It feels like a long time ago when a week wouldn’t pass without a startup in the African crypto space announcing a major milestone. Some of those milestones included funding rounds, market expansion and offering of new products.
However, for those who have been paying attention to the nascent ecosystem in the last 12 months or thereabouts, most of the news that has been reported about the African crypto space has been fairly negative. If an African crypto startup is not closing down, it is slashing salaries, restricting withdrawals for customers or going through a ‘restructuring process.’
Looking back, one would wonder what went wrong with an ecosystem that had so much zeal and determination to make Africa the next Silicon Valley of blockchain innovation. At the moment, there is a palpable sense of doubt around the success of crypto startups in Africa. With external investors holding back and revenue generation proving elusive, hard questions are being asked.
In this connection, we spoke to Jose Mairura, a venture capitalist from Kenya who sheds more light on the dilemma African crypto startups currently face.
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The role of VC funding on African startups
No denying the fact that the intervention of Venture Capitalists has played a pivotal role in the scaling of African crypto startups. According to Jose Mairura, who is a partner at Nexterra Capital, beyond providing much-needed capital, VCs bring expertise, networks, and mentorship to the table.
“They help startups refine their strategies, expand their reach, and navigate the intricate regulatory environment. Without VC support, many promising crypto startups would have struggled to achieve the scale and impact they have today.”
However, Jose Mairura says the recent decline in funding for African crypto startups can be attributed to several factors. First, the global macroeconomic environment has been uncertain, impacting investor sentiment across all sectors, including crypto. Second, regulatory challenges and uncertainties have made investors cautious.
Also, the market has become more discerning, with a focus on projects that demonstrate real-world utility and a clear path to profitability.
It could be said that some of the qualities investors look out for in crypto startups include innovative and disruptive ideas, that can address real-world problems, visionary leadership and track record of success, scalability potential, regulatory landscape and trust. Those who are conversant with the African crypto ecosystem would agree that those qualities are more than far-fetched in the current market.
Regulatory challenges
As challenges like funding gaps and regulatory uncertainties continue to hamper growth, a few startups have made significant strides in terms of innovation and adoption.
“While some startups have delivered impressive returns, others are still in the early stages of development. Overall, the industry is evolving, and it may take time for some projects to fully realize their potential.” Jose Mairura.
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One of the identified factors hindering African crypto startups’ development is unclear regulation. While regulation is essential for investor protection and market integrity, excessive or unclear regulations can stifle innovation and investment.
“Striking the right balance between fostering innovation and ensuring compliance is a delicate task. Regulatory clarity and a conducive environment are essential for the sustainable growth of the crypto industry in Africa.”
What is next?
According to Jose, predicting the exact timeline for the end of the current funding winter in Africa’s crypto space is challenging. It will depend on various factors, including regulatory developments, global market conditions, and the ability of startups to demonstrate value and sustainability.
“However, I am optimistic that as regulatory clarity improves and the industry matures, investor confidence will return, leading to increased funding opportunities.”
As a VC, Jose Mairura will be fascinated by seeing DeFi projects that provide financial services to underserved populations in Africa.
“Additionally, blockchain solutions that enhance supply chain transparency and traceability have significant potential in industries like agriculture and logistics.
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