Last year, Jeremiah Ajayi—the Host of our investor-focused web series, The Investors’ Corner asked six investors for their predictions for 2023. The respondents were previous guests on the series; Luke Mostert, Lesego Tladinyane, Maya Horgan, Lexi Novitske, Jake Kendall, and Caleb Maru.
Today, we take a look at how those predictions have panned out.
More Series A startups?
Caleb Maru, a GP at Proximity Ventures, predicted an increase in Series A startups. “I foresee the gap between the seed stage and Series A closing within the next two years. We’ll most likely see a rise in Series A startups,” he said.
Closing the gap between the Seed stage and Series A funding means that there will be more pre-series A and Series A deals in 2023, compared to the previous year. And that the number of Series A deals will come close to that of Seed stage deals. So, let’s check those.
In 2022, we (via BD Funding Tracker) recorded 61 pre-series A and Series A deals that amounted to $609.5 million in funding. However, this year, there were only 32 pre-series A and Series A deals, amounting to only $251.6 million.
Sadly, Caleb, that prediction is on track to be a miss by year-end 2024.
On the other hand, last year, there were 105 seed stage deals and 61 (pre- and) Series A deals. Thus, there were 44 more seed stage deals than (pre- and) Series A deals. This year, there were only 14 more seed stage deals than (pre- and) Series A deals.
So, it looks like you might be up to something here, Caleb, as the gap between the Seed stage and Series A deal counts reduced in 2023.
We will be back here at the end of 2024 to give our final verdict on your prediction.
Zoom out
The overall funding numbers were down because of a difficult year for startups, globally and in Africa.
As the African startup scene matures, we expect the startups that survive (< 10% do, globally) to graduate into later stages. Thus, an expected increase in the number of pre-Series and Series A funding, compared to early-stage (seed). Caleb knows this, as he said in a recent LinkedIn post "Seed to Series A is the hardest jump for a startup to make. And it’s way harder in Africa."
Increase in Africa-focused VC funds? ✅
Still, on the funding front, Lesego Tladinyane, an Investment Associate at Newtown Partners, predicted a likely uptick in global venture capital funds focusing on the continent, stating that "Africa will increasingly become a viable investment opportunity for more global funds".
Although specific figures are not currently available, various news reports, including those we have covered, point to a growing trend in the launch of venture capital funds on the continent.
In November alone, we tracked about five new funds, totalling around $383.5 million. This comprises Norrsken22's $205 million Africa Tech Growth Fund and BluePeak Private Capital's $156 million flagship fund.
Rise in consolidation amongst fintechs? ✅
Lexi Novitske, General Partner at Norrsken22, said "We will see a lot of consolidation across sectors, but especially in fintech". Consolidation occurs when multiple entities go through a merger and acquisition (M&A).
Lexi was right.
As of November 2023, there were 26 announced African tech M&A deals, across multiple sectors like fintech, e-commerce, and crypto & web3. The number of deals in the fintech space accounted for more than one-third of the total M&A activity this year.
This is unsurprising though, as over the years, fintechs have absorbed most of the VC funding in Africa. In 2022, fintechs raised the most funding in Africa (36% of total). This year, fintech's dominance ascended to 50%, according to the BD funding tracker.
Also, Nigeria, which accounted for most of the funding in 2022 (27%) and 2023 (25%), represents the country with the most acquired targets (10 out of 27, 37%) in 2023.
Drop in startup valuations? ✅
"I foresee valuations returning to reasonable figures. Gone are the days when unrealistic, greedy numbers were the norm," Maya Horgan Famodu, founder & partner at Ingressive Capital told Bendada.com last year.
This prediction came to pass as investments decelerated, prompting startups to re-adjust their valuations and prioritise more relevant metrics like revenue and profitability.
To underscore the importance of this approach, when Y Combinator released its top portfolio companies measured by valuation, eight African startups were featured. This list included startups like ChipperCash which has undergone severe valuation cuts and 54Gene which has now shut down. Thus making valuation a false metric for startup success.
According to Garry Tan, YC's CEO "in today's uncertain economic climate, when prudence around fundraising and valuations make sense, it’s especially worth shining a light on revenue as the clearest signal of a startup’s success."
This was his opening statement before revealing YC-backed top companies by revenue. Barring Senegal's Wave, none of the remaining seven African startups with high valuations made the revenue list.
"Our ecosystem requires a strong focus on unit economics. Growth at all cost to unicorn was never a thing in Africa, rather it was something folks saw in the US and convinced themselves that it can be replicated in Africa," says Peter Oriaifo, an early-stage investor. "Growth at all costs is luxury and only doable if you can raise with ease and in Africa, that has never been the case."
Related Article: Africa's new hot startups: Camels or unicorns?
Scale for identity startups? ✅
In a different forecast, Novitske expressed confidence that numerous identity companies would experience significant growth, stating, "I strongly believe this is likely to occur." To substantiate this prediction, at least three identity startups secured a total funding of $20.5 million, highlighting the tangible progress in the sector.
Smile ID is arguably the leading identity startup of the year, having successfully raised $20 million in its Series B funding. The company's strategic expansion continued in August with the acquisition of Inclusive Innovations, the parent company of Appruve, a Ghana-based ID verification provider.
Also Read: Top 5 Nigerian KYC startups
"Identity is becoming the new currency of the digital economy," according to Mark Straub, CEO of Smile ID.
Talent relocation to Africa? ✅
Last year, Jake Kendall, a Partner at DFS Labs, envisioned a trend where top talent from around the world is drawn to work in Africa. "There are still lots of people who leave but we also see a lot of them coming back to start or work in African companies which is exciting," says Jake Kendall, Partner at DFS Labs.
We have seen push and pull factors play a role here in attracting talent to Africa.
On the pull factor, later-stage African startups like Flutterwave and Moniepoint have been able to attract executive-level talent from outside the continent with their deep pockets and global appeal.
On the push factor, with startups like Jumia, Chipper Cash and Paystack localising talents as a way to reduce cost, we are seeing more talents migrate back to the continent.
A mix of blockchain and fintech? ✅
“The future of fintech is headed towards crypto, DeFi, and blockchain-based systems. I foresee solutions where there is crypto on the backend and traditional finance (visible) on the frontend (e.g., PayPal, Flutterwave etc.),” Luke Mortsert, Head of Investments at Future Africa told Bendada.com last year.
The 2023 Future of Fintech in Africa report states an increasing adoption of blockchain-based payment technologies by fintech startups. Rajesh Savji Parmar, CEO of Cloud Africa, notes that African financial services and fintechs are utilizing blockchain for service optimisation, leveraging features like immutability, decentralization, and transparency.
While regulations have posed challenges, recent developments, such as the lifting of the crypto ban in Nigeria, suggest a more favourable environment for fintech startups to embrace this technology in the coming days.
Editor's Note: The evaluation of these predictions was conducted using publicly accessible data. The realisation of a majority of these forecasts underscores the expertise of the guests featured on The Investors' Corner.
