Although Africa’s venture capital totals remained afloat in the first quarter, some investors and tech stakeholders think there’s still a good chance the continent will join the rest of the world in a slowdown.
Experts told TechCrunch that most recently announced deals were finalized months before macroeconomic challenges — high-interest rates, war, inflation — hit the global VC landscape. This means there’s a lag in what’s reported as the current state of VC on the African continent. Thus, as startup funding decreases in the U.S. and Europe, the consensus is that the economic downturn will soon start affecting developing markets — Africa, in particular.
“The moment of truth will be the end of the summer,” Max Cuvellier, co-founder of The Big Deal, told TechCrunch. “August [and] September in particular because this is when we saw a boom last year.”
Last year, African startups received more than $1 billion in funding during those two months. Anything less than that contributes to a year-over-year decrease, Cuvellier noted.
Stephen Deng, co-founder and partner at DFS Lab, added to that, saying that the same investors that have inflated valuations in later-stage U.S. companies are also the same investors marking up African companies.
“I would not understand why, in the African context, this trend would not eventually hit the continent as well and that we’d see a slowdown,” Deng told TechCrunch. “One of the better-case scenarios is that we still see increased funding, but not the same type of percentage growth year on year.”
“If these global funds pull out and do less, it also means more room for participation from local funds into the extensions or their pre-Series A.” Sherpa Ventures co-founder Aaron Fu
Large firms like Tiger Global and SoftBank have already taken a beating in developed markets. Similarly large firms that earmarked a part of their funds into African startups might reduce the pace at which they invest on the continent, local investors told TechCrunch.
Funding data shows the African ecosystem has already seen inflows of around $2.7 billion in the first half of this year. That’s in excess of double what the continent raised by this time last year. In 2021, Africa produced five unicorns while raising $5 billion in total venture capital funding: Flutterwave, Chipper Cash, OPay, Wave, and Andela.
No unicorns have been created so far in H1 2022. It’s true that stakeholders can perhaps overlook this given that four unicorns were announced in H2 2021, but it would be naive to project the same for the rest of the year; we’re in a completely different market.
But some experts say Africa might not witness a massive drop if large Africa-focused firms keep cutting checks.