Connect with us

Business

Startups failure: Global investors not doing enough diligence before funding – Eloho Omame 

Published

on

Partner at TLCom Capital, Eloho Omame, has said that global investors that had injected money into African startups in the last two years failed to do due diligence before committing their funds. 

Against the backdrop of the recent failure of some African startups, Omame in a LinkedIn post said most of the deals announced between 2021/2022 were hurriedly sealed.

According to her, some of the startup founders had also expressed concerns that questions were not asked by their investors.  

Indicating that most of the recently failed startups were backed by foreign investors and not African VCs, she noted that “in the last couple of years, Africa-focused investors became relatively less popular than our US/global counterparts, many investing on the continent for the first time, often without an Africa mandate per se.”
 

Attributing the recent failures to the lack of due diligence on some of the startups by the investors, Omame said: 

She added that the narrative that “African investors ask more questions than US/global investors” would not help the industry. According to her, founders should probably wonder if they really matter if an investor doesn’t take the time to ask good questions.  

While advising African founders to see due diligence as a necessary process in their business interest, Omame said: 

Corroborating Omame’s views, Founding Partner at Future Africa, Iyinolwa Aboyeji, noted that most of the huge startup failures in Africa are from those backed by global VCs and not those led by African VCs.  

Just recently, Nigerian genomics startup, 54gene initiated the folding up of its operations after securing $45 million in funding. 

This was a fallout of multiple controversies that saw the company having three CEOs in the last year. The last CEO of the company, Ron Chiarello, confirmed the financial struggles that led to the company’s winding down, stating that 54gene could not continue to operate financially, and it began to wind down in July. 

In Ghana, Dash, a fintech startup that had raised over $86 million in 5 years of its operations shut down last week. 

The company claimed to have handled $1 billion in transactions and added a million users from Ghana, Nigeria, and Kenya. In five months, those figures showed a 5x increase in users. 

However, internal Dash data audits showed that the company’s founder Boakye Boampong lied and inflated the number of users.

Soon, he was let go. When Kenneth Kinshua eventually replaced him, it was already too late to save the company.

A second audit of the business’s financial records found an unreported shortfall of at least $25 million. Boampong reportedly earned $50,000 monthly and allegedly diverted at least $8 million.   

 

Trending