Can Africa’s startup ecosystem survive its data gap?
By now, it is trite to say that the African startup ecosystem has become a hotbed of innovation, entrepreneurial activity and digital transformation, showcasing remarkable growth and resilience in recent years. With its most recent celebration by the global technology community at GITEX Africa 2023 this past week in Marrakech, Morocco, the ecosystem has witnessed a 40% increase in the number of tech startups and investments rising from $1.3 billion in 2020 to $4.85 billion in 2022 — indicating significant growth and investor confidence. However, a critical challenge threatens to undermine this progress: the data gap. This edition of The Next Wave confronts the data gap head-on, with a closer look at its implications and solutions.
In April 2023, I engaged with a tweet by Lois Adeniji, a startup founder based in Nigeria, lamenting the lack of data in the African startup ecosystem and the need for access to market research reports. “This thing is so frustrating! You literally have to do a fresh survey for every piece of information you need,” a Twitter user commented. This frustration resonated with many, including myself. As someone analysing African tech with data stories at the continent’s premier digital economy consultancy, TechCabal Insights, I understand firsthand the difficulties the ecosystem faces due to the scarcity of up-to-date, timely, and valuable data insights. Let’s face it: most available market data in Africa, often collected by state agencies, are either outdated or lack the necessary granularity for accurate decision-making and specific answers. More than anything, this serves as a stark reminder of the urgency to bridge the data gap on the continent.
Impact on Africa’s ecosystem’s fundraising drive
Unfortunately, this data gap isn’t just an inconvenience — it affects fundraising as well. Regardless of the funding trackers you consult, the data shows that funding to African startups has taken a significant hit — with the ecosystem, for instance, experiencing its largest year-on-year quarterly drop in Q3 and Q4 2022 at 52% and -63%, respectively. While other factors amid the global funding meltdown may have contributed, the lack of data that limits investors’ knowledge to fully evaluate opportunities in the ecosystem is also not far-fetched. Investors rely on data to make informed decisions, and the absence of reliable and comprehensive data on market potential and growth prospects across the African tech startup ecosystem leaves them cautious and hesitant. This limited knowledge translates into reduced investments and slower dealmaking, hindering the growth of early-stage companies.
The latest State of Tech in Africa report (Q1 2023) by TechCabal Insights revealed a trend of stricter due diligence accompanying the deployment of VC funds by tech investors, resulting in a sharp slowdown in dealmaking across the continent. In March 2023, African startups secured only $66 million in capital, an all-new lowest figure since August 2020, according to funding data now from the Big Deal. While multiple factors may contribute to this decline, data gaps can significantly reduce due diligence. Investors face difficulties accessing accurate financial information, historical performance data, and customer insights. The lack of verifiable data and metrics heightens risk perception and prolongs due diligence periods, as investors, particularly those unfamiliar with the African region, seek alternative means to fill information gaps. According to a survey by Partech Africa, 80% of African startups struggle to access early-stage funding. Africa’s data gap creates an additional barrier, making it even more challenging for early-stage startups to secure the necessary funding for growth, underscoring the urgency for data-driven insights to attract capital.
Intelligence will help African startups
To address this challenge, African intelligence firms with local expertise need to rise up to the occasion by creating high-valued data products about African markets and the tech ecosystem. By directly collecting data from consumers and providing market insights backed by real-time information on Africa, these firms can bridge the data gap. Armed with unit-level data on consumer behaviour, product preferences, purchase frequency and geographic locations, startup businesses can include adequate information in their data rooms for fundraising and avoid making strategic decisions blindly. Such robust data will also empower African startups to strategically expand to favourable demographics, identify growing markets, scale customer acquisition and enhance competitiveness in line with disruptive trends shaping the continent. Also, data-driven rankings, like the recent Financial Times/Statista ranking data of Africa’s fastest-growing companies, is a positive step towards bridging the data gap on the continent. These rankings offer much-needed visibility to the African startup scene, assisting investors, policymakers, and industry stakeholders in identifying sectors with growth potential and focusing their efforts to support the continent’s digital economic growth.
True progress requires collaboration
Collaboration with development agencies, big tech companies, and research institutions is crucial to bolster data collection and analysis efforts by investing in data analytics and commissioning custom research reports. By sharing data feeds, industry forecasts and proprietary datasets, these partnerships can fill the data gap and empower startup businesses with the actionable, data-driven insights they need to thrive. Moreover, establishing industry-wide standards, such as common metrics and reporting frameworks, will enhance the reliability and comparability of startup-related data, enabling accurate assessments and benchmarking.
Embracing a data-driven future
Now, more than ever, Africa needs to boldly embrace data as a strategic asset. By experimenting with innovative data collection methods, harnessing advanced analytics, and providing actionable insights through collaboration, we can lay the foundation for a robust data-driven startup ecosystem. Empowering startups, investors, entrepreneurs, and policymakers with comprehensive and quality data will drive innovation, economic growth, and the rise of a dynamic African digital economy. I believe the time for a data-driven revolution, to unlock the full potential of Africa’s startup ecosystem, is now. It’s going to stretch us, but let’s see how the ecosystem survives this gap in the long run.
