2023 was going to be a tough year for the tech space regarding funding, no doubt. On the…
2023 was going to be a tough year for the tech space regarding funding, no doubt. On the heels of the AI revolution and investor drawbacks, there was a reduction in deals and the number of tech companies that have become unicorns.
From Q1 2023 – January to March – Startups in Africa raised more than $1.3 billion (including exits), according to Africa: The Big Deal data. In Q1 2022, startups in Africa raised over $1.8 billion – $500 million more than in 2023, when we should be recording constant growth, especially because there was a lot more funding raised in Q1 2022 than in Q1 2021.
Some analysts believe, however, that Q1 2023 performed better than expectations because whether we include exits or not, startups in Africa raised more funding in Q1 2023 than they had in Q3 and Q4 2022. This means that African tech-innovation entrepreneurship pushed through a tough global financial environment and came out tops.
The tech space recorded $100,000+ (150) deals in Q1 2023, less than half the Q1 2022 tally (300+).
March 2023 came with a drag, though. With only $66 million raised, March 2023 was the worst month since August 2020 and the first time the monthly amount of funding raised by startups in Africa failed to cross the $100 million mark since 2020.
In Nigeria (one of the Big Four that includes Kenya, South Africa and Egypt), VC funding declined by 92.1% in Q1 2023 compared to the same time in 2022.
Breaking it down according to sectors, Africa’s fintech led the game, both in terms of the number of deals (23%) and of funding raised (US$612 million, 46%), though its share of the number of deals was lower than in Q1 2022 (23% vs 30%) but its amount raised was higher (46% vs. 30%).
Regarding deal numbers, fintech was followed by Agriculture & Food, Logistics & Transport, Healthcare and Energy & Water.
April was a very quiet month, as January was. Less than $130 million was raised on the continent in April, far less than in April 2022, and less than in April 2021.
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What’s going on?
Sluggish growth in emerging markets, debt distress and interest rate hikes in OECD countries have caused investors to take a pause or reconsider investments in Africa, leaving African startups to compete for the limited finance that is still on the table.
Max Cuvellier
In the venture capital space worldwide, there was a steady slowdown in startup funding through 2022. Deal count slowed by roughly 14% from the record highs of 2021, according to data from PitchBook as of December 31, 2022.
Meanwhile, though Africa’s total funding raised is still relatively miles away from the US, Asia, or Europe, it is doing better from a trends perspective compared to the rest of the world.
Quarter on quarter (QoQ), Africa was the only region to register positive growth (+68% QoQ) while according to CB Insights, all other regions saw a decline in amount raised from -1% QoQ in the US to -54% QoQ in Latin America, with a global average of -10% QoQ.
Year on year, while funding in Africa decreased (-29% YoY), it was much less severe than in the other regions. In all of them, quarterly funding in Q1 2023 was more than halved compared to Q1 2022, from -54% YoY in the US to -80% YoY in Latin America (-60% YoY globally). As a result, Africa surpassed Latin America for the first time in Q1 2023.
What spearheaded this ‘boost’?
How is Africa’s tech space doing in Q2 2023?
In April 2023, there were 23 fully disclosed raises made by African startups, totalling $129.8 million – a 68% decline compared to Q1 2022.
The leading sectors in these funding deals are fintech, cleantech and agri-tech. Fintech leads with $45.5 million (30.4%), cleantech with $37.9 million (25.3%), and agri-tech with $37.6 million (25.1%).
April ended way better than March, but investor apathy still exists, and predictions are two-sided.
Will there be progress in Q2?