Deep dive into East Africa's tech startup ecosystem

A new regional survey of tech startups across East Africa revealed that whilst investment levels remained relatively stable over the last twelve months, the heart of Africa's startup ecosystem perceives several roadblocks that have the potential to disrupt the region's growth trajectory.

The survey entitled, 'A Deep Dive into East Africa's Startup Ecosystem: Challenges & Opportunities', attracted hundreds of respondents, with 25.9% being seed businesses, 28.7% being Series A businesses, 25% being Series B businesses and 20.4% being scale-up businesses.

The survey, conducted by regional tech event East Africa Com and tech news portal, Connecting Africa, is part of a benchmark survey mapping barriers faced by regional startups as well as opportunities to power nascent tech businesses in the region.

Funding trends

The report based off the survey found that access to funds over the last 12 months remained relatively stable compared to the previous period, as 25% of respondents indicated that year-on-year investment levels remained similar, while 25% indicated a slight increase and 19% thought there had been a slight drop in investment levels.

Around 28% of respondents indicated that COVID-19 had slowed down investment levels across the East African startups landscape, making it the largest impacting factor for those young businesses, 17% of those surveyed indicated that the pandemic had also boosted the digitalization journey of the region, with a potential to create more opportunities for tech startups across the board.

The region remains a dynamic hub for startups, which explains how 74% of tech startups only needed to meet up to five investors before securing funding. This number drops even further for seeds businesses as 52% of them needed less than three investors before securing new investments, a number that seems closely intertwined with their reliance (54%) on friends and family for fundraising.

By contrast, 22% of series B businesses only managed to access new funds after reaching out to more than 10 different investors.

The report also established that while startups get investments from 2.1 different types of funding sources on average, the more established the startups become (series A, B and scale-ups), the more they can rely on crowdfunding, government-backed loans and bank loans as well as venture capital (VC) money.

By contrast, seed businesses have an average of 3.7 different funding sources, with 54% of those young businesses relying on friends and family for funding.

Investment priorities

Across all funding stages, entrepreneurs carefully plan the way they are allocating their funds. The survey unveiled that the top three priorities of funding allocation focused on investing in equipment (26%), entering new geo markets (21%) and developing products (16%).

Scale-ups especially put a strong emphasis on business expansion as 35% of them use funds to expand to new geographies.

Talent recruitment still receives 14% of the funds received across all funding stages. But attracting new talents doesn't seem to be perceived as the biggest priority for fund allocation.

Challenges & opportunities

Whilst there is huge tech potential in the region, there are still significant roadblocks that need to be addressed for the region to maintain its competitive edge as a tech startup powerhouse.

After a few years of business disruption, East African startups seem tuned-in to potential impacts of events happening on the global stage. This is how 55% of respondents identify the risk of a global recession and/or national economic situations as a potential threat, with 32% identifying this as a very high barrier.

Simbah Mutasa, South Africa MD for Bank of America, speaks during a startup-centric panel discussion as part of the AHUB track at Africa Tech Festival 2022 while David Alema-Mensah, founder of AsaanaPay; Diego Arias, investment associate at Plug and Play; and Brenton Naicker, director of capital formation and growth at CV VC, look on. (Source: Africa Tech Festival).

Over 55% of respondents also identify the reliance on international VCs as a high risk for business growth, an interesting figure to look at considering survey answers were collected shortly before the collapse of Silicon Valley Bank (SVB) in early March 2023.

Most importantly, 59% of respondents perceive the lack of access to investors as a business barrier. In light of the SVB crisis, East African startups' appetite to diversify their sources of funding is likely to only increase.

Positive developments are also underlined as part of this exclusive report, with many opportunities for growth being identified by startups. The report highlights that more networks to support incubators (57%), a widening of the pool of industries receiving funds (56%), as well as the rise of local VCs or funding opportunities (55%) all represent excellent prospects for growth for East African tech startups.

The report also highlights that 74% of respondents identify sustainability as very relevant for their business mission.

The full report can be downloaded here.

AHUB East, powering startups during East Africa Com

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

"Startups are a driving force towards economic growth in East Africa, but now more than ever we are determined to focus our efforts on creating a favorable environment for tech start-ups to thrive," she added.

As a result, East Africa Com will host an exclusive day dedicated to unlocking new opportunities for the region’s tech startups on April 26, 2023 – called AHUB East.

AHUB East will deliver a powerful mix of content with a focus, among other topics, on the critical role of the region's tech startup ecosystem to create a sustainable future across Africa, what the SVB crash means for startups across the region, and how to stand out to potential investors.

Want to know more about African startups and new innovations on the continent? Check out our Innovation Hub here on Connecting Africa.

To provide a wide array of perspectives, investors from Ingressive Capital, Wadson Ventures, South B Group, Africa50 and more will take the stage alongside some of the region's most exciting startups, including Waga Tanzania, AfyaRekod, Lifesten Health and more.

AHUB East will also be home to a lively pitch competition where tech startups will battle on stage as they showcase their solutions in front of a live audience of hundreds of tech and telecom leaders. Judging the live pitches and providing feedback to the competitors will be tech startup experts Laurie Fuller, venture partner at Raiven Capital; Dario Giuliani, founder and director at Briter Bridges; and John Kimani, developer ecosystem program manager at Google Kenya.

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