Start-ups in Africa risk being locked out of investor funding for failing to provide periodic reports, a new study shows, amid a high rate of collapse by businesses at early stages.
A survey by London based-PR agency Wimbart indicates about 71 per cent of African tech investors will not invest follow-on funding in a start-up for failing to provide them with regular reporting updates.
According to the report, 29 per cent of start-up investors stated they did not receive periodic reports from their portfolio companies.
This is despite start-up reporting being considered a significant factor in shaping perceptions of leadership, and channelling funds by investors.
Consistency and reliability were also ranked as the most important features for investors during the reporting process.
Jessica Hope, Founder and CEO at Wimbart noted that there is lack of consistent investor communication with venture capitals and development finance institutions.
“The resounding conclusion from our research is that in light of the current funding climate, founders simply cannot afford to neglect consistent engagement with current and potential investors,” Hope said.
However according to Hope, there is a huge need for clear, regular and standardised updates to investors so they can not only accurately assess the health of their portfolio companies during the critical period but sustain the upward trend in funding.
Nigerian start-up Ventures Platform founding partner Kola Aina said: “In venture capital, investing in transparency is paramount and consistent reporting is a sign of accountability.”
Aina added that reporting is also critical to keeping investors engaged and excited to help the company navigate challenges.
In Africa especially, this credibility can serve as a crucial differentiator for investors seeking the most promising companies, he said.
Anna Ekeledo, executive director, AfriLabs, noted that consistent reporting of a startup’s performance enhances investor confidence.
The report comes at a time when the Kenyan market has witnessed a high rate of failure by start-ups, despite raising significant amounts in the market to drive their growth plans.
Some of the start-ups that have failed to break even, with some folding up barely months after their entry includes Kune Foods, Notify Logistics, WeFarm, BRCK, Sendy and Sky-Garden.
