Africa has been touted as the next frontier for tech investment, with many startups in the region making significant strides in recent years. However, according to data released by Disrupt Africa, African tech startups raised 57.2% less capital in Q1 of 2023 than in the same period last year.
This is a worrying trend, considering the success recorded in 2022, where African startups surpassed the record set in 2021, with venture capital funding in Africa’s tech ecosystem increasing by 8% and totalling $6.5 billion. The unexpected success in 2022 saw African startups soaring while other ecosystems grappled with the effects of the economic downturn that saw VC inflow plummet.
However, it appears that 2023 is the year the chickens come home to roost for the ecosystem. Disrupt Africa reports that between January 1st and March 31st, African startups raised $649 million, which is significantly lower than the $1.5 billion raised in the same period last year. In terms of deal volume, while 175 African startups had raised capital in Q1 of 2022, only 87 have been able to do so in 2023, indicating more than a 100% decline.
The aggressive decline in funding for African startups is concerning, especially since funding in Q1 2022 made up more than half of the total capital raised by African startups last year. If the trend continues, it would mean that African startups would raise even less capital throughout the rest of the year.
In 2023, startups in Africa will likely face increased competition as more investors look to gain a foothold in the region’s tech ecosystem. While major deals were still announced in Q1 2023, such as Planet42’s $100 million combination of debt and equity raise in February, Lulalend’s $35 million raise, and Carry1st’s $27 million raise, there is no doubt that the industry faces a difficult road ahead.
Experts suggest that the decline in funding for African startups is due to a combination of factors, including the ongoing economic downturn, investor caution, and a lack of viable business models. Some also point to the challenges African startups face, such as poor infrastructure, regulatory challenges, and limited access to funding.
Despite these challenges, African startups remain resilient, with many continuing to innovate and create new business models to drive growth in the sector. The key now is for investors to recognise the potential of the African tech ecosystem and provide the necessary support for these startups to thrive.
Source : BI