Facing the Financial Missteps, Inefficiencies and Realities

Lately, I’ve been hearing murmurs—and sometimes outright frustration—from diaspora investors about their dwindling appetite for African startups. The complaints are familiar: founders mismanage funds, startups burn through cash with little to show, and the whole ecosystem is becoming a money pit. And to be fair, we’ve seen some high-profile startup collapses in Africa that add fuel to this narrative.

But do these issues uniquely plague Africa, or are we simply experiencing the growing pains that other startup ecosystems have already navigated? To answer this, we must place these concerns within a broader global context and assess whether Africa’s startup landscape is truly underperforming—or merely evolving.

Startup Failures: A Global Reality

Startups are risky ventures everywhere, not just in Africa. Across the world, 90% of startups fail, with 10% shutting down in their first year and the majority collapsing between years two and five. In Africa, 70-80% of startups fail within five years—figures that align with global averages. Despite the perception that African startups struggle more, the numbers tell a different story.

Even in the most advanced markets, failure is the norm. Silicon Valley, despite its reputation as the global startup capital, has witnessed some of the most significant collapses and scandals. Theranos defrauded investors of nearly $900 million, WeWork’s valuation imploded from $47 billion, and FTX’s $32 billion downfall was a sobering reminder that even highly scrutinized ecosystems are not immune to mismanagement.

Europe has had its fair share of financial disasters, with Germany’s Wirecard scandal and the collapse of Greensill Capital in the UK proving that even in highly regulated environments, bad actors exist. Similarly, Asia has seen major startup failures, from Luckin Coffee’s $310 million fraud in China to governance issues in India’s BharatPe and Zilingo.

If Silicon Valley, London, and Beijing still attract billions in venture capital despite these setbacks, why should Africa be held to a harsher standard?

Why Africa’s Narrative Feels Worse

Part of the issue lies in perception. Diaspora investors often compare African startups to those in Silicon Valley, expecting similar returns, governance structures, and operational efficiencies. But Africa’s startup ecosystem is still young—just 15 years into its active development phase compared to Silicon Valley’s 60+ years. Infrastructure gaps, regulatory uncertainty, and limited access to experienced talent create additional hurdles that Western startups don’t have to overcome.

Moreover, failures in African startups tend to be amplified. In mature ecosystems, a failed startup is just one of many; in Africa, each collapse is viewed as a referendum on the entire ecosystem. This visibility bias makes the challenges seem larger than they actually are.

The Path Forward: Strengthening the Ecosystem

Instead of abandoning the ecosystem, investors should focus on solutions. Strengthening corporate governance, implementing standardized financial reporting, and ensuring regular third-party audits for funded startups will help build investor confidence. Mentorship programs that pair experienced founders with emerging entrepreneurs can improve financial discipline and long-term sustainability.

Diaspora investors, rather than pulling back, should engage more strategically. Understanding local market dynamics, adapting due diligence processes to African realities, and co-investing with local investors who have deeper market knowledge will lead to better outcomes.

At the same time, African founders must rise to the challenge. Stronger governance, financial transparency, and better operational discipline will not only attract more funding but also ensure long-term sustainability.

What Lagos Angel Network (LAN) is Doing

At Lagos Angel Network (LAN), we recognize these challenges and are actively working to improve investment outcomes for both founders and investors. Our approach includes:

• Structured Due Diligence: We have refined our investment screening process to ensure that startups demonstrate strong financial discipline, viable business models, and clear pathways to profitability before receiving funding.
• Investor Education: Through our induction programs and workshops, we equip angel investors with the tools to assess risks, structure deals effectively, and provide strategic value beyond capital.
• Founders’ Accountability: LAN actively works with portfolio startups to improve governance by encouraging board formation, performance tracking, and regular investor reporting.
• Post-Investment Support: We don’t just fund startups—we nurture them. Through mentorship, access to networks, and advisory support, we help founders make sound business decisions and avoid common pitfalls.
• Co-Investment and Syndication: We collaborate with other investor groups and funds to ensure startups receive well-rounded funding that extends beyond just financial backing to strategic partnerships.

By taking these steps, LAN is playing an active role in addressing the concerns around startup inefficiencies in Africa. While no system is foolproof, structured engagement and continuous improvement will ensure that Africa’s startup ecosystem matures into a more resilient and globally competitive landscape.

Africa is Not the Problem—Poor Investment Strategies Are

The African startup ecosystem isn’t broken—it’s evolving. With record-breaking VC funding and continued inflows despite global economic downturns, Africa remains a frontier for high-growth startups. Yes, some will fail, but many will succeed. The key is investing smarter, not giving up.

Diaspora investors should not retreat in frustration but rather push for better governance, demand accountability, and support the maturation of the ecosystem. If we get this right, Africa won’t just catch up—it will set new standards for emerging markets worldwide.

Let’s build better, together.