African Founders & Investors Faced With A Disconnect Thwarting Efforts

As investment opportunities in Africa’s startup landscape become increasingly competitive, the need for founders and investors to find common ground and get on the same page as they navigate shifting dynamics has become imperative. The role of investor reporting has thus come to the fore.

However, while reporting frequency has improved, many startup founders still feel that investors don’t fully understand their business or market. This disconnect creates ongoing challenges for investor confidence and highlights a gap between what founders report and what investors find valuable.

A recent report from Wimbart, a PR agency specialising in African and emerging markets with a notable tech clientele, highlights the critical role of investor reporting. The findings reveal that effective communication between startups and investors is not just beneficial but essential for navigating the current subdued funding environment, where investments have declined.

A Shift in Reporting Demands

The report, titled “Startup Performance Reporting in Africa: Aligning Startup and Investor Expectations,” indicates that 72.2% of investors have intensified their reporting requirements over the past 18 months.

This change reflects growing concerns regarding financial stability (33.3%), transparency (25%), and the need for enhanced performance monitoring (16.7%). With nearly two-thirds (64.7%) of investors initially receiving monthly updates from portfolio companies in 2023, this figure dropped dramatically to 27.8% by 2024. Investors are now favouring quarterly reports, which have risen from 29.4% to 50%, suggesting a shift towards a more manageable reporting structure.

This new trend underscores the increasing reliance on regular reports to assess the “quality of founder,” a key determinant in follow-on funding decisions. An overwhelming 88.8% of investors agree that the quality of these reports significantly impacts their assessment of a founder’s ability to execute business objectives. One investor noted, “For performance tracking and risk assessment, looking at previous reports helps assess a founder’s track record.”

The Disconnect Between Founders and Investors

Despite the apparent need for robust reporting, a notable disconnect persists between startups and investors. 40% of startup founders feel that investors do not fully understand their business or market, which creates challenges in communication and investor confidence. This sentiment is echoed by the report’s findings that 60% of investors view the founders themselves as the biggest barrier to meaningful reporting. Common complaints include a lack of focus in reports (27.8%) and perceived inaction from founders (16.7%).

The report highlights that 70.6% of investors are primarily focusing on pre-seed and seed-stage companies. This concentration aligns with the early-stage nature of Africa’s startup ecosystem, where venture capital firms aim to support nascent businesses. However, while 93.9% of founders recognise the importance of regular updates for maintaining good relationships, only 42.4% believe that investors genuinely grasp their business intricacies. This gap emphasises the need for both parties to bridge their understanding to foster a more productive relationship.

The Importance of Quality Metrics

Founders are increasingly aware of the necessity of detailed reporting. Over 57.6% cite the effort required to produce such reports as the biggest barrier. Yet, the effort often pays off: 60.6% of founders report receiving direct intervention or support from investors as a result of their updates.

However, tensions arise over what constitutes essential reporting details. While 70% of founders utilise standardised templates, many feel that critical performance metrics—such as customer acquisition costs (CAC), customer retention rates, and lifetime value (LTV)—are frequently overlooked by investors.

The Wimbart report suggests key recommendations to enhance investor-startup relationships. Investors are urged to clearly communicate their reporting requirements and expectations, possibly providing templates to facilitate adherence. Startups should avoid vanity metrics and focus on meaningful indicators that demonstrate their understanding of the business.

In a challenging fundraising environment, Jessica Hope, Founder and CEO of Wimbart, emphasises that “in today’s tough fundraising environment, startup founders cannot afford to overlook clear and consistent reporting – it’s not just beneficial but essential.” The shift in investor priorities towards sustainability and long-term performance further emphasises the need for effective communication.

The evolving dynamics of investor reporting in Africa highlight the critical importance of clear communication in fostering robust relationships between startups and investors. As the funding landscape continues to tighten, addressing the disconnect between what founders share and what investors value will be vital for securing future investments. By embracing effective reporting practices, both parties can navigate the complexities of Africa’s startup ecosystem more successfully.