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What Barriers do East African Start-ups Need to Overcome to Ensure Growth?

Although investment levels have remained at a stable level in the last year for East African start-ups, barriers may remain in the way of the region’s growth trajectory; according to research by regional tech event East Africa Com and tech news portal Connecting Africa.

Lack of access to investors (59 per cent), reliance on international VCs (56 per cent) and global recession trends (55 per cent) are all threats identified by respondents in the survey titled ‘A Deep Dive into East Africa’s Start-up Ecosystem: Challenges & Opportunities’.

Twenty-eight per cent of respondents also indicated that investment has slowed across the East African start-up landscape due to the covid pandemic. Furthermore, it emerged that 54 per cent of seed businesses rely on family and friends to provide funding; while 74 per cent of respondents needed to meet up to five investors before securing funds.

The survey attracted hundreds of respondents, with 25.9 per cent being seed businesses, 28.7 per cent being Series A businesses, 25 per cent being Series B businesses and 20.4 per cent being scale-up businesses.

One quarter (25 per cent) indicated that year-on-year investment levels remained to the previous year. The same number also indicated a slight increase; while 19 per cent of respondents indicated a slight drop in investment levels.

While respondents cited covid as one of the main factors slowing investment levels across the landscape, 17 per cent indicated that the pandemic boosted the digitalisation journey of the region. Some even suggested it had created the potential to create more opportunities for tech start-ups across the board.

Challenges and opportunities

Whilst there is huge tech potential in the region, significant roadblocks need to be addressed if the region is going to maintain competitiveness.

After a few years of business disruption, East African start-ups seem tuned in to the potential impacts of events happening on the global stage in the region. As a result, 55 per cent of respondents identify the risk of a global recession and national economic situations as a potential threat. Thirty-two per cent also identified this as a very high barrier.

Fifty-six per cent of respondents also identify the reliance on international VCs as a high risk for business growth. This figure is particularly interesting considering East Africa Com conducted the survey shortly before the SVB crisis unfolded.

After 59 per cent perceived a lack of access to investors as a business barrier, it appears this number is only to rise to diversify sources of funding thanks to the SVB news.

Although the news doesn’t shine a hugely positive light on the start-up landscape in East Africa, start-ups also identified a number of emerging opportunities for growth.

The report highlights that greater networks of supporting incubators (57 per cent), a widening of the pool of industries receiving funds (56 per cent) as well as the rise of local VCs and funding opportunities (55 per cent) all represent excellent prospects for growth for East African tech start-ups.

The report also highlights that 74 per cent of respondents identify sustainability as very relevant to their business mission.

Keeping ‘the pulse on East Africa’s vibrant tech start-up scene’

Ciara McDonald Heffernan, head of events for East Africa Com, said: “We are proud to present these survey results which help us keep the pulse on East Africa’s vibrant tech start-up scene to better assess how our programme and networking experiences can help deliver solutions for promising tech businesses to access funding, be agile and resilient, whilst remaining both innovative and competitive.”

East Africa Com has plans to host an exclusive day dedicated to unlocking new opportunities for the region’s tech start-ups in April 2023. The day, ‘AHUB East‘ will deliver a powerful mix of content with a focus, among other topics, on the critical role of the region’s tech start-up ecosystem to create a sustainable future across Africa, what the SVB crash means for start-ups across the region, and how to stand out to potential investors.

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