Liquidity Risks Haunting African Startups: SOSV CEO Warns of Survival Threats
Addis Ababa, Ethiopia – African startups are facing significant liquidity risks due to a lack of follow-on capital, which could threaten their long-term survival, according to Sean O’Sullivan, Managing General Partner of SOSV, an American venture capital firm focused on early-stage investments. At a recent event at the ongoing GITEX Global in the United Arab Emirates, O’Sullivan highlighted the challenges faced by startups in the region, including the dearth of sufficient funding for scaling and reaching specific milestones.
O’Sullivan argued that startups must achieve profitability earlier or demonstrate substantial growth potential to maintain investor interest, citing that Africa as a whole is a challenging environment for investors due to the lack of follow-on capital at the Series A and later stages. This is particularly worrying, as startups that perform well in their initial phases often struggle to secure the necessary funds for scaling, leading to a loss of liquidity for investors.
Nigeria, regarded as a more favorable investment environment due to its developed market, still faces challenges for early-stage investors. However, O’Sullivan urged global investors to recognize Africa’s potential and increase their focus on the region, stating, “The global community needs to devote more attention to the tremendous opportunities here.”
O’Sullivan also spoke about the efforts of Orbit Startup, an investment arm spun out of SOSV, which supports African deep-tech companies. While many of these ventures target global markets, O’Sullivan acknowledges that investors are interested in African companies selling to the African market itself, highlighting the importance of this aspect.
The startup scene across Africa has witnessed a notable decline in recent years, with the continent’s technology and startups securing a total of $780m in funding in the first half of 2024, according to a report by Africa: The Big Deal. This represents a 57 per cent drop from the previous year, marking the lowest level since the second half of 2020.
In contrast, Nigeria’s tech startup ecosystem has demonstrated resilience, attracting significant investments in sectors such as fintech, e-commerce, healthtech, agritech, and edtech. Lagos has established itself as a prominent hub for innovation, home to over 400 startups, with Nigerian startups capturing 35 per cent of the $466m in total funding for the African tech sector from January to March 2024.
