African tech startups recorded a decline in funding in the First Quarter (Q1) of 2023, compared to 2022, due to the recent economic downturn.
These startups raised the sum of $649,303,000 between January 1st and March 31st this year, down 57.2 percent of the total from the corresponding period in 2022. In terms of volume, only 87 startups raised capital this year in the first quarter, a massive decline from 175 startups that raised capital in the same quarter last year.
It is worth noting that in 2022, funding in the first quarter (Q1) made up more than half of the total capital raised by tech startups, which means that if this trajectory holds, then year-on-year (YoY) funding would decline by more than 50 percent.
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This year is already looking regressive as only a few startups have so far raised funds. The slowdown in funding however doesn’t come as a surprise, after it was predicted that Africa would experience a sustained funding slowdown in 2023.
However, some analysts believe that African startups raised funds in the first quarter of 2023, and performed better than expected because these startups raised more funds compared to Q3 and Q4 in 2022. In February 2023, startups in Africa raised approximately $700 million, recorded as the continent’s best month since September 2021 and March 2022. Although March witnessed a decline with only $66 million raised, the worst recorded since August 2020.
Africa seemed to defy the global venture funding decline in the first quarter of last year, after startups in the region raised $3 billion, double the amount secured over a similar period in the previous year. Unfortunately, the VC market correction caught up with the continent in the second half of 2022, which saw fewer deals closed as investors tightened their purses. VCs predict that Africa would continue to see a sustained slowdown of funding in 2023, as investors continue to withdraw from new and existing startups to raise capital.
Due to the inflationary pressures and tightening monetary policy, investors in Africa will continue to maintain a judicious approach to investments in African startups. Mega rounds have also been predicted to be scarce, which was witnessed in the second half of 2022, where no deals over $100 million were recorded. As the market downturn drags on and investor cash remains hard to come by, analysts disclose that more startups will start to run out of money. Also, some venture-backed companies will be forced to raise new funding even if it means agreeing to a lower valuation than they once secured.
It is however worth noting that Africa is not the only continent that received slow funding, in the Venture Capital space worldwide, there was a steady slowdown in funding throughout 2022. According to data, the deal count slowed by roughly 14% from the record highs of 2021. Meanwhile, the funding in the African continent stood ahead of other continents. Quarter on Quarter, Africa was the only region to register positive growth.