The narrative surrounding African startups has shifted. Once celebrated for their innovation and resilience, the ecosystem is now grappling with a series of high-profile scandals involving founder misconduct.
Reports of financial misappropriation, poor governance, sexual harassment, and toxic work environments are increasingly surfacing, tarnishing the image of a sector that has long relied on global support to navigate challenges like limited funding and underdeveloped infrastructure.
The recent global economic downturn has further exacerbated these issues, exposing vulnerabilities within many startups. Companies like Chipper Cash, Lazerpay, and Bundle have been forced to downsize or cease operations, citing economic headwinds and difficulties in securing further funding.
The potential sale of Payday, a Nigerian fintech startup, exemplifies this trend. While a sale would typically be considered a positive development, it was overshadowed by reports of internal disputes and questionable business decisions. Similarly, the collapse of Ghanaian fintech giant Dash, following allegations of financial misreporting and mismanagement, sent shockwaves through the ecosystem.
These incidents have raised concerns among investors, with many pointing to lax due diligence and weak governance frameworks as contributing factors.
“A strong board and robust oversight mechanisms are crucial to identify and address potential issues early on,” emphasizes Adesuwa Okunbo Rhodes, Founding Partner at Aruwa Capital Management.
EchoVC Partners’ Managing General Partner, Eghosa Omoigui, concurs, highlighting the dangers of insufficient oversight and the potential for information asymmetry to mislead investors.
The unprecedented influx of capital into the African tech ecosystem in recent years has also contributed to these challenges.
“Founders who were previously unfamiliar with managing significant sums of money suddenly found themselves with millions of dollars at their disposal,” explains Omoigui.
These incidents have far-reaching consequences.
“Negative narratives can deter foreign investors, who are already cautious due to the current economic climate,” warns Okunbo Rhodes.
Omoigui echoes this sentiment, emphasizing that these scandals create an atmosphere of distrust, making it more difficult for legitimate startups to secure funding and for investors to raise capital for their funds.
Tamara Posibi, Chief Consultant at Irtus Business, shares a firsthand account of how these incidents can impact investor sentiment, citing an instance where a foreign investor scaled back their investment plans in Nigeria due to concerns about these negative reports.
While acknowledging that these incidents do not represent the entirety of the African startup ecosystem, stakeholders are increasingly emphasizing the need for greater transparency, accountability, and robust governance practices.
Investors are now conducting more rigorous due diligence, scrutinizing not only the business model and market potential but also the character and integrity of the founding team.
“We need to identify and support high-integrity founders while implementing robust safeguards to prevent financial misappropriation,” concludes Omoigui.
