Even though African startups are reporting metrics to investors more frequently, a Wimbart Investor analysis reveals that investors are still unable to fully comprehend the business from the information presented. If Africa’s financing decline is to be reversed, this must alter since 88% of investors stated they base their future investment decisions on information from investor reports, highlighting the critical role high-quality reporting plays in their assessment of a business. “It allows us to build enough data on the health of the company and enables us to cross-analyse with our own (due diligence) for follow-up investments,” an investor revealed regarding startup reporting in the report.
The results coincide with investor enquiries concerning the workings of African startups and the likelihood of their returns given the challenging economic circumstances prevalent in the continent. Concerns regarding the sustainability and financial stability of portfolio companies were cited by over two-thirds of investors as the reason for their increased attention to portfolio startups’ reporting during the previous 18 months.
The research, which is in its second year, claims that while investors and founders agree on the value of reporting, they disagree on the kind of data that should be disclosed, pointing to the need for improved communication to set expectations.
Startup founders, who often have multiple firms and angel investors on their cap tables, believe that a standardised approach to reporting should be introduced and argue that investors fail to ask for critical metrics like customer acquisition cost (CAC), lifetime value (LTV), customer retention rate, churn rate, and fraud mitigation, which are essential for understanding the business’s long-term viability.
A founder stated of investors, “I’d like them to ask for less—we send them plenty and they are just lazy, asking for it in different forms.” This lack of trust is the root cause of this communication gap; some founders are afraid that investors may divulge sensitive information about their companies to rival venture capital firms.
According to TechCabal, Jessica Hope, CEO of Wimbart, “investors have to put together a list of requirements for startups straight away, but they should ideally have some standardisation because (founders) with eight or ten investors don’t want to do different reports.”
Investors concur that the reporting issue can be resolved with the use of a uniform reporting methodology. But a conventional reporting style can miss the subtleties of Africa’s varied tech scene. Fintechs in Accra have different opportunities and problems than in Abidjan, indicating the need for reporting that is flexible enough to account for the unique dynamics of the local market.
“I believe that certain common metrics are helpful in assessing the state of a business. Investors must work together to create a sophisticated, uniform framework. According to Hope, it ought to resemble an 80-20 rule, with 20% of the benchmark being adjusted for unique market circumstances.
In order to “build mutual understanding, align expectations, and drive effective collaboration,” open and regular communication is essential, according to Kola Aina, general partner of Ventures Platform, which has more than fifty African portfolio startups.
The young age of Africa’s startup ecosystem is demonstrated by the fact that more than 70% of the companies and investors surveyed were in the pre-seed and seed phases. Remarkably, less than 5% of the firms questioned had reached Series B, and no investors had advanced past that point. A major participant in Africa’s tech scene for ten years, Wimbart is a public relations company that helps investors like Ventures Platform and companies like Moove and M-KOPA interact with the media and the general public.
