. Funding Challenges: Despite the growing interest from venture capitalists, many African startups struggle to secure consistent and sufficient funding. The venture capital landscape in Africa is still developing, with investors often being more risk-averse compared to other regions. This lack of liquidity can be particularly devastating for early-stage startups that need sustained investment to reach profitability.
2. Market Conditions: The African market is diverse and fragmented, with varying levels of economic development, regulatory frameworks, and consumer behavior. These factors make it challenging for startups to scale across the continent. Additionally, economic instability and fluctuating currency values in some countries create an unpredictable environment that candisrupt business operations.
3. Operational Challenges: Many startups face difficulties in building robust operational infrastructures, including challenges with logistics, supply chain management, and regulatory compliance. The lack of reliable infrastructure in some regions, such as inadequate transportation networks and inconsistent power supply, further complicates these operational issues.
4. Internal Issues: Some startups shut down due to internal conflicts; such as disagreements among co-founders or mismanagement. For example, Nigerian fintech YC-backed startup Pivo, is said to have closed shop due to unresolved founder conflict, according to sources familiar with the matter. The conflict between the founders, was said to have led to the company’s deteriorating reputation, business relationships, culture, and team dynamics thereby significantly affecting Pivo’s chances of raising capital in the future.
5. Competition and Market Saturation: In certain sectors, especially fintech and e-commerce, the rapid influx of new startups has led to intense competition. This saturation has made it difficult for individual companies to stand out and maintain a loyal customer base, leading to a high rate of attrition.
According to DisruptAfrica, in the first half of 2023, funding by Venture capitalists almost halved during the period highlighting a reduced enthusiasm by investors as well as falling demand amid rising interest rates. However, several experts argue that underfunding may not be the main reason for the closure of the startups, as most of them were heavily funded in the past years.
Several Venture capitalists argue that many of the failed startups received funding without sufficient due diligence. These VCs also noted that past investment decisions were rushed, emphasizing the need for startups to demonstrate stronger viability and meet higher standards before securing investment in the future.
The high shutdown rate of startups in Africa underscores the complex and often volatile nature of the continent’s business environment. While innovation and entrepreneurial activity are flourishing, the challenges of navigating unpredictable markets, managing operations, and overcoming internal conflicts are significant hurdle that many startups fail to overcome.