Why some Fintech start-ups fail and others succeed and the secret sauce 

How Africa’s first virtual meeting solution Konn3cts the world
Rarzack Olaegbe


Everybody fails. It is your response to failure that counts. In the movie “The Pursuit of Happyness”, a man loses everything. Eventually he gets everything. He is hard-working. He is caring. He is a loving father. He is homeless. But he scraps financially to provide for his wife and son. His wife left him.

But fate rescues him. Fate takes him to a lifestyle he does not envisage. While he struggles to take care of his son, he works as a salesman, selling medical devices. Then, he finds an unpaid 6-month-apprenticeship position at a brokerage firm. He displays courage. He demonstrates perseverance. He has faith. Then he finds “Happyness”. Does he find it?

That is the story of some fintech start-up owners. Some of them started their businesses in pursuit of fulfilment. Some were searching for happiness. Others needed independence. But their stories have a common thread. They are all start-ups. In a 2020 Greentec Capital Africa Foundation and WeeTracker Media’s report, what led to start-up failure was uncovered.

So, why do some start-ups fail? Why do others succeed? What is the secret sauce? We will get to it shortly.

The report traces the movement of African start-ups during the period of 2010 to 2018 to arrive at understandable statistics of failure rates. Titled “The Better Africa”, the report captures the positivity in the African start-up ecosystem that is hogging the global limelight. In order to become a guide for the aspiring start-ups and ventures on the continent, the report compiles ­first hand experiences of start-up founders, founders who have operated their companies successfully or have raised external capital.

WeeTracker Media is an African digital media company that covers start-ups, technology business and stories of individuals who inspire the continent. Greentec is a non-profit organisation founded to promote the development of investment into African entrepreneurship and support creation of local economic and social added-value.

In the report, the founders shared insights on building a start-up, importance of external funding and team building to be able to help fresh entrepreneurs gain a perspective. Since 2010, the revolution has caught momentum.  Many youngsters have joined the entrepreneurial force. Some joined out of vision. Others out of compulsion.

Let us examine why some fintech start-ups failed and what led to their failure. The report explains that the African start-up ecosystem raised $1.34 billion in venture capital investment in 2019. With that you may think money is everything. If you consider the rate of failure, you would change your mind.  Or better put, you would “see” clearly. To put it in a sharp context, the report captures the progress of start-ups on the continent from 2010 and beyond. The start-up failure rate on the continent stands at 54.20%.

To give a proper perspective, the report compares the start-up failure rates of two large ecosystems on the globe. Failure in this context means a start-up operating in Africa that has ceased to function and has inactive website and social media handles. The report notes that a country’s economic health can have a direct effect on start-up shutdowns. Shutdown means a start-up that attracted venture capital funds and then ceased to operate. The shutdown rates in South Africa followed a similar trend as its GDP.

The report observes the same trend in Nigeria where the GDP peaked around 2014 and has been sliding since then. For Kenya, such correlations between GDP and shutdowns were registered as the GDP is constantly growing since 2010. You see, money is not an indication that your start-up will succeed or fail. Then, what is it?

Before we uncover the secret sauce, let us delve more into the report. It states that over the past few years South Africa, Kenya and Nigeria have become the hubs of start-up creation. That is not all. Nigeria scored the maximum number of venture capital deals in Africa. This trend was followed by Kenya and South Africa.

Well, do not be surprised with the next statements. Nigeria has more start-ups. Nigeria collected more funds from venture capitalists. But Nigeria experienced more shutdowns at 61.05%.  Kenya and South Africa had less shutdowns. Kindly note, among the three big regions – West Africa, Southern Africa and Northern Africa clusters – South Africa had 54.39 % failure rate and is the closest to the continent average. Kenya matches up with South Africa at a slightly higher rate of shutdown at a 58.73% failure rate.

So, why do some start-ups fail? Why do others succeed? What is the secret sauce? We will get to it shortly. Meanwhile, some industries experience more shutdowns than others. For instance, social networking has more shutdowns with 95%. E-commerce is next with 76%. High-tech comes next with 46%. Edutech has 60% shutdowns. Overall, more shutdowns are witnessed in the service sector with 84% closure. Start-ups that focused primarily on product experienced 15% shutdowns.

You may have had contact with some of the fintech start-ups that came but were not able to conquer. The failed start-ups include Dealdey, iFarm, Payup, Isoko, SuperGeeks, Wireless zone and Careers24 among others.

As uncovered in the report and corroborated by a venture capitalist I spoke to, fund availability does not guarantee success. For instance, many of the start-ups profiled after they have received external financing. The figure stood at 20.30%. On the flipside, in countries with the highest start-up shutdown rates, many of the start-ups did not get external funds. So, what went wrong?

The report reveals that the vibrant ecosystem of South Africa witnessed 41.94% of failure rate of funded start-ups. Money is not everything. Nigeria had 32.76% of failure rate amongst funded start-ups. Egypt is third in the list with failure rate of funded start-ups at 29.41%. In Zimbabwe, Rwanda, Zambia and Morocco the shutdowns are attributed to lack of external funding. The verdict? Funding is relative.

No start-up has ever consumed another start-up. What leads to start-up failure or shutdown is a lack of cutting-edge talents. Everybody fails. But not all start-ups fail.

To gain understanding, I spoke to a CEO of a shutdown start-up. He is in the process of starting all over again. He told me that to succeed he would need “non-equity assistance and grant”. Note again, that is not a sure-fire assurance for success. It may be a cushy way to start a business. For this CEO, he now relies on a professional human resources firm to handle his hire. He hires the best and competent employees. That is one of the secret sauces.

As it is obvious with the profiled successful start-ups, which include Paystack, Flutterwave, Kobo360, Kudi and Max.ng, the secret sauce is their people. These start-ups hired professionals who are on top of their game. For instance, Flutterwave CEO, Olugbenga Agboola said the ­first set of people he invited to work with him at Flutterwave were individuals he had worked with previously at former jobs.

“They are people I knew while working with former employers. I showed them the vision of the company and they decided to come on board. Our first employees were from our networks, and people that we felt could help grow the business and those who understood the vision we were trying to bring to life.” As Flutterwave grew and expanded, the team began to look beyond their networks and started to reach out to reputable head-hunters for the start-up’s talent needs.

No start-up has ever consumed another start-up. What leads to start-up failure or shutdown is a lack of cutting-edge talents. Everybody fails. But not all start-ups fail. Some start-ups succeed. If you fail, please, try again.

*Olaegbe (psalmsonolaege@gmail.com)