A palpable shift is underway in Kenya’s once-vibrant tech startup landscape. Recent weeks have seen a notable uptick in the number of promising technology ventures entering insolvency proceedings, a trend that has coincided with a significant contraction in foreign aid, most notably the closure of the United States Agency for International Development (USAID) mission in February.

According to data compiled by Launch Base Africa, the list of financially distressed startups spans various sectors and stages of development, from established players to emerging innovators. Public records now increasingly feature notices of liquidation and administration, stark indicators of the mounting pressures facing these businesses.

Among the companies recently announcing financial difficulties is Medsource Group Limited, a pharmaceutical procurement platform serving millions of patients through a network of community pharmacies. A notice published in late March detailed the company’s decision to voluntarily liquidate, citing a special resolution passed by its sole member. Joint liquidators have been appointed to manage the winding-up process and address creditor claims. Medsource, which described itself as a mission-oriented non-profit largely financed through grants, stated that further resource allocation “would not align” with its objectives, leading to the decision to cease operations.

The challenges are not limited to grant-funded entities. Buy-now-pay-later (BNPL) startup Lipa Later, a venture-backed firm that had raised significant capital and even acquired an online retailer in recent years, has also been placed under administration. A notice dated March 24th announced the appointment of an administrator to oversee the company’s affairs, citing its inability to secure further funding amidst a “global capital shortage.” Lipa Later, which aimed to empower African businesses through e-commerce and financial inclusion, now faces a period of potential restructuring or, ultimately, liquidation. Odyssey Capital Limited, the parent company of Lipa Later, is also placed under administration, as per a separate notice issued on the same date as Lipa Later’s announcement.

Adding to the growing list is Surechill Africa Limited, a company specializing in innovative cooling technology with applications in healthcare and other sectors. Despite securing a notable £4 million Series A investment in 2019 to fuel its expansion across Africa, a notice in early March revealed the appointment of an administrator. Surechill’s technology, which allows for prolonged cooling without consistent power, had garnered international attention and partnerships with global health organizations. The reasons behind its current financial distress remain to be fully elucidated, but its entry into administration highlights the precarious nature of even seemingly well-funded startups. 

This surge in startup insolvencies arrives at a critical juncture, following a pronounced shift in United States foreign policy towards Africa. The closure of USAID’s mission in Kenya, announced earlier this year, has been keenly felt by the development sector and the startup ecosystem alike. Furthermore, the US Africa Development Foundation (USADF), a key provider of direct funding to African SMEs and startups, has seen its budget slashed by $51 million. These cuts, spearheaded by the Department of Government Efficiency (DOGE), an agency established with a mandate to optimize federal spending, have directly impacted numerous initiatives across sub-Saharan Africa, including Kenya.

Data from USADF indicates that Kenya has been a significant beneficiary of its programs, receiving nearly $17 million in grants to support rural and women-led SMEs. The abrupt withdrawal of this funding, which often provides crucial risk capital that traditional banks and venture capital firms are hesitant to offer, poses a significant challenge to early-stage and impactful businesses. Projects ranging from WhatsApp marketing chatbots to wellness incubators now face an uncertain future.

This period of reckoning may also reignite discussions within Kenya about fostering greater self-reliance in its startup ecosystem. The dependence on foreign aid, while often catalytic in the early stages, exposes the sector to the vagaries of international political shifts. Building a stronger domestic investment landscape and fostering local support mechanisms could prove crucial in insulating Kenyan startups from future external shocks.

As the insolvency journals continue to fill, the coming months will be critical in determining the long-term impact of this confluence of factors on Kenya’s tech entrepreneurship and its ambition to be a leading hub for innovation in Africa. The surge in startup closures highlights just how important it is to maintain a healthy and resilient ecosystem, especially when faced with global economic challenges and changing international priorities.