In the first half of 2023, Venture Capital investments in African tech startups reduced by nearly 50% compared to the first half of 2022.
Due to the global economic downturn, fundraising has become more challenging for African entrepreneurs. Despite the launch of several venture capital funds in the last six months, investors are still maintaining a tight-fisted approach to investing.
“A retreat of some international funds and major losses for international LPs (that remain a large source of funds for African VCs than domestic LPs) has indeed affected sentiment around investing—with several VCs delaying final close on new funds and slowing down their investments towards the end of 2022 and the start of 2023,” Mark Kleyner, co-founder of Dream VC told Bendada.com.
In the first half of 2023, African tech startups raised only about $1.3 billion ($1,307,811,193) across 148 deals, according to BD Funding Tracker. This is a 47.69% decline from the funds [$2.5 billion] that were raised within the same period on the continent last year.
Fintech is still king… cleantech is heating up!
The data also shows that fintech is still the most funded sector—based on number of deals—on the continent, it raised about 60.46% of the entire fund across 35 deals. Followed by the mobility sector which contributed 8.05%. Other top funded sectors include; e-commerce, healthtech, cleantech, agritech and logistics.
Although most of these sectors have previously been among the top-funded, a new entrant on the list is cleantech. At the close of last year, we predicted that the increased conversations around climate change, including the United Nations Climate Change Conference that was held in Egypt in November 2022, will lead into more concentration on the sector. This is evident in the number of cleantech-focused VC funds and accelerators that have been launched this year.
Just last week, Google launched an accelerator for startups in Africa and the Middle East that are solving climate change-related issues.
AI funding drops amid hype
Meanwhile, despite the hype about artificial intelligence (AI) adoption on the continent and across the globe—which can be traced to the launch of generative AIs like ChatGPT, funding for the sector in Africa has plummeted 98% compared to H1 2022, according to BD Funding Tracker. Globally, AI funding plunged 43% in Q1 2023, compared to the same period in the previous year, CB Insights says its the lowest quarterly total since Q1 2018.
Although the current VC funding in the sector reflects a lag, AI could expand Africas economy by $1.5 trillion by 2030—about 50% of its current GDP—if its able to take over 10% of the global AI market, according to a report by Africa Regional Science, Technology and Innovation Forum.
The transaction involves an upfront payment of cash and unspecified BioNTech shares worth £362 million, and a balance of £200 million payable based on InstaDeep’s future performance.
Egypt leads the “Big Four” investment destinations
As usual, tech startups in the “Big Four” (Nigeria, Kenya, Egypt and South Africa) captured 92.13% of all investment in value [and the number of deals]. As it was in Q1 2023, Egypt topped the list raising ~$446.4 million across 15 deals, followed by Kenya ($339.1 million with 24 deals) and South Africa ($264.5 million with 23).
Although Nigeria had the highest number of deals, 46, it accounted for only 13% (~$157 million) of the funds raised by the “Big Four” countries. Recall that, funding in the Nigerian tech startup ecosystem declined by 92.1% in Q1 2023 compared to the same period in 2022.
“In uncertain times, investors will seek to de-risk an already risky investment by concentrating capital in markets where the revenue opportunity is exponentially large,” these words by Peter Oriaifo, Principal at Oui Capital still stands. In February, Oriaifo predicted that “capital will concentrate further on the big four markets—Egypt, Kenya, South Africa, and Nigeria”.
The aforementioned countries accounted for the top 10 deals in the first half of the year.
Note: Tyme’s $77.8 million pre-Series C was excluded from the list because the fund was not directly raised by Tyme Bank, the South Africa-based subsidiary of the Singaporean Tyme which has its primary market in Asia. Like this round, we have excluded other rounds that were outside our funding tracking methodology.
More funding for early-stage startups
Across the reviewed countries and sectors, most of the investments (by number of deals) went into early stage startups—57.1% of the deals were raised via pre-seed, seed and equity based-accelerator.
“I foresee the gap between the seed stage and Series A closing within the next two years. Currently, many African seed startups rarely progress to Series A, but I’m hopeful that will change. We’ll most likely see a rise in Series A startups,” says Caleb Maru, a General Partner at Proximity Ventures.
We also excluded the funds raised by 12 Nigerian edtech startups via CcHub-Mastercard Edtech Fellowship, as well as the African startups from Norrsken Accelerator Batch 2023.
What to expect at the end of 2023
Last year, the funds raised by African startups in the first six months of the year accounted for 69.44% of the total annual funding. If the trend continues this year, there will be more decline compared to last year’s. “Funding will be down year-on-year (YoY); the key thing is that our biggest funding source which was US investors are significantly impacted,” Oriaifo told Bendada.com.
He further stated that the valuation of startups within the African ecosystem will also decrease due to increased investments from local funds. ‘As local funds come into the center stage, most of which are smaller compared to global capital, the valuations they can afford to pay are markedly lower than their global peers hence downward pressure on valuations,” he added.
The state of M&A in H1 2023
Aside from equity-based deals, accelerators and loans, about 13 mergers and acquisitions were recorded in H1 2023. Starting with the mega-acquisition deal where German-based biotech company, BioNTech acquired Tunis AI startup InstaDeep for $680 million.
Other M&A that took place in the last six months are:
- The acquisition of 100% stake in Go!TwentySix by DriveMe.
- Egyptian e-sports platform GBarena acquired a Tunisian gaming startup, Galactech in a share swap deal worth around $15 million.
- African unicorn, Andela acquired Qualified
- UAE-based crypto exchange, Blockfinex acquired a 100% stake in Fluidcoins Nigerian crypto payment gateway in an undisclosed deal.
- South African neobank Fin also acquired Thuthukani, a Pretoria-based fintech startup for an undisclosed amount.
- Retail-led microfinance bank, FairMoney expanded its merchant offerings via the acquisition of PayForce, a sub-brand of YC-backed CrowdForce in an undisclosed deal.
- Egyptian startup TFK acquired D2C fashion brand Opio
- Egyptian healthtech Rology acquired Saudi Arabia-based Arkan.
- Mobility startup Autochek acquired Egypt’s Autotager, in its second North African acquisition.
- Nigerian fintech Smile Identity acquired Appruve to deepen reach across Africa
- Ghanaian savings-focused digital bank BezoMoney acquired Ghanaian microfinance provider Tiger Force Micro Finance.
- Sun King, an American/pan-African provider of off-grid solar energy products, acquired pay-as-you-go smart meter provider PayGo Energy.
