Nobody intends to create something that will ultimately fail, yet the brutal fact is that startups fail far more frequently than they succeed.
According to the press release from GreenTec Capital Africa Foundation and Wee Tracker on “The Better Africa Report,” the rate of African startups that failed from 2010-2018 was 54.20%. This percentage is far lower when compared to other ecosystems throughout the globe, such as the United States, China, and India.
Out of the 500 African startups selected, 271 failed, while 229 are still active. Ethiopia (75%), Rwanda (75%), and Ghana (73.91%) have the highest startup closure rates. On the other hand, Nigeria had the highest startup closures among Africa’s top three startups at 61.05%, Kenya at 58.73%, and South Africa at 54.39%.
In 2021, several companies in Africa failed due to the COVID-19 pandemic; however, the year did not have a higher closure rate, unlike the previous year.
Here are some African startups that failed and why.
HouseME, a South African property technology startup founded in 2015 and made public by 2016, failed and went under in 2021. This was due to the company’s failure to obtain funding because of the COVID-19 pandemic, which severely impacted its operations.
The digital platform connects potential tenants and landlords with complete automation of the leasing agency procedures and fair and transparent rental pricing – all for a little cost. In late 2019, the business expanded its total secured investment to $3 million with a financing round that added further funds in September 2020.
Ben Shaw, the Chief Executive Officer (CEO), stated that the new financing meant that the company with its over 150,000 members was positioned correctly to bank on the increase of interest in online platforms. Also, the shift to online due to COVID-19 has been profitable for the company.
However, the opposite happened as the company shut down its operation in early 2021.
This African startup was created by three nationalists: Eric Annan (Ghanaian), Alex Amadeu (Angolan), and Victor Akoma-Philips (Nigerian). It was founded as a digital trading platform in 2018, and Eric Annan became the CEO, Alex Amadeu CTO, and Akoma-Philips, COO.
The trio started the business using their money, funding from friends, angel investors, and relatives. The company started as a crypto exchange and then evolved into a blockchain payments network utilised throughout Africa.
They created a token creation event, a cryptocurrency crowdfunding method for startups. The founders raised $600,000 through the token sale and named their firm KuBitX. They later raised more than $1 million. However, the efforts were unsuccessful, and the company shut down in May 2021 after the CEO resigned.
According to Eric Annan, the startup failed for three reasons: the three founders had no technical knowledge about cryptocurrency, started a company before realising that they were a startup, and are not experts.
MallforAfrica, a Nigerian e-commerce startup, was founded in 2011 by Chris Folayan. It was established to address the issues militating against Africans to shop on global eCommerce sites. Folayan wanted to thin the line between African shoppers and international eCommerce platforms.
The startup grew gradually and was well recognised by investors and global international media houses such as Cable News Network (CNN) during its operation.
According to Folayan, the company shut down on October 30, 2021, due to the unstable foreign exchange, depreciation of the naira, and some policies made by local financial regulators in the country.
Bkam, an Egyptian startup, was created by Mahmoud Abdel-Fattah in October 2012. The company was one of the first price comparison websites in Egypt, the Middle East, and North Africa. Initially, the company grew and expanded into Saudi Arabia and the United Arab Emirates.
During its early days, financing was good. The business received funding from Jabbar Internet Group, angel investor Ahmed Osman, and others. Also, new companies came on board, such as Egypt’s Yaoota and Dubai’s Pricena.
In February 2016, the startup ran out of funds and thus shut down. In an interview with the then CEO, Mahmoud, he said that he had to stop his business because money, which had initially appeared to be easy to get by, had become difficult to come by.
He said, “An investor promised $500,000 and kept asking for documents for almost four months while we stopped fundraising from other investors. During those four months, I spent all the company’s money and my personal money. Then he disappeared. The e-commerce in Egypt was collapsing, so it was hard to recover quickly”.
Efritin, an e-commerce platform for secondhand goods, was founded in 2015. The venture was established with the support of the Swedish business Saltside Technologies. But it ceased operations in 2017.
Nils Hammer, the CEO of Efritin’s parent company, was in charge of the startup’s operations in Nigeria. According to him, Efritin ceased operations after receiving concerns about low internet penetration and adoption, high data costs, and the hard prevailing economic headwinds in Nigeria.
However, Uche Ajene, a former marketing manager at Efritin, blamed the company’s failure on Zakaria Hersi, the former manager of Efritin. Ajene accused him of theft, facilitating internal mismanagement, and fabricating invoice trails to hide his activities.
Wabona was founded in 2012 by two South Africans – Simbarashe Mabasha and Simukayi Mukuna. It was one of many businesses vying to make video-on-demand a significant business in Africa.
The startup, however, shut down in August 2015 due to a lack of follow-on investment as well as “uncertainty in the African video-on-demand (VoD) industry.”
According to Simbarashe Mabasha, “African VoD services are still struggling to find the best business model, and there is a platform bubble. In this kind of operating environment, it became tough for us to get long term funding”.
The CEO Sheriff Shittu founded a furniture showroom startup in 2014 and announced its closure after two years of operation. He pointed out that the startup failed as a result of wrong execution. “I personally won’t attribute the failure to [the] wrong market or wrong product. It was a wrong execution”.