This is a worrying trend, given the success recorded in 2022, where African startups surpassed the record set in 2021, with venture capital funding in the African tech ecosystem increasing by 8% and totaling 6 .5 billion dollars. The unexpected success of 2022 saw African startups skyrocket while other ecosystems grappled with the effects of the economic downturn that saw venture capital inflows plummet.
However, it looks like 2023 is the year the chickens come home to roost for the ecosystem. Disrupt Africa reports that between January 1 and March 31, African startups raised $649 million, significantly lower than the $1.5 billion raised during the same period last year. In terms of deal volume, while 175 African startups had raised capital in the first quarter of 2022, only 87 were able to do so in 2023, indicating a decline of more than 100%.
The aggressive decline in funding for African startups is concerning, especially since funding in the first quarter of 2022 accounted for more than half of the total capital raised by African startups last year. If the trend continues, it would mean African startups would raise even less capital during the rest of the year.
In 2023, African startups will likely face increased competition as more investors seek to gain a foothold in the region’s tech ecosystem. Although major deals were still announced in Q1 2023, such as Planet42’s $100 million debt and equity combination in February, Lulalend’s $35 million raise, and $27 million raise of Carry1st dollars, there is no doubt that the sector faces a difficult road ahead.
Experts suggest that the decline in funding for African startups is due to a combination of factors, including the current economic slowdown, investor caution and a lack of viable business models. Some also highlight the challenges that African startups face, such as poor infrastructure, regulatory challenges and limited access to financing.
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 recognize the potential of the African technology ecosystem and provide the necessary support for the development of these startups.