Startup funding is becoming incredibly difficult to come by these days. Indeed, 2023 has been a slow funding year, witnessing an overall slump so far, only seeing an uptick in May following some big money investments into M-Kopa, Tyme Bank and Sun King. While the numbers certainly look encouraging, some analysts are wary that they could also give false hope, as was experienced in February.
One of the major reasons for this slowdown in funding is the high failure rate recorded by startups, especially those that have previously raised funding. Startups like Lazerpay and several others have crashed and burned despite the huge promises they held.
Another major reason is a global recession currently ravaging practically every country in the world. This means investors have lesser money to invest in startups and an even lesser margin for error. As such, investors are undertaking a lot more scrutiny than before.
In a bid to make themselves and their solutions attractive to VCs and potential investors, founders, who themselves are direly in need of VC dollars, are becoming too focused on preparing great pitches that would ensure they wow potential financiers with the ideas.
But then ideas are just that; ideas. What makes a startup is potential. And not just potential, but actual productivity and proven ability to be viable and sustainable. And Nigerian serial startup investor, Iyin Aboyeji, has charged startups to focus on these aspects of their businesses rather than creating wonderful pitches.
“One small tip for startups in these times – the best way to guarantee a fundraise is to focus on building your business rather than pitching investors. Good investors are watching and talking to your customers, investors and competitors. They will reach out.”
In essence, founders of viable and sustainable startups shouldn’t go chasing after investors because the investors will come if the product is great. This however seems to negate the widely practiced system of applying to various venture capitalists and funds with great solutions and hoping to be considered interesting enough for funding.
Startups in Africa consider fundraising as a major milestone because, to them, it is a form of validation of years of hard work. To them, funding not only depicts recognition but more importantly, it also depicts trust because investors aren’t just investing their money, they are also investing their trust by backing a team and its dream.
Interestingly, Maxime Bayen, an expert on African tech startup funding made a similar remark in a Technext interview back in January 2022. Asked what he thought about startups rejoicing over having raised funding (which in truth should be a debt), the Venture Builder at Catalyst Fund said they ought to rejoice more when they hit their first major revenue milestone because that is a more convincing indicator of a healthy business.
“Internally, within the startup, you should rejoice probably more when you reach your first $10,000 GMV (Gross Merchandise Value) than when you raise $8 million because your customers are your first investors to some extent. If you can do it without raising money and scale super fast, that’s great. There are companies that are able to scale without raising money and it’s good,” he said.
-Technext
