African Startups Struggling with Liquidity Crisis Amidst Follow-on Capital Shortage
African startups are facing a significant liquidity crisis due to a lack of follow-on capital, threatening their long-term survival. This was highlighted by Sean O’Sullivan, Managing General Partner of SOSV, a leading venture capital firm, at the recent GITEX Global event in the United Arab Emirates.
Follow-on capital, crucial for scaling and growth, is becoming increasingly scarce for African startups. O’Sullivan emphasized that these companies must prioritize profitability or demonstrate substantial growth potential to attract investors. “Africa as a whole is a challenging environment for investors due to a lack of follow-on capital,” he stated.
While Nigeria is considered a more favorable investment climate, the broader African landscape presents significant challenges for early-stage investors. O’Sullivan urged global investors to recognize Africa’s potential and increase their focus on the region.
SOSV’s Orbit Startup, which supports African deep tech companies, has been instrumental in bridging this funding gap. However, many of these ventures target global markets rather than solely focusing on Africa. O’Sullivan emphasized the importance of supporting startups that serve the African market.
The decline in the African startup scene is evident, with total funding dropping by 57% in the first half of 2024 compared to the previous year. Despite this downturn, Nigeria’s tech ecosystem remains resilient, attracting significant investments in various sectors.
SOSV has invested an average of $150,000 in over 300 Orbit companies, generating follow-on investments of about $220 million for its portfolio companies. While this represents a relatively small share of SOSV’s total investments, it demonstrates the potential for significant returns in emerging African technology markets.
