African startups seeking to stay afloat in turbulent waters are increasingly turning to crowdfunding platforms in a bid to secure the capital they desperately need. Yet, the reception from these investors, whether local and international, has been lukewarm, suggesting the growing impatience for ventures that fail to deliver on lofty promises.
In 2023, MarketForce, a Kenyan retail-tech startup, attempted to raise $1 million through Capitalize, a platform launched by the prominent U.S.-based crowdfunding service Wefunder. The initiative marked a significant shift.
“We are excited to launch this small community funding round with a maximum raise of $1,000,000 so that our community, including avid supporters, partners, and customers, can invest in the company and become part owners early in our journey,” MarketForce stated in a blog post announcing the campaign. The company pegged its valuation at $120 million and set a minimum investment threshold of $1,000, offering participants the same terms as its previous Series A round.
While the announcement carried an air of optimism, it also came with a sobering reminder: startups are inherently risky investments, worse still they are in the throes of death. MarketForce CEO Tesh Mbaabu, who co-founded the company with Mesongo Sibuti in 2018, pitched the campaign as an opportunity to build the “future of retail distribution in Africa.” However, the company’s subsequent challenges painted a more complex picture.
By mid-2024, MarketForce’s ambitious plans had unraveled. The company announced the shutdown of its B2B e-commerce arm, RejaReja, which had served informal merchants across multiple African countries. This decision followed a dramatic scaling down of operations, including withdrawal from key markets such as Nigeria and Kenya. The shutdown, coupled with the underwhelming performance of its crowdfunding campaign, indicated the fragile nature of its business model.
MarketForce’s experience is not an isolated case. Nigerian startup Gokada also faced a similar fate. The company attempted to raise $750,000 via GetEquity, a locally based crowdfunding platform, at a $10 million valuation. Despite its efforts, Gokada’s campaign failed to gain traction, and by October 2024, the company filed for Chapter 11 bankruptcy protection in the United States. Chapter 11 allows companies to restructure their debts while continuing operations, but Gokada’s filing highlights the precarious financial state of many startups in the region.
The lack of success in these crowdfunding campaigns reflects a broader trend: a growing skepticism among investors toward troubled startups, particularly in Africa’s nascent venture ecosystem. Local investors, often wary of high-risk ventures, are quick to lose patience when companies fail to meet milestones or demonstrate clear paths to profitability. International investors, while more open to risk, are not immune to doubts when red flags emerge.
“The issue is not just about access to capital but also about trust and credibility,” says a Lagos-based retail investor who declined to be named. “Investors are becoming more discerning. They want to see a track record of execution, not just ambitious ideas.”
Again, the reliance by struggling startups on crowdfunding — whether via local or international platforms — introduces its own set of challenges. Crowdfunding campaigns are often perceived by these retail investors as a last-ditch effort to salvage struggling businesses, which can deter potential backers. “Investors see it as a red flag when startups go the crowdfunding route without strong institutional backing. It shows that something is wrong, and relying on crowdfunders’ funds almost always may not provide the permanent cure,” adds the retail investor.
The failures of MarketForce and Gokada offer valuable lessons for startups confronting the challenging African business landscape. Transparency and realistic valuation are critical for gaining and retaining investor confidence. MarketForce’s $120 million valuation during its fundraising campaign raised concerns, given the company’s operational struggles.
The timing of crowdfunding campaigns also requires careful consideration. Many retail investors today can identify underlying issues behind such campaigns. Earlier efforts during periods of peak activity might have been more effective.
Startups must also manage their narratives carefully. Overpromising and underdelivering erode trust, making it harder to secure funding when needed most.
Debt financing has proven effective for resilient startups facing challenges. For example, in 2020, Nigeria’s Metro Africa Xpress (MAX) faced a crisis when Lagos State banned ride-hailing platforms, leaving the company struggling. Supported by $8.5 million in funding from investors like Novastar Ventures and Goodwell Investments, MAX tapped Nigeria’s debt markets, issuing a one-year fixed-rate bond as part of a $22 million private bond program. This raised $1 million, providing a crucial lifeline until MAX secured $31 million in Series B funding in 2021.
Similarly, in 2022, Moove, a Nigerian vehicle financing startup, raised $30 million through a private Islamic bond (sukuk) issuance organized by Franklin Templeton. This helped Moove scale to 2,000 electric vehicles in the UAE. Since then, Moove has raised $250 million in equity and $210 million in debt.
Traditional debt instruments, such as bonds and commercial papers, are often used during crises. For instance, most bond funding by African startups occurred during the COVID-19 pandemic in 2020 and the funding decline in late 2022. Notable examples include Lulalend, Blnk, and Global Accelerex Limited in late 2022. These measures helped startups navigate funding winters and valuation declines.
The Bottom Line
While the stories of MarketForce and Gokada are exemplary tales, they also underline the growing pains of Africa’s entrepreneurial ecosystem. The continent’s startups operate in a challenging environment marked by limited access to capital, regulatory hurdles, and fragmented markets. Yet, the appetite for innovation remains strong, and success stories continue to emerge.
For investors, the key lies in striking a balance between supporting promising ventures and exercising due diligence. For African startups, the road to success will require not only bold ideas but also the execution and resilience to turn them into reality.