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Startups urged to change fundraising tact to stay afloat

Kenyan startups have been challenge to realign their fundraising strategies with the needs of investors amid slowdown in venture capital flowing to the continent.

During a live podcast hosted by Founders Factory Africa in Nairobi, startups were advised to be reasonable in choosing the investors they approach for funding as investors shift priorities in the wake of rising macroeconomic challenges.

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A report by Disrupt Africa dubbed African Tech Startups Funding Report shows that total funding to technology startups declined by 28pc in 2023 to $2.4 billion compared to $3.3 billion a year earlier.

In the discussion, it emerged that investors are prioritizing fundamentals and sustainability over pure potential of some innovations. This, in turn, requires founders to have a clear roadmap with achievable milestones for pilot, funding rounds and contingency plans.

“As investors, we’re looking for a plan but you also need to model in variation. Aim to go with the plan but let’s model it if we need to spend a little bit more, for example,” said Bruce Nsereko-Lule, co-founder and general partner at Seedstars.

Additionally, investors are emphasizing due diligence and seeking ventures with strong fundamentals and realistic growth plans, moving away from solely chasing high-growth potential a move innovators need to consider when seeking funds.

“From an investor perspective, it’s important that you do your due diligence very well whilst you’re investing in a company so that, when you’re putting in the money, you don’t get unexpected surprises,” added Lule.

Besides focusing on sustainable growth plans for their solutions, startups were also challenged to consider whether choosing local investors makes more sense than international ones. While international investors might have deeper pockets, local investors often have a greater contextual understanding of local environments and may therefore be better positioned to guide founders to success.

“The beauty about local investors is that we understand context. And not just context but we also have networks. There are doors that the senior-level executives and CEOs that they introduce you to can open for you or businesses that they can enable for you that they can enable for that you wouldn’t be able to open for yourself,” noted Jason Musyoka, Rology Chief Financial Officer.

According to Senga Technologies CEO June Odongo, founders should define their business goals and align their investment strategy accordingly, potentially utilising local angels and then seeking international capital for further growth.

“A lot comes down to the quality of the investor. There are some investors who I’ve felt more flexible with, and it’s always about what they can bring to the table and what, if any, tradeoffs there are,” she added.

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