Between the beginning of January and the end of March this year, African tech start-ups raised $649,303,000. This figure is lower (about 57.2 per cent lower) in total than the corresponding period in 2022. Is the sector feeling the sting of the global economic climate? It would appear so, according to a new report from Disrupt Africa.
Though Africa: The Big Deal states that “on many accounts, Q1 2023 was a good quarter, especially considering that expectations were low initially. Start-ups in Africa raised more than $1.3bn in Q1 (including exits), their best quarter since the beginning of the meltdown in mid-2022, and comparable to Q2 2022.”
At $700m, February 2023 was actually the continent’s third-best month ever in terms of funding raised by start-ups (after September 2021 and March 2022). Oh, and of course, InstaDeep’s acquisition by BioNTech made history in January.
Nevertheless, The Big Deal continues, Q1 2023 missed the mark if compared to Q1 2022 with a -29% YoY decrease (- 52% YoY if exits are included). The number of $100k+ deals is also a matter of concern with just over 150 recorded in Q1 2023, less than half the Q1 2022 tally (300+).
In fact, to find a quarterly number of deals so low would entail going all the way back to 2020. Even more appalling is raising only $66m makes March 2023 the worst month in 2.5 years (since August 2020,) and the first time the monthly amount of funding raised by start-ups in Africa dipped below the $100m mark since 2020. March funding shrunk by a factor of 11x between 2022 and 2023.
This performance has rightfully earned Q1 the unpalatable tag of the uninspiring quarter of the year. Or as TechCabal (TC) Daily put it—the hardest quarter of the year.
Citing data by global investment platform Partech, TC Daily showed that venture capital funding in Africa’s tech ecosystem went up by 8% in 2022, surpassing the record set in 2021 and totalling $6.5 billion.
Unfortunately, 2023 did not maintain this remarkable trajectory. Instead, Q1 of this year brought in $649 million whereas the same period in 2022 saw start-ups securing a little more than twice that figure – $1.5 billion.
Regarding deal volume, TC Daily went on, the numbers are even less encouraging. This time last year, 175 African start-ups had raised capital compared to this year where fewer than half that number, a mere 87, had done likewise. This is more than a 100 per cent decline.
The silver lining in this dreary cloud is that some of the major deals were announced in the African ecosystem in Q1 including Planet42’s $100 million combination of debt and equity raise in February, Lulalend’s $35 million raise, and Carry1st’s $27 million raise. Let’s not forget the funds which were launched. These contributed somewhat to available financing for start-ups in the course of the first three months of the year.
In the end, is there cause for concern for this sharp dip? TC Daily believes so. Because in 2022, funding in Q1 made up more than half of the total capital raised by African start-ups, and had industry experts predicting an interesting and productive year for the continent’s ecosystem. If the same trend applies to 2023, African start-ups might end the year with even less capital at the end of it. What a depressing forecast that is!
Hopefully, starting Q2, the year may have pleasant and profitable surprises for the African ecosystem.
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