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The due diligence process can make or break a startup's funding prospects and doing it correctly means startups are well on their way to a crucial cash injection for the venture, says Philani Mzila.
In 2023, with $3.5 billion raised from 547 deals, African venture capital (VC) experienced a significant downturn. Year-on-year, total funding and deal count declined by 46% and 28% respectively. This downturn marks a significant phase in the nascent and turbulent African VC journey. From challenges such as the Covid-19 pandemic and the collapse of Silicon Valley Bank to opportunities like the 2021 VC bull run, these events have collectively influenced African VCs to adopt a more cautious investment approach, resulting in more detailed due diligence.
Due diligence represents a critical phase in the investment process, where investors examine various aspects of a startup to ascertain its investment readiness. Excelling in the execution of due diligence (considering that this is a two-way street) is pivotal for fast-growing, technology-enabled companies, as it determines whether the business can secure funding. The due diligence process can decisively make or break a startup's funding prospects despite favourable macroeconomic conditions potentially easing the path to investment.
