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Problems Faced by Startups in Africa

Ajim Capital

July 19, 2022

Starting up a business is one of the most challenging things to do. From idea conception to implementation and scaling, founders are continuously faced with hurdles that draw on certain levels of experience to surmount.

These issues defy industries and the tech industry is no exception. Despite all the problems faced by African tech founders, the African tech industry has seen a massive growth rate, with over 400 startups launching and getting funding across Africa between 2020 and 2021. The growth rate, while impressive, can be better if Africa goes head to head with other continents in terms of innovation and the positive impact on the economy. This makes it imperative for these issues to be solved.

What are these challenges?

Access to capital

Raising capital for a business can be compared to the squid game, you either get capital or the business dies. Capital is, after all, the oil that makes the engine for a business to run smoothly. However, capital generation is a major challenge for African startups, and according to reports, 80% of startups fail because of poor funding.

Today, we are seeing a rise in funding for African businesses, this notwithstanding, Africa remains underfunded, and even when access to funding exists, many entrepreneurs have limited financial knowledge on how to raise capital via investments.

Poor Government policies

I once saw a tweet from a tech influencer that read, “You cannot innovate your way out of bad governance.” Government policies are crucial to economic development and can impact productivity and businesses positively or negatively. In Africa, the influence of government policies happens to tend more towards the negative than the positive.

In Nigeria for instance, the fintech industry has seen the rise of government policies that have led to either companies totally shutting down or having to pay fines that run into millions of Naira thus impacting the growth of such companies.

One of such negative policies was the ban on cryptocurrency trading by the Nigerian government. This led to companies like Patricia.co re-registering outside Nigeria in countries that allowed cryptocurrency trading in order for them to keep their customer base and service offerings.

There is also the case of high cost/barrier of entry set by government regulations in certain industries such as financial sectors which also affects innovation in these parts.

Lack of Infrastructure

Lack of infrastructure is one of the key challenges of startups in Africa. Many countries struggle with things like electricity, the high cost of accessing the internet etc. Solving these problems can be a herculean task and prevent young minds in Africa from focusing on building their companies.

For more established startups who can afford to solve these problems, the cost of solving these issues increases the overhead cost of running the business which makes them either run at a loss or inadvertently increase the price point of their services.

What Ajim Capital is doing to help solve these problems

At Ajim Capital, we aim to educate, equip and empower the next generation of African entrepreneurs by providing them with the capital, tools and resources to help them succeed.

Government policies affect businesses in so many ways, which is why we’ve built a network of advisors with diverse experience interfacing with policymakers. We help the startups we invest in, to source the right policy advisors and build the right compliance teams across the board.

We are also partnering with hubs in various countries to provide workspace for our portfolio companies. This takes the weight of electricity and high internet costs off their shoulders.

Do you want to invest in world-class African startups and help build the infrastructure for Africa’s digital economy? Visit this link.

For Africans by Africans - empowering the next generation of African founders.

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