Investment in African startups could drop by as much as 40% by the end of the year due to the Covid-19 pandemic—but the bigger question for smaller startups is if they will remain alive at all.
Investment in African startups could drop by as much as 40% by the end of the year due to the Covid-19 pandemic—but the bigger question for smaller startups is if they will remain alive at all.
As investors become more risk-averse, industry insiders expect that the funding slowdown to prove most damaging for young companies as venture capital likely tilts towards established startups with proven business models. As such, the stark reality for early-stage startups is they may yet be caught in the cross-hairs of tough macroeconomic headwinds that are forcing even far more established startups to layoff staff and cut down costs.
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But in an effort to help startups stay afloat, Ventures Platform, an Abuja, Nigeria-based early-stage fund, is creating a startup relief program to disburse emergency grants of up to $20,000 to early, high-growth stage startups that may require cash lifelines. The program has been launched in collaboration with Acumen, a New York based impact investor, and LoftyInc, a Lagos-based investment firm.
The main goal of offering the grants is to ensure the survival of promising startups threatened by the pandemic, Kola Aina, founder of Ventures Platform, tells Quartz Africa. “Now that we’re starting to see a pipeline of investible startups in the market, we are faced with this curveball…that really threatens the viability of these companies,” Aina says. “The first objective is to preserve the pipeline of investible startups for us and everyone in the ecosystem because that supply is critical.”
The grants will range from $5,000 to $20,000 but will only be offered to startups that have raised seed capital and had accrued annual revenues of $60,000 before the pandemic struck. The scale of interest from startups so far offers insight into the pent-up demand as 2,700 applications are already under review within one week of launching the program, Aina says.
But despite their best intentions, there is a lingering question about sustainability of venture funds offering grants given that they primarily exist to make equity investments. Meghan Curran, West Africa director at Acumen, argues that the “moderated return expectations” that come with grants “meets the moment in terms of uncertainty.” Yet, it’s not a sentiment that enough venture capital firms are echoing.
Indeed, as Ventures Platform, Acumen, and LoftyInc attempt to get more investors on board, they are increasingly being confronted by that dissonance. While Curran says the first few batches of grants will be disbursed from the program’s existing funds, she also admits that continuity will require more collaborators. “It will be reliant on others coming in, who share our interest in preserving some form of pipeline for the ecosystem, and have the flexibility to forego a return of investment in this instance given the circumstances,” she tells Quartz Africa. So far however, conversations in that regard are yet to bear fruit.
In winning over more partners, Aina is betting on investors being able to picture the upside the pandemic will have on user behavior and preferences which will offer opportunities to investors in the long-term. “Covid-19 is many bad things but it is also an accelerant for digital adoption,” Aina says. “We expect that we’ll see a shift in patronage [of technology platforms]—but that’s only if the companies don’t go under.”
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