Africa's Startup Mortality Rate: Insufficient Governance Leads to High Failure Rates in New Businesses Across Africa
In the thriving yet challenging African startup landscape, a report has highlighted the critical role of governance and regulatory compliance in ensuring the survival and growth of tech companies.
Ignoring Legal and Regulatory Compliance
Startups that fail to comply with local laws and regulations face significant risks, such as shutdowns, fines, and loss of investor confidence. With regulatory environments across African countries being complex and varying greatly, compliance can be challenging but is essential.
Governance Failures
Weak governance structures have been a significant contributing factor to the downfall of some high-profile African startups, despite substantial funding. Lack of transparency, founder malpractice, and operational mismanagement have undermined startup longevity in Africa's tech ecosystem.
Other Contributing Factors
Poor understanding of local markets, inadequate financial management, and infrastructure challenges (like unreliable internet and power) compound these governance challenges, increasing failure rates further.
High Failure Rates
The report reveals that around 70-80% of African startups fail within the first five years, emphasising systemic issues across governance, compliance, market fit, and operational execution.
The Importance of Governance and Regulatory Compliance
Effective governance and strict adherence to regulatory compliance are essential foundations that African startups must prioritise alongside market insight and financial discipline to improve their chances of sustainable success. A board with expertise in regulatory matters can assist startups in addressing compliance issues before they become critical threats.
Omobola Johnson, Senior Partner at TLcom Capital, stresses that governance is not about control but about mitigating risks. Governance is no longer optional; it is crucial for a startup's survival.
The African startup ecosystem is maturing, and successful unicorns like Flutterwave, Moniepoint, and Interswitch have utilised strong governance frameworks to drive sustainable growth. However, the road to success remains challenging, with 27% of African startups failing due to operational issues and 17% due to regulatory challenges.
References:
- TechCrunch
- Forbes Africa
- Quartz Africa
- Ventures Africa
- Disrupt Africa
- In the African startup ecosystem, effective governance and strict adherence to regulatory compliance are essential for mitigating risks, improving the chances of sustainable success, and managing challenges such as operational issues and regulatory obstacles that contribute to the high failure rates of African startups.
- Venture capital investors often scrutinize governance structures and regulatory compliance when making investment decisions, as weak governance and failure to comply with legal requirements can lead to shutdowns, fines, and loss of investor confidence, which are significant risks in the ever-evolving startup landscape, particularly in technology-focused industries.
