Innovation Financing of Ethiopian Tech Start-ups: Challenges and Opportunities from a Survey Study

Abstract

This study intended to identify the challenges and opportunities of innovation financing among tech startups in Ethiopia. The study further analyzed the association between the financing mechanisms used and perceived financing mechanism challenges, as well as factors influencing financing mechanism selection. The study employed a descriptive and correlational survey design using a quantitative approach. Data were collected from 138 tech startups out of 227 eligible tech startups identified by the Ministry of Innovation and Technology through purposive sampling techniques. The collected data were analyzed using descriptive statistics, Chi-square tests, and multinomial logistic regression analysis through SPSS software. The findings revealed that the major innovation financing challenges reported by respondents which include limited access to debt, non-dilutive and equity financing. The study also identified opportunities such as enhancing financial literacy, expanding collaboration among stakeholders and leveraging the 2025 Ethiopian Startup Proclamation to Overcome Regulatory Barriers. The Chi-square analysis shows all the p-values exceed the standard threshold of 0.05, indicating there is no statistically significant association between the usage of financing mechanisms and reported financing mechanisms challenges. On the other hand, the multinomial logistic regression results of the overall model were statistically significant (χ² = 27.590, df = 12, p = 0.006) and showed prior use of a financing type significantly increases the likelihood of choosing that same type, while perceived challenges do not have a significant effect. The study suggests utilizing various alternative sources of financing, like traditional informal financing options, enhancing stakeholder collaboration, the importance of coordinated efforts among stakeholders, and creating supportive regulatory frameworks to improve startup financing accessibility. The study contributes to the understanding of Ethiopia’s tech startup ecosystem and provides empirical evidence.