Funding Start-ups in the Post-COVID Era

In the era of COVID-19, the major hurdle facing startups in Africa is surviving pandemic. Initial analysis of COVID-19’s economic impact in Africa, finds that the continent’s GDP growth in 2020 could be cut by three to eight percentage points. This means that many businesses are dealing with the risk of going bankrupt, particularly micro, small and medium enterprises (MSMEs) which represent 99% of all companies in the region and generate more than half of jobs. The fortitude to restart after such a huge blow can be even harder to come by than the fortitude they needed to start in the first place.

Some investors (traditional venture capitalists) whose one job is investing in startups and innovators believe this is the worst time to invest. This fear is understandable. Startups are small and risky, even more so in a pandemic. As expected, many venture capital firms are leaning towards a continued slowing down of activity. Whilst they are still on the lookout for interesting startups, they’re reducing the number of new investments, and intend to maintain this ‘new normal’ for the coming months. Many startups should be lucky to stay alive.

Despite this, some analysts say that there is no better time to invest in innovators building the clear and present future we have just been accelerated into. A lot of VC’s will take this time to do more of a reappraisal of their current portfolios than taking up new deals. However, some startups are still well poised to still garner some support in the funding sphere.

According to Oxford Business, “Startups that performed well during the implementation of social distancing and lockdown measures might offer favorable opportunities to investors amid the uncertainty, while the changing investment environment is set to add motivation for greater collaboration and renewed risk evaluation”

In Nigeria, Lagos as a case study, food delivery and logistics services thrived significantly mid-COVID. The reason is simple; people now spend much more time at home than at restaurants, as restaurants were shut down completely in most corners around the city. This industry is amongst the few that thrived in these times. Many of these businesses have done a great job serving their customers in this period, so much so that they have caused a shift in investors’ perceptions as well as in culture, a culture where they and businesses in their industry are likely to remain a mainstay and hence, attractive for investment.

Recently, Impact Hub with support from GIZ (The Deutsche Gesellschaft für Internationale Zusammenarbeit) in partnership with BMZ (Federal Ministry of Economic Cooperation and Development) launched the New Economy Booster program. This program is designed to support impact-driven entrepreneurs with both advanced and early-stage ventures, startups, non-profit organizations or initiatives based in Nigeria and Ghana that are contributing to the country’s post-pandemic economic recovery.

The plan is to boost solutions or ventures in sectors that have been affected by COVID-19, particularly those that are at risk of or have experienced job losses. In this seven-month tailor-made online program, successful candidates will get a range of customized content and resources to develop and grow their business and network while being guided by a team of local and global experts.

As an Entrepreneur, when it comes to presenting your business to a venture capital fund or a Booster program like the NEB, it’s essential that you address the current crisis, and how your startup has pivoted, adjusted and re-mapped its growth strategy. Venture capital firms are keen to see an accelerated approach. As founders, you will need to explain very clearly how you are responding to the new environment.

Lastly, when preparing your materials or applications to present, it is advisable to include a well-detailed plan that considers multiple scenarios and outcomes as the crisis progresses over the coming weeks and months. As a startup looking to raise in this landscape, having a strong product demo and a well thought through plan for growth during a downturn will be crucial to the funds and investors that remain active.

If it’s somewhat difficult to demonstrate that your pivoted demo strategy is gaining traction, instead focus on past achievements that illustrate your strength on the social impact your idea has.

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Impact Hub Lagos

Impact Hub Lagos

A member of a diverse, global collective of collaborative spaces, vibrant communities, and capacity building programs that inspire, connect and enable.

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