In recent years, African tech startups have attracted significant attention from global investors, with over $5 billion in funding flowing into the continent in 2023 alone. This influx of capital is driving innovation and entrepreneurship across various sectors, including fintech, health tech, agritech, and edtech. However, as these startups scale, the importance of strong corporate governance becomes increasingly evident. Without it, the risks of financial mismanagement, loss of investor confidence, and legal challenges can threaten the very survival of these promising ventures.

Corporate governance refers to the systems, processes, and principles that govern a company’s operations and decision-making. It ensures that a company is managed ethically and transparently while safeguarding the interests of all stakeholders, including investors, employees, and customers. For African tech startups, which are often operating in rapidly changing environments, strong corporate governance is crucial for maintaining investor trust and ensuring sustainable growth.

Jumia, a leading e-commerce platform operating across Africa, provides a cautionary tale about the impact of poor governance. When Jumia went public on the New York Stock Exchange (NYSE) in 2019, it was hailed as a major milestone for African startups. However, soon after, allegations surfaced that the company had inflated its sales figures and active user numbers. This led to a significant drop in its stock price, as investors questioned the reliability of the company’s financial reporting. The incident underscored the importance of transparency and accuracy in corporate governance, particularly for companies seeking to attract and retain investors.

Steinhoff International, a retail company with operations in Africa and Europe, experienced one of the continent’s largest corporate scandals. In 2017, the company revealed massive accounting irregularities that led to the loss of billions in shareholder value. This scandal highlighted how a lack of proper oversight and unethical practices can have devastating consequences, leading to legal challenges, loss of investor confidence, and long-term damage to the company’s reputation.

Nakumatt, once a dominant retail chain in Kenya, also serves as a lesson in the dangers of rapid expansion without proper financial controls. The company grew quickly, opening stores across East Africa. However, it failed to implement adequate governance structures to manage its debt and operational costs. As a result, Nakumatt collapsed under the weight of its financial obligations, leading to job losses and significant economic repercussions.

Investor Appetite and Corporate Governance
As African startups continue to attract investment, they must implement strong governance practices from the outset. Investors are increasingly looking for startups that demonstrate innovative business models and sound governance. Good governance practices include transparent financial reporting, ethical business conduct, and effective risk management. These practices not only protect investors but also ensure the long-term viability of the startup.

M-Kopa, a Kenyan solar energy company, has raised over $180 million in funding by demonstrating a commitment to good governance. By maintaining transparent financial records and adhering to ethical business practices, M-Kopa has built trust with investors and customers, allowing it to scale its operations across East Africa.

Andela, a Nigerian startup that trains and connects African software developers with global companies, is another example of the importance of governance in fundraising. Andela has raised over $180 million by building a strong reputation for transparency and accountability. These governance practices have helped Andela attract high-profile investors and expand its operations globally.

Fundraising is often seen as the primary function of investor relations, but its role goes far beyond securing capital. Effective investor relations involve ongoing communication with investors, providing them with regular updates on the company’s performance, and addressing any concerns they may have. This continuous engagement helps build long-term relationships with investors, ensuring they remain committed to the company’s success.

For example, Paystack, a Nigerian fintech company acquired by Stripe for $200 million, maintained strong investor relations by regularly communicating its progress and challenges to investors. This transparency helped Paystack secure additional funding rounds and ultimately led to its successful acquisition.

Similarly, Wave, a mobile money service based in Senegal, has raised over $200 million by fostering strong relationships with investors. Wave’s commitment to transparency and ethical business practices has earned it the trust of both investors and customers, enabling it to expand its services across West Africa.

African tech startups are on the cusp of transforming the continent’s economy, driven by an unprecedented wave of innovation and investment. However, the sustainability of this growth depends largely on the strength of their corporate governance. By implementing robust governance practices and maintaining transparent investor relations, African startups can not only attract the capital they need to scale but also build enduring businesses that contribute to the continent’s economic development.

Adebola Olatunbosun is a seasoned finance and investor relations professional with extensive experience in the African tech startup ecosystem. He has worked with leading companies across various sectors, helping them secure funding and implement strong corporate governance practices.