Africa’s startup ecosystem is a hotbed of innovation, but unfortunately, many promising ventures end up failing before they can reach their full potential. The latest report from the Startup Graveyard in 2024 sheds light on the reasons behind these failures. According to the report, a staggering 58 percent of startups fail due to financial difficulties, 27 percent due to operational issues, and 17 percent due to regulatory challenges.
One common thread among these failures is the lack of robust governance structures within these startups. Governance is a critical but often overlooked factor in the success of startups, as highlighted in the report. Despite the inherent risks associated with early-stage startups, many founders tend to avoid forming formal boards, seeing them as bureaucratic hurdles rather than strategic assets. This lack of proper governance often leads startups to exhaust their funding on aggressive growth strategies instead of focusing on developing a clear path to profitability.
The regulatory landscape in Africa is complex and constantly evolving, yet many startups tend to overlook compliance risks. The report points out how regulatory crackdowns have led to the closure of fintech startups like LazerPay and BuyCoins Pro. These companies faced legal challenges stemming from compliance issues that could have been prevented with stronger governance frameworks. Omobola Johnson, Senior Partner at TLcom Capital, emphasizes that governance is not about control but about risk mitigation.
Johnson suggests that having a board with expertise in regulatory matters can help startups address compliance issues proactively before they escalate into serious threats. This proactive approach can safeguard startups against costly legal disputes, financial setbacks, and damage to their reputation.
While governance failures have been the downfall of many startups, there are success stories of startups that have thrived by implementing structured leadership. Unicorn startups like Flutterwave, Moniepoint, and Interswitch have leveraged strong governance frameworks to drive sustainable growth.
For instance, Dash, a Ghanaian fintech startup, raised $85 million and expanded into multiple African markets but ultimately collapsed due to poor internal governance, leading to financial mismanagement and regulatory violations. Similarly, Sendy, a Kenyan logistics startup, faced cash flow issues and operational inefficiencies after expanding beyond its financial capacity. The report suggests that a well-structured board could have provided the necessary oversight for more sustainable growth.
The report emphasizes that successful companies have established robust financial controls, diversified their revenue streams, and maintained regulatory compliance, thereby reducing their exposure to risks. It also dispels the misconception that governance is only relevant for large corporations, highlighting the competitive edge that well-organized boards offer by providing strategic direction, promoting financial discipline, and ensuring regulatory compliance.
As Africa’s startup ecosystem continues to evolve, founders must recognize governance not as a hindrance but as a catalyst for growth. “With funding becoming increasingly scarce and regulatory scrutiny intensifying, governance is no longer a choice; it is a necessity for survival,” the report concludes.
In conclusion, the importance of governance cannot be overstated in the success of startups. By prioritizing strong governance structures, startups can mitigate risks, ensure compliance, and drive sustainable growth in today’s competitive landscape.
