The scope and magnitude of COVID-19 has created the ‘perfect storm’ for African startups and the early stage investor community at large, writes Ben White, CEO and founder of VC4A, in an exclusive op-ed for African Business.
Faced with a liquidity crunch and the loss of markets, many promising startups across the continent are struggling to stay in business.
“Longer shutdowns, or more severe drops in economic activity, will make their situation even more critical,” says White.
“Without support, there is a real risk we lose decades of painfully gained momentum and many quality businesses.”
As governments focus on supporting more traditional sectors and private investors take a step back, startups in Africa lack a reliable source of funding.
“Unfortunately, African startups don’t make it to the top of the list of priorities for African governments scrambling to contain a health crisis, a growing number of state industries and national businesses in financial need, and national budgets already constrained by significant levels of debt,” says White.
“Banks never gave startups a lot of attention, and it’s not realistic to think their position will change now as they reassess and lock down their exposure. Corporates are pulling back on any commercial development activities and put a stop on any joint ventures and/or mergers and acquisitions activity.
“Private sector investors cannot operate in a context of such high dynamic risk and are forced to pause their investing activities. The short-term focus of investors will be to double down on support for their existing portfolio, and to make sure they don’t lose their best companies during the COVID-19 crisis.”
According to VC4A, the capital needed to support the startup community has to be made available either as grant funding or with soft loan requirements.
Government, Development Finance Institutions (DFIs), and philanthropic institutions can play a critical role as funding agencies and VC4A is seeking partners and collaborators to make such resources available.
Read the guest post here: https://liveblog.africanbusinessmagazine.com/liquidity-crunch-for-african-startups/