As the global tech ecosystem continues to experience a tough funding cycle, there is a critical need for African founders to invest in founder education if they want to raise investment in the medium term.

“With African venture capital investments down by 43% in the first half of this year compared to the same period in 2022, raising pre-seed, seed and early-stage funding will continue to be a challenge for founders,” says Karl Nchite, co-founder and CEO at CatalyzU.

According to funding data from AVCA, pre-seed and seed funding accounted for 70% of all deals in 2022.

“When speaking to leading investors in our network their mandates are clear: a hard-focus on unit economics, fundamentals and sustainable growth. This means more time spent on due diligence. Investors are also pushing for better term sheets so founders need to improve their negotiating skills for a better close before they reach this stage,” says Nchite.

“Unfortunately, many founders drop out of the process before this stage because of a lack of understanding of what’s required from investors. This is why the CatalyzU into Venture Capital Fellowship focuses on the investment process and instruments VCs use, their portfolio management process, and their assessment process to better position founders for a successful raise.”

African startups are facing an unprecedented downturn in funding, highlighting the importance of founders upskilling to better navigate raise rounds, especially for founders at pre-seed and seed funding stages. According to funding data, pre-seed and seed funding accounted for 70% of all deals in 2022.

“With more early-stage startups looking to access funding, forward-thinking founders need to equip themselves with the right tools and knowledge to survive, especially in Africa, where entrepreneurship is a vital engine of economic growth.”

Fintech attracts the bulk of capital

According to the AVCA report, 30% of all investment deals went to the financial sector, with fintech leading the charge in recent years. This consistency in attracting investment gives fintech founders the opportunity and experience to learn to lead successful raise rounds, risking founders in other industries falling behind.

“Investing in education, mentorship, and building networks can pay off in the long run by increasing the chances of startup survival in a tough and uncertain economic environment. This is especially true for founders in industries battling to attract funding, such as transport, agri-tech and energy which saw the lowest investments in 2022,” Nchite says.

The African tech ecosystem has seen explosive growth recently, with a steady rise in the number of startups, innovation hubs and incubators emerging across the continent. However, the local industry now faces a unique set of challenges brought about by the global funding downturn.

“Effective fundraising is vital for startups in both good and bad times. Founder education can teach entrepreneurs how to seek alternative sources of funding and negotiate with investors,” Nchite concludes.