After The Euphoria: What’s The Failure Rate Of African Startups?
“I have started up eleven businesses in my life. All of them have failed,” Sandiso Ncube, a self-described ‘serial’ entrepreneur based in South Africa, told This Is Africa.
Ncube’s story of trial and error is one that many African emerging entrepreneurs know very well as one business after another fails to yield the expected huge rewards that local media is dotted with as the continent ride the ‘Africa Rising’ wave.
While there are numerous success rate, the failure rate of African startups in accelerator hubs across the continent is something very few people want to talk about.
Competitions targeting startups especially in the tech sector have hit a record high in Africa in the last ten years.These has seen young, innovative techpreneurs become multi-award winners even before their business ideas make any profit.
But according to figures published by Startup Genome Report in 2011, nearly 92 percent of startups globally fail within the first three years, while a more recent report by GEN Global Entrepreneurship showed that Africa has one of the worst ‘discontinuation rate’ at about 14 percent.
In comparison, Latin America was only 5.4 percent, North America was 4.1 percent and Asia was only 3.9 percent.
The GEN report also showed that African businesses were the least internationalized, with more than three-quarters of companies on the continent having no customers outside their country base.
‘Can Do’ Attitude
Despite these grim statistics, African entrepreneurs were found to be the most optimistic about their business ideas with the lowest fear of failure in the world, which explains why startups are springing all over the continent.
Angel investors and venture capitalist seem to know this and they are on a hunting spree for African firms to invest in. But not everybody is getting the money and those who get it’s not as rosy as they thought it would be.
Kgomotso Mautloa, the founder of Johannesburg-based design agency Green Robot, told This Is Africa how he ended up burning his fingers after accepting funding from venture capitalists.
“I got really excited when a venture capitalist became interested in investing in my firm. But within a year they started trying to take money out of the company. It was a real learning curve,” Mautloa said.
“You never know what people’s intentions are. I have learned the hard way to always read the small print.”