Once seen as a transformative tool to democratize finance across Africa, crowdfunding has been on a rapid decline. Once-promising platforms are now either up for sale, embroiled in scandals, or shuttering their operations altogether. A prime example is Nigeria’s SapioFunds.com, a platform launched in 2021 by one of the country’s leading entertainers, Don Jazzy. Initially celebrated as a game-changer for Nigerian businesses, SapioFunds.com is now listed for sale at just $4.6K, a stark reminder of the lofty promises that crowdfunding once held but has largely failed to deliver.

From Promise to Peril

Across Africa, crowdfunding initially thrived by offering businesses an alternative to traditional financing, allowing them to raise capital directly from the public. In sectors like agriculture, the model gained particular traction. For instance, ThriveAgric, a Nigerian agritech company, became a household name by leveraging crowdfunding to finance smallholder farmers. However, following a turbulent 2020 — marked by investor defaults and operational challenges — ThriveAgric shifted away from retail investors and toward institutional partners. This pivot has since paid off, with the company securing investment from commercial banks, the Central Bank of Nigeria (CBN), and international organizations like the World Food Programme and USAID.

But ThriveAgric’s shift was not unique — it mirrored broader concerns across the crowdfunding sector. Once heralded as a beacon of innovation, crowdfunding platforms began to struggle under the weight of increasing scrutiny, allegations of fraud, and the complexities of managing investor expectations.

Fraud and Reputational Damage

Crowdfunding’s reputation in Africa took a significant hit as defaults and fraud cases became alarmingly common. Platforms that had once drawn in eager investors began to falter under the weight of unfulfilled promises. Uprise.Africa, a South African equity crowdfunding platform, became entangled in controversy when it was forced to refund all 288 shareholders of a 2020 campaign for solar micro-leasing startup Sun Exchange. While the platform cited delays from regulatory bodies like the Reserve Bank and the Companies and Intellectual Property Commission (CIPC), the refund came amid growing concerns about the platform’s legitimacy. A subsequent exposé revealed that Tabassum Qadir, the head of Uprise.Africa, was implicated in a R25 million ($1.4 million) fake pledge to South African startup Intergreatme, further damaging the credibility of the platform and casting a shadow over the crowdfunding sector as a whole.

Investor confidence took another blow in 2023 when Nigeria’s Investments and Securities Tribunal ruled that the operations of Agropartnerships, an agritech crowdfunding platform, were illegal. The court froze the accounts of Agropartnerships and its affiliates, labeling their capital market activities unlawful. This ruling further underscored how vulnerable the sector had become to legal and regulatory challenges.

Regulatory Crackdowns Across Africa

The rise in fraud cases and investor defaults prompted swift regulatory crackdowns across the continent. In Nigeria, for example, the Securities and Exchange Commission (SEC) introduced new rules limiting the amount retail investors could commit to crowdfunding ventures. Retail investors are now restricted to investing no more than 10% of their annual income, while high-net-worth and institutional investors are exempt from this limitation. Additionally, there are caps on how much capital can be raised by different types of enterprises, further reducing the appeal of crowdfunding for larger ventures. For example, in Nigeria, medium-sized enterprises are limited to raising a maximum of ₦100 million ($61,000), small enterprises to ₦70 million ($43,000), and micro-enterprises to ₦50 million ($30,000).

Kenya has also tightened its regulatory oversight. The Capital Markets (Investment-Based Crowdfunding) Regulations, 2022 now require platforms offering investment-based crowdfunding to be licensed, with severe penalties for non-compliance. These regulations, while aimed at protecting investors, have inadvertently reduced the attractiveness of crowdfunding as a viable option for startups needing significant capital to scale.

The Rise of Foreign Based Crowdfunding as Startups Take Fundraising Into Their Own Hands

As trust in locally based crowdfunding platforms declines, many African startups are turning to foreign-based alternatives, signaling both a lack of faith in domestic options and the limited capital fulfillment they offer. Startups are increasingly bypassing local platforms in favor of international ones, seeking greater access to capital, transparency, and investor networks.

One good example is Kenya Originals, a beverage startup that took its own crowdfunding campaign into its hands, directly raising for its expansion, bypassing both local platforms and traditional methods. CEO Alexandre Chappatte explained, “Our audience is our best brand ambassador. We want them not just to drink our beverages but to own a part of the company.” Although the company had already secured significant seed funding from established backers like the Chandaria Group, Phillip Redman (former head of AB InBev East Africa), and Charles Rolls (co-founder of Fever Tree), Chappatte saw direct crowdfunding as a way to build a closer relationship with customers, while avoiding local platforms that may not have offered the desired reach or transparency. The campaign raised £700,000 ($936,736) through the UK-based platform Crowdcube, underlining the trend of African startups turning to international platforms to achieve their goals.

Similarly, in 2023, MarketForce — a Kenyan retail-tech startup — announced plans to raise $1 million using Capitalize, a new platform launched by the well-known crowdfunding service Wefunder. MarketForce’s choice of an international platform highlights how African startups are increasingly looking beyond local solutions, seeking greater assurance of capital and wider exposure to investors that local platforms often struggle to provide.

This preference for foreign-based crowdfunding platforms speaks to the challenges local ones face in meeting the needs of fast-growing startups. Whether due to concerns about transparency, capital limitations, or a lack of investor engagement, African startups are increasingly finding better opportunities abroad, reshaping how they raise funds and build communities around their brands.

A Diminishing Market for Crowdfunding

As more startups opt for self-managed campaigns, venture capital, or institutional funding, the market for traditional crowdfunding platforms in Africa is fast shrinking. The very regulations that were meant to protect investors have also contributed to making crowdfunding less appealing to entrepreneurs. Tight caps on the amount of capital that can be raised and limitations on retail investor contributions have stifled the scalability that many startups require.

Additionally, the inherent risks associated with crowdfunding — heightened by the barrage of scandals — make it an increasingly unattractive option for founders who need to raise large sums of money. Crowdfunding was once seen as a method that could open doors for African entrepreneurs and democratize access to capital, but now, in many cases, it feels like a relic of a past era.

The Bottom Line

The future of crowdfunding in Africa remains uncertain. While platforms like SapioFunds.com and Uprise.Africa struggle to stay afloat, there are signs that self-managed crowdfunding campaigns and alternative financing models could provide a lifeline. However, with regulatory bodies tightening their grip and investor confidence at an all-time low, the question remains: can the crowdfunding sector reinvent itself, or is its decline inevitable?

For now, it seems that the fall of crowdfunding in Africa is a reflection of larger challenges in the continent’s financial ecosystem — challenges that demand more robust solutions than the current model can offer. Crowdfunding in its initial form may have had its moment in the spotlight, but whether it can stage a comeback in a more regulated and cautious environment is yet to be seen.