Sylvia Duruson
Recent shutdowns of well-funded African startups like Ghana’s Dash fintech have sparked debate on whether unrealistic expectations from venture capitalists contribute to such collapses.
Dash raised $86.1 million but suddenly closed shop despite claiming rapid user growth. This pattern of overvalued startups failing to deliver has some questioning the disconnect between VC aspirations and African startup realities.
Many see a conflict between VCs seeking high returns through soaring valuations and the challenges budding African firms face in unstable markets. Startups often feel pressure to inflate numbers to attract funding based on growth expectations that the environment cannot sustain.
When unable to meet these demands, struggling startups may pivot from their mission or take unsustainable measures to appear profitable and scale rapidly per investor wishes. But questionable practices eventually catch up, and when returns stall, closures follow.
However, VCs argue applying traditional investment models to Africa’s potential is reasonable. High startup growth expectations exist globally, and local challenges should not exempt firms from ambitious goals.
But others like David Adeleke of startup Zeeh Africa believe some VCs have a short-term focus, pushing startups to scale prematurely without factoring in market volatility. Longer-term outlooks paired with realistic communication are needed.
Founders also share the blame, sometimes exaggerating user traction and revenues to gain funding at desired valuations. Cases like Dash show numbers inflated 5X in months to appear suddenly high-growth. But this growth facade eventually cracks.
Some think VCs accepting questionable data at face value during due diligence enables this behaviour. But VCs believe founders should justify valuations transparently without fabrication.
Structural issues exist, like VC preference for startups reporting in dollars rather than the local currency, even if customers transact in local tender. This can further incentivise embellishing finances to meet expectations.
Overall, Kenya’s Jason Njoku argues founders must play to strengths and acknowledge shortcomings to build sustainable firms. The product itself should solve real problems, not just pursue funding and rapid expansion unchecked.
Ultimately, better alignment between VCs and startups is critical for Africa’s tech ecosystem to thrive. Investors must appreciate unique local challenges and adjust return expectations accordingly, providing patient capital for startups to deliver on their missions sustainably.
Likewise, founders should ensure valuations accurately reflect on-ground realities without exaggeration. With transparent communication, realistic goal-setting and a long-term outlook, African startups can live up to their immense potential without compromising viability
