African startups raised a record $5.3 billion last year, though that may be the highest mark as a deepening slump in the tech industry reduces the funding pool.
While investment in 2022 topped that of the previous year by just $100,000, the number of deals rose 20 percent to 964, according to data from Briter Bridges, a market intelligence firm.
“There are some red flags that mega deals are largely driven by foreign investors who are not committed to Africa,” said Dario Giuliani, a director at Briter Bridges.
“There is a risk that the growth finance pool will be constrained in 2023.”
Global funds such as Sequoia Capital, Tiger Global and failed crypto firm FTX led the largest investments in African start-ups in recent years.
But with recession looming in many Western nations and job cuts accelerating at tech companies (Amazon is laying off more than 18,000 employees), private equity and venture capital firms may choose to hold on to cash.
“Valuations for technology companies” are depressed, said William Sonneborn, global head of funds and disruptive technology at International Finance.
“Private companies are not immune to how listed comparables are valued. I look forward to several high-profile downrounds on the continent this year.”
While more than a third of African start-up funding went to FinTechs last year, the trend is turning, Sonneborn said.
Health technology, climate and agricultural technology will attract funds this year, he added.
Investment has been concentrated in four of the continent’s most developed markets: Egypt, Nigeria, Kenya and South Africa, which are battling economic challenges ranging from slowing growth to currency depreciation. That may affect funding opportunities, according to Briter Bridges’ Giuliani.
The Egyptian pound is at a record low, while the Nigerian economy is reeling from rising debt and its currency is weakening.
Ghana and Kenya have also seen their currencies depreciate.
“While in 2021 companies were encouraged to grow at all costs, now they are focused on preserving cash, reducing consumption and delaying their next round as long as possible,” Sonneborn said.
Shares of New York-listed African start-up Jumia Technologies have fallen about 68 percent in the past 12 months and the company’s founders resigned in November.
Chipper Cash and Wave were also affected by the collapse of Sam Bankman-Fried’s FTX, which had invested in both.
Updated: January 07, 2023, 4:00 am
