After several years of growth, startup funding in Africa is slowing down. This new environment will require many startup founders to take a hard look at their businesses and make changes to ensure their survival.

The year 2022 was a banner year for African startups. That year, they raised $4.8 billion across 1,000 deals, according to The Big Deal. This was up from $4.33 billion in 820 deals in 2021.

Africa’s higher investment amounts and deals in 2022 were remarkable, especially in the first half of the year, when the continent’s startups raised over $3 billion. This was more than double what they raised over a similar period in 2021, and was in sharp contrast to the global trend of declining venture capital (VC) investments in several regions.

Unfortunately, in 2023, the global funding reality has caught up with Africa. According to Disrupt Africa, the continent’s startups only raised $1.4 billion in the first nine months of 2023. This was a steep 48 percent decline from the same period in 2022. In total, only 186 startups were able to secure the funding they sought in the first three months of 2023.

Not only is total funding low in 2023, it is also declining quarter-over-quarter. In Q1 of 2023, African startups raised $649.3 million. In Q2, they raised $540 million and in Q3, $492.4 million.

Analysts expect total funding to stay low in the final quarter of 2023 and going into 2024, the fall driven by several factors. These include tighter monetary policy by central banks, geopolitical tensions, and inflationary pressures.

For African startups that were reliant on the favorable funding environment, adjusting to the new reality will be challenging. However, this does not mean they have to close up shop. It is possible for them to re-imagine their business operations to ensure their survival in the economic downturn.

To steer their businesses successfully going forward, founders will have to first accept the new reality. This is important since it may seem like nothing has changed, given that VC firms will still be taking meetings and giving positive feedback. However, these investors will not be quick to pull out their check books, and for the few startups that actually do land deals, funding times will be longer than usual. Failing to adjust and operating like it's business as usual could compromise the financial standing of a business.

Afterward, founders should take a close look at their company and do the difficult math. How much cash do they have? How long can they operate with it before needing new funding? What is their recurring monthly revenue? Can they rely on it to sustain them in a tough economic environment? Will some of their clients also be affected by the funding gap?

With this knowledge in mind, founders must create a path to profitability, with milestones for tracking. They may achieve profitability by increasing cash flow and optimizing existing operations. To increase cash flow, they can develop strategies to market more high-margin products or extend the lifetime value of their existing customers. They could also come up with ways to deploy their assets to earn extra revenue. Sometimes, simple solutions like automating accounts payable could result in more timely payments and better cash flow management.

In some cases, founders will have to make cuts to expenses such as research and development and salaries to put themselves on a better financial footing. In such instances, it is better to act decisively rather than get stalled in deliberations. Founders should also take a look at their debt levels and find ways to minimize them. They can refinance at lower rates or negotiate moratoriums with lenders to get more time to stabilize their cash flow.

Good communication will be necessary when implementing a profitability plan. Founders must be open with their investors and employees about the challenges they're facing, and be forthright about the steps they must take. Founders often think they have to present only good news to investors, but the reality is that investors prefer honest communication and may even be willing to help if they know there is a problem.

Finally, founders should stay optimistic and communicate this attitude. This will boost morale and inspire existing employees and investors. Tough times eventually end and when they do, the companies left standing can experience significant gains.