Are Accelerators On Borrowed Time?

As with much of the early-stage startup sector in Africa, It is a time of reckoning for accelerators. The tech sector is now three years into a “funding winter” that has seen funding levels remain less than half from its peak in 2022. As the abrupt USAID cuts in developing economies spur ripple effects across impact-oriented investment and grant domains, the already-fragile startup ecosystem is feeling the full brunt of it, and arguably the weakest link among the continuum of ecosystem support organizations — accelerators — may be the most at-risk at this turbulent junction. The top-down and bottom-up pressures are only building on an accelerator model that for years now has been driving in neutral rather than innovating as its portfolio companies are told to strive for.

Survival of the Leanest

Accelerators find themselves in this precarious position in the context of a tough environment for early-stage startups amidst diminished funding cycles and shocks ricocheting across the ecosystem. WeeTracker and Future Africa’s African Venture Capital Report 2024 details the harsh realities that the early-stage tech ecosystem faces in Africa and beyond. While the U.S. saw VC funding drop from its 2021 high watermark of $345 billion in 2021 to $184 billion in 2024, in Africa, funding dropped to less than half of 2021’s $4.28 billion to $2.07 billion in 2024.

Source: WeeTracker

With this precipitous decline, investors have grown more circumspect around investing in startups with unproven revenue streams.

“What we've seen is a survival of the fittest, where you've seen really good companies getting a disproportionately higher chunk of venture funding in Africa, and the ones that have not been able to perform… have just fallen away or have gotten acquired.”
Zachariah George - Managing Partner, Launch Africa Ventures

Out of the 1500 possible deals that Launch Africa Ventures looks at per year, George says they will invest in only about 20 companies per year. Launch Africa aims to invest in companies only once they’ve reached revenue streams of at least $25,000 per month, while also looking at factors such as transaction numbers and monthly and daily users. Especially in the African context, most investors grapple with the realities that the chances of landing a unicorn are improbable; while there may be 50 to 60 VCs in Africa, there have been only 14 minted unicorns in Africa, with only nine still remaining as such. In a context like Africa, any successful VC portfolio will largely comprise a string of “steady eddies”, as George puts it.

Mondato Insight discussed such forthcoming changes three years ago when the funding downturn was underway, but the consolidatory effects of these investment changes impact early-stage companies the most; while early-stage companies received 31% of venture funding in Africa in 2021, that figure has fallen to only 9% in the last two years, according to WeeTrack.

Source: WeeTracker

While investors have evolved to emphasize proven returns in their portfolio companies, early-stage startups struggle to accelerate their timelines to keep up with such investor demands.

Too Much of Too Little

It is in this difficult early-stage environment that accelerators struggle to remain relevant. George estimates that about one third to 40% of Launch Africa’s portfolio companies had been in accelerator programs, but in their most recent fund, that figure dropped to less than a quarter.

Throughout the many phases of tech development in the past 15 years, the accelerator model has remained rather static: offer workshop and mentorship programs for three to six months to teach early entrepreneurs the tools of the trade, while investing a small amount of money, usually about $20,000 to $100,000, in return for maybe 8 to 10% of equity. Such programs typically culminate with the so-called demo day, where accelerators bring in possible investors while offering similar opportunities for early-stage startups to connect with possible investors.

Of the three primary benefits afforded by accelerators to startups — mentorship, a small investment, and connections — George only views the latter as providing value at this stage of ecosystem development. While some African accelerators have transitioned towards becoming full-fledged VCs, the small investment that accelerators offer for equity stake — with conditions often attached — are insufficient to truly sustain a startup’s growth by itself, and it provides less generous terms for companies than what may be available through angel investors. And as George puts it, much of the mentorship aspects might be outdated at this juncture.

“Founders aren't joining accelerators to learn how to build companies because you can pretty much learn that off the Internet. Founders join accelerators now primarily for the network. I mean, no one joins Y Combinator to learn product market fit or CAC or LTV at this point.”
Zachariah George - Managing Partner, Launch Africa Ventures

George, who co-founded the corporate-backed Startupbootcamp AfriTech before co-founding Launch Africa in 2021, believes that without corporate sponsorship or partnership, a startup has little utility in joining an accelerator cohort by now. “I actually think the whole accelerator model should be renamed supply chain development or enterprise sales acceleration, something like that,” said George. “There is no reason in today's world for a B2C startup to ever go to an accelerator apart from the name.”

Leading African Accelerators / Source: Sharpsheets

Roger Norton, currently the Chief Product Officer at OkHi and previously the Head of Product at the accelerator Founders Factory Africa (rebranded last year to 54 Collective), on the other hand still believes in the learning aspects that comes with being in an accelerator cohort, though still taking issue with the cookie cutter approach common among them.

“There's something in the structure of an accelerator, being a number of founders in a cohort all hustling together, that helps you see something and act in a different way than you would have if you were just kind of learning on your own.”
Roger Norton - Chief Product Officer, OkHi

Norton also sees a difference in the kinds of entrepreneurs founding early-stage companies in a place like Africa versus developed markets like the United States, whereby contrast it’s more common to have entrepreneurs on their fourth or fifth venture already. “You get a much higher variance of applicants into an accelerator program that some need loads of hands-on support, and some need very little,” said Norton. “We probably have more accelerators than we really need, but finding the right people and giving them the right support is definitely something that will always be a need.”

