After initially defying the global slowdown, African startups’ first quarter venture results fall

The recent, and now past, venture capital boom was a global affair. While traditionally busy markets like North America and Europe benefited from the explosion in capital, other regions with more nascent startup scenes also saw big gains in their ability to attract funding. Southeast Asia is a frequently noted example of the phenomenon. Latin American as well.


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Africa also saw its venture capital totals soar during the last startup gold rush. In recent quarters, much like other startup regions around the world, African venture results have declined. In fact, March posted what was described as “the worst month in 2.5 years” for Africa, including “the first time the monthly amount of funding raised by start-ups in Africa dipped below the $100 million mark since 2020,” by The Big Deal, a publication focused on the venture and startup market on the continent.

Clearly, the quarter was a step backward. Naturally we wanted to better understand what was going on in one of the most exciting venture markets in recent years. So, this morning, The Exchange has collected two other data sources for us to chew on.

We know that deals are still getting done in Africa. TechCrunch recently covered a $4 million round for Shuttlers, which we described as a “Nigerian shared mobility company.” Chargel, based in Senegal, recently raised $2.5 million. But TechCrunch coverage of individual rounds is by definition partial when compared to all activity, so we’ll need to grapple with aggregates to ascertain a clearer image.

From a lower ceiling in terms of dollars raised, African startups’ slowing fundraising pace is bringing its quarterly results under the billion-dollar mark. That’s thin support for such a large, geographically diverse and increasingly digitally connected area.

Let’s talk venture results, unique issues to the African startup scene, and look ahead to see if we can spy any good news on the horizon.

What the data says

First, some history. Briter Bridges, which collates data on the African startup market, reports that venture funding in Africa grew to around $853 million in 2016. By 2018 that figure had grown to $1.25 billion. Things were just heating up, however. In 2019 and 2020 African startups raised $2.6 billion and $2.3 billion, respectively.

Then the boom hit. As with the rest of the world, Africa had a big 2021 and 2022. In its case, the explosion in private capital saw $5.6 billion and $5.4 billion raised by startups on the continent.

Briter data indicates that 2022 ended on a strong note, seeing $1.7 billion raised in the last quarter. Q1 2023 saw just $694 million raised. That’s a dramatic comedown from prior totals.

The Big Deal has a slightly higher tally in its data, with a figure closer to the $900 million mark, based on an eyeball of its most recent charting. PitchBook data, which counts a slimmer dollar value of African startup deals in recent years — not a huge surprise given that it is a U.S. company, instead of an Africa-specific database — shows a similar decline in venture pace when we turn the page from 2022 to start 2023.

If we take Briter data from the first quarter and annualize it, the African continent could be on pace to roughly halve its venture results this year compared to what we saw in 2021 and 2022. But that’s not really too useful a fact; when we see a venture market slowing, it’s fair to consider if the numbers will continue to drop. If so, African startups could see their funding sums slow by more than half this year.

For young tech companies on the continent looking to raise later, and larger, rounds, it’s not an encouraging picture. This brings us to our first question:

What’s driving the declines?

It’s not just in Africa that venture capital is slowing, of course. Since venture declines are tied to macroeconomic factors dripping down from public markets, it’s a global phenomenon, and more developed markets such as Europe and the U.S. haven’t been spared. But there are reasons to think that emerging markets have it worse.

Why? Because when there’s a slowdown, venture funds tend to concentrate on their home turf. For instance, there seems to be less cross-region flow from the U.S. into other countries, such as China and India. Which is inherently bad news for markets that heavily depend on this type of cross-border investments, which is very much the case of Africa.

As TechCrunch’s Tage Kene Okafor wrote in early 2023, when looking at Africa’s venture results from last year:

[Dario Giuliani, founder and director of Briter Bridges] argues that while all metrics grew, from the number of deals to exits and new international investors to new local early-stage investors, the weight of mega deals over total funding and the fact that they mostly come from American, non-Africa-focused investors has created some dependency on overseas capital. “Though at the same time, it can open up opportunities for local funds to earn ground and enter better deals,” he added.

That’s not to say that foreign venture funds have completely lost interest in investing fresh money into African startups.

Over the last few weeks, we learned of Verod-Kepple’s new pan-African fund, backed by Japanese investors; of Partech’s second African fund, whose anchor investor is KfW, the German Development Bank; and of the U.S International Development Finance Corporation’s $25 million investment into Novastar Ventures’ new fund, among others.

While it is reassuring to see new foreign dollars get committed to the continent, that reliance remains problematic. If Africa’s startup scene was more able to rely more on domestic funds, it might prove more durable in the long term — but that won’t happen without a steady stream of exits.

This recipe has worked very well for Silicon Valley: build, sell and reinvest. The higher the sums involved, the better. At some point, Africa’s startup scene seemed on the right track to follow that path; but the fact that no new unicorns were minted in 2022 puts that trajectory into question.

What’s next?

That venture capital activity slowed down in Africa this year isn’t a surprise. What we’d like to know is whether investment will keep on falling quarter after quarter. If Q1 sets the tone, it wouldn’t be that bad; a return to pre-COVID levels would be a mere correction on a still-ascending curve in the long run.

If the downturn keeps on going, though, it will be particularly brutal for Africa’s startup scene. Unlike other regions, it would only have had a few years of ample capital and unicorn-minting mega-rounds. That’s not enough to build the type of virtuous circles we have seen in other places, with alumni moving on to found and fund a next wave of companies.

However, a downturn can also translate into exits. Talking to TechCrunch+ earlier this year, Ventures Platform general partner Kola Aina said Africa’s 2023 context could result in “opportunities for corporate buyers with strong balance sheets to acquire startups.”

The price tag of these opportunistic M&As is obviously lower than for an IPO or an acquisition under better circumstances; but if it can keep the ball rolling, it gives us reasons to stay hopeful about Africa’s ability to sustain its startup scene until macro conditions improve.

Another encouraging sign for 2023 has to do with where money is flowing, with several new funds dedicated to investing in African climate tech startups. “I hope this is the first of many funds that continue to follow in these footsteps because more capital, talent and innovation are needed to develop more holistic solutions to the challenges in the climate space,” Equator managing partner Nijhad Jamal said.