Poor financial discipline and operational inefficiencies are fuelling the rapid collapse of startups in Kenya despite rising funding inflows, analysts say.
According to data from funding database Africa: The Big Deal, Kenya-based startups raised $984 million (Sh127.13 billion), the highest amount attracted by any African market since the 2022 funding boom.
Yet despite this capital inflow – particularly into sectors such as fintech, green energy and logistics – analysts say a recent wave of startup failures has exposed structural weaknesses in business models.
“Startups often fail not because they lack revenue potential but because they run out of cash,” multinational advisory firm PwC says in a new analysis. It urges investors and founders to institutionalise a ‘cash culture’ that prioritises liquidity management alongside growth.
High burn rates
Kenya is considered one of the continent’s ‘Big Four’ startup markets, alongside Egypt, South Africa and Nigeria.
In the past 16 months, more than seven high-profile, venture-backed businesses have closed, entered administration or scaled down operations, sending home large numbers of staff. They cite funding droughts, rising operating costs and delayed investor commitments.
In 2024 alone, several Kenyan startups that later shut down had collectively raised more than $270 million (Sh34.9 billion), according to the Startups Graveyard Report.
PwC attributes this trend to high burn rates – the pace at which a company consumes cash – and using more than necessary resources to complete tasks, both of which erode profitability.
Some ventures that have struggled include buy-now-pay-later firm Lipa Later, which entered administration in March last year despite raising more than $16.6 million (Sh2.1 billion).
Remittance startup Bonto also shut down less than a year after securing a licence from the Central Bank of Kenya, citing unsustainable foreign exchange margins.
In the health-tech space, Antara Health closed its Kenyan operations after raising $2 million (Sh258.4 million) in seed funding, blaming slow growth and weak demand, while Ilara Health laid off staff amid delayed funding and difficult market conditions.
E-mobility firm eBee also cut jobs and scaled down operations due to rising costs and declining revenues.
Rapid expansion
PwC argues that the core issue is not access to capital, but how that capital is deployed. Many startups, it says, prioritise rapid expansion through geographic growth or product diversification – without strengthening underlying operational capacity.
“Pursuing rapid scale without reinforcing operational foundations introduces fragility into the business model that eventually surfaces as sustained underperformance, lower returns on investment, liquidity crunches, governance gaps and, in some cases, insolvency,” the firm says.
To address this, PwC recommends that startups align funding milestones with operational performance indicators such as productivity and utilisation, rather than relying solely on topline metrics like revenue, sales volume and customer acquisition.
It also calls for optimisation of capital structures, including balancing debt and equity and aligning financing with working capital needs.
“…reprofiling debt to match the company’s current cashflow profile and ensuring that the capital structure reflects an appropriate mix of equity and debt, taking into consideration funding requirements, cost of capital, debt-carrying capacity and dilution impact,” the analysis says.
PwC warns that investor due diligence has often focused on financial performance, tax and legal matters, while overlooking a deeper understanding of business operations.
“Due diligence must go beyond financial performance to uncover structural and operational risks early,” the firm says.