Threading the Funding Needle

But finding that right support catering to the actual needs of a startup is tricky in a terrain where commercial capital for early-stage companies has dried up. In Africa’s ecosystems, a big issue that Norton sees is the lack of enormously successful entrepreneurs to seed money for the next generation of startups. Norton notes the founders of earlier successful Silicon Valley ventures — like the “PayPal Mafia” or the “LinkedIn Mafia”, as he puts it — were crucial in seeding capital for Silicon Valley’s ensuing crops of entrepreneurs. “We just don’t have enough of those flywheels yet [in Africa],” said Norton. “What the ecosystem needs more than anything else is successful entrepreneurs.”

Investment from corporates is one route for well-connected startups, but doing so comes with its own perils.

“Once a corporate decides to invest in a startup Pre-Series A for a significant stake, like anything above 10%,” said Zachariah George, “it's often the kiss of death, because these founders can never go and commercially work with the direct competitors of that corporate.”

Rather than direct investment, corporates in recent years saw sponsoring accelerators as the way to go.

But this narrow bridge for early-stage companies seems to be only thinning further in places like Africa as the recent USAID cuts send ripple effects across the “impact investment” ecosystem. Such cuts are having profound effects by forcing such impact investors to choose between saving lives and promoting economic growth. Invariably, the former takes precedence, leaving startups stranded with little support. “At the moment, it’s a bloodbath,” said Norton.

Amidst the chaos, probably the biggest recent news in the African early-stage ecosystem was 54 Collective’s announcement that it would be closing its venture studio operations after the Mastercard Foundation announced it would end its partnership with 54 Collective, only a year into the intended five-year partnership.

“All of these impact funds are reevaluating how and where they're spending money. They may see there’s an infant hydration project in Sudan that was USAID-funded that is no longer getting funds. So then you have MasterCard Foundation [saying], ‘well, why are we giving $100 million to something like 54 Collective when people are literally dying?”
Roger Norton - Chief Product Officer, OkHi

Capabilities Over Models

Can accelerators adapt to the challenging domain? Norton is encouraged by an increase in recent years of vertical-specific accelerators in Africa, like the fintech and corporate-oriented Startupbootcamp AfriTech, and the hardware-oriented accelerator Savant. But after his many years working with accelerators and seeing the diversity of startups with varying needs to come through such programs, Norton believes that the greatest change needed to accelerators’ operations is to make such programs “pull-based” rather than “push-based”.

“You wouldn't change the content; you don't change the funding or anything else beyond that. You literally just change the delivery mechanism and how that support is delivered and how quickly it is delivered. Allow the program to adjust to the speed that those entrepreneurs need, and double down on the ones that can move fast enough to get through that.”
Roger Norton - Chief Product Officer, OkHi

Breaking further away from the traditional accelerator models are companies like Djassi Africa. Positioning itself as “venture builders and ecosystem builders,” Djassi takes a far more fluid approach to cultivating startups than accelerators, serving more as long-term strategic advisors to startups while providing networking opportunities. “We don't position ourselves as an accelerator because we are not an accelerator, but we run acceleration programs,” said Fernando Cabral, managing partner at Djassi Africa. “We are not an incubator, but we run incubation programs.”

“We leverage the capabilities we need to support the startups where they need that support.”
Fernando Cabral - Managing Partner, Djassi Africa

According to Cabral, the “journey” that Djassi Africa takes with the startups under its belt varies depending on what stage of maturity a given startup is at, and where its subsequent needs lie. “The journey can be [the] first stage where we put you in a program, but after that, you can evolve and become a portfolio company,” said Cabral. “After that, we can become a strategic advisor. Or you can be in a stage where you need to pivot, and we go back to the basics, and we rebuild your product.”

For the more mature startups ready for their Series A deal, the relationship can include Cabral utilizing Djassi’s network and connections to help portfolio companies find a deal, or otherwise joining them on meetings with prospective investors.

Though also serving as angel investors, Cabral says especially for the early-stage companies closer to the ideation phase, they tend to avoid dealing in equity with their portfolio companies to provide for a more “balanced” relationship.

Djassi’s holistic approach — tailored to the needs of a given startup at any time — requires more effort than accelerator’s typical cookie-cutter approach, with every day and cycle looking different than the next. And while the terms of such relationships may be less defined and predetermined within the traditional assembly line of organizations supporting startups as they mature, Cabral believes a more tailored approach is needed in the early-stage support space.

“When we focus on these models such as incubation, acceleration, etc, [rather than] capabilities, you're missing the point. In that case, you’re looking at just one piece of the pie instead of [looking] across the horizon.”
Fernando Cabral - Managing Partner, Djassi Africa

Changing such thinking won’t be easy. Especially in this lean funding environment, destabilizing political and economic forces may compel accelerators — especially those that are corporate-backed — to stay conservative and avoid major overhauls to their models and approach. But especially as impact-oriented investments to tech recede, the pressure is on for accelerators to innovate themselves, or otherwise risk becoming nothing more than a brand name or an introduction.