In the time of COVID-19, “if you can raise cash, raise cash”


African tech startups that have the opportunity to raise funding over the next few months in spite of the COVID-19 crisis should do so and not worry too much about valuations and terms.

With the COVID-19 crisis and associated recessions biting globally, it is widely assumed that African tech will face a serious funding shortage as international investors focus on their own portfolios and avoid any kind of perceived risk.

Flagship African tech companies like IROKO and Yoco are already making tough decisions about staffing,  and though some funders are doubling down on investments during this time, founders are being advised to come up with ways of mitigating the damage on their businesses.

Cash reserves will be key in this reserve, and investors taking part in a recent webinar organised by fintech-focused fund Flourish Ventures urged startups that had the opportunity to access investment during this time to do so. Even if the terms are not as attractive as they are used to.

Tokunboh Ishmael, co-founder and managing director of Lagos-based investment management and advisory firm Alitheia Capital, said if entrepreneurs receive interest from investors in investing cash into their businesses, they should “take it and run”, even if they had not planned to raise for a while or if their cash reserves were solid for now.

“Even if you weren’t on the road before, you need to look and see if you have enough runway for the next 18-24 months,” she said.

Justin Stanford, co-founding general partner of South African venture capital firm 4Di Capital, agrees, and says entrepreneurs should not worry too much about valuations or in what is currently a buyer’s market.

“If you can raise money right now you are very lucky. Don’t sweat the valuation and terms now – if you can raise cash, raise cash,” he said. 

“Rather get funding and go and press your advantage. Because at a time like this if you get funding it will be an advantage, and you will be able to go and stretch your lead on any followers.”

Given the choice between a higher valuation and a cleaner deal, investors advised startups raising funding to go for a cleaner deal.

“We haven’t seen too much of a punitive swing yet, more just realistic really. Now is not the time to quibble over valuation terms. I would definitely go for a cleaner deal. A valuation is not everything,” Stanford said.

This was a view shared by Yemi Lalude, managing partner of London-based TPG Growth, who said negotiating the perfect deal in the current climate would prove very difficult for founders.

“We are slowly starting to see changes on terms. Less so on valuations, but private markets lag public markets by several months, sometimes years frankly, when these things happen.  In this environment people tend to be most concerned about downside protection. So it is going to be tough to get a chunky valuation with a clean deal,” he said.

Times are just as challenging for entrepreneurs that were planning on launching ventures during this period of change and uncertainty. Iyinoluwa Aboyeji of the Future Africa fund, itself recently launched, advised these individuals to take a step back and ask themselves “brutally” whether there was still a need for their business in the post-COVID era.

“Needs have changed, and there might be certain ways you had planned to go to market that are no longer relevant,” he said.

There are opportunities created for these entrepreneurs by the crisis, however.

“It is really important that you take the opportunity to get a top-notch team. A lot of people are letting go of great people, which is amazing for people like me because the entire business is the team at the stage I invest. The market, and then the team,” Aboyeji said.

The investors agreed that recovery would take a while, and startups needed to be prepared for a long, tough ride. 

“It is going to take a while. This is not going to be a V-shaped recovery in any form or fashion. My best guess is that it is going to take a couple of years for most economies to get back to where they were in January of this year. Some might take longer,” Lalude said.

Ishmael agrees, and in fact suggests recovery may take even longer given additional factors, such as oil prices in Nigeria. Aboyeji, meanwhile, said while the prognosis was not good at a macro level, for those funding innovation in the tech sector there were reasons for hope.

“The way I choose to see it is that it is an opportunity for innovators. It is the precise time for us to do what we do best, which is to come out and solve those problems by building businesses that can transform these challenges into opportunities. My sense is that that is what will determine when and how we get out of the crisis,” he said.

Stanford shared this sentiment, saying 4Di had already seen opportunities being created in some more traditional sectors, such as agriculture.

“We’ve seen acceleration of adoption of new tech in old industries, so to speak. For the right technology plays we are seeing adoption, we are seeing opportunity,” he said.

“Broadly, be cautious, but where there is opportunity to widen your advantage or zoom in on opportunity, go ahead.  Companies that are well cashed up can actually widen their lead at this point in time.”

Stanford and the other investors all expressed a willingness to continue investing throughout the crisis, but said certain structures and processes would have to be adapted.

“In many ways we view it as business as normal. Because venture capital is a very long term game. Many funds have a 10-year lifecycle, so we are looking through the next 12-24 months. If we see an amazing technology that has long-term value and potential we are still interested,” said Stanford.

“However, a lot of VC and fundraising is all about face to face meetings and relationship building and time spent in the field, and none of that can happen right now. It is not clear whether you will be able to raise money or not in the old way.”

Aboyeji said he expected African tech startups to continue to receive funding, as the impact they are creating is often significant, and they have the ability to overcome various challenges created by COVID-19.

“What we are already experiencing is a transformation of industries that have remained resistant to change for a very long time, and for no good reason,” he said.

Ishmael said as Alitheia’s focus was on essential sectors such as financial services, healthcare, education and energy, it would continue to invest.

“We are very bullish about continuing to invest in those because as we know those are all sectors that may have the bounce as opposed to follow the negativity of the macro.  So with that in mind we continue to work on transactions,” she said.

Lalude said TPG had spent the first couple of months of the crisis focused on its portfolio and making sure those companies had enough liquidity to make it through, but was now certainly “open for business”.

“Now we are starting to turn attention to new opportunities. The sectors we are looking at are really not that different, again because they are essential sectors – education, energy, food and agri, financial services and healthcare,” he said.

Opportunities may even open up for startups at an earlier stage because of the crisis.

“The sort of uncertainty we will see for the next few quarters, the idea is to do some early-stage investing. If you were going to do a buyout of an existing business, how do you even underwrite that at the moment? Who knows what is going to happen. What price are you going to pay? You’re going to need all sorts of structure to protect yourself in case instead of two years it takes three years for the business to recover, or whatever it is,” Lalude said. 

“But for a newer business where you know you are going to be in it for seven or eight years anyway, and you’re just starting to build the business, it is actually easier to do. Because I’m not so concerned about what the numbers are going to be next quarter or the quarter after.”


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Passionate about the vibrant tech startups scene in Africa, Tom can usually be found sniffing out the continent's most exciting new companies and entrepreneurs, funding rounds and any other developments within the growing ecosystem.

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