Last year, African start-ups raised a record US$5.3 billion. However, that may be the peak because the funding pool is getting smaller as the tech industry slumps.
According to data from Buiter Bridges, a market intelligence company, the number of deals jumped 20% to 964 in 2022, even though the amount invested only went up by $100,000 from the year before.
There are some warning signs in the fact that most of the mega-deals are driven by investors from outside of Africa, said Dario Giuliani, director at Briter Bridges. “There is a chance that there won’t be enough money for growth in 2023.”
Over the past few years, the most significant investments in African start-ups came from global funds like Sequoia Capital, Tiger Global, and the now-defunct crypto firm FTX. But since a recession is coming to many Western countries and technology companies like Amazon.com are laying off more and more workers, private equity and venture capital firms may decide to save money.
“Valuations of tech companies are down,” said William Sonneborn, the global director of disruptive technology and funds at the International Finance Corp. “Private businesses are not exempted from being valued based on how listed comparables are valued. This year, I expect several well-known down rounds on the continent.”
Last year, more than a third of the funding for African start-ups went to fintechs, but Sonneborn said that the trend is changing. He said this year that money will go to health, climate, and farming tech.
Almost all the investment has gone to Egypt, Nigeria, Kenya, and South Africa, four of the continent’s more developed markets. However, these countries face economic problems, such as slowing growth and falling currencies. Giuliani of Briter Bridges says that could hurt opportunities for financing.
The value of the Egyptian pound is at an all-time low, while Nigeria’s economy is struggling under rising debt, and its currency is getting weaker ,Kenya’s currencies have also lost value.
In 2021, firms were encouraged to grow at all costs; they now are focused on reducing burn, preserving cash, and delaying their next round as long as possible,” Sonneborn said.
In the past year, shares of the African start-up Jumia Technologies, which trades in New York, have dropped by about 68%, and the company’s founders quit in November. Sam Bankman-FTX, Fried’s, which had invested in both Chipper Cash and Wave, went bankrupt, which hurt both companies.