Although the enterprise of Africa capital totals held up in the first quarter, with some investors and technical stakeholders thinking there is still a good chance the continent will join the rest of the world in a slowing phase.
Experts told gotechbusiness.com that the most recently announced deals were finalized months before macroeconomic challenges — high interest rates, war, inflation — hit the global VC landscape. This means that there is a delay in what is reported as the current state of VC on the African continent. So, as seed funding declines in the US and Europe, the consensus is that the economic downturn will soon affect emerging markets, especially Africa.
“The moment of truth will be the end of summer,” says Max Cuvellier, co-founder of The big deal, gotechbusiness.com told. “August [and] Especially September, because then we saw a boom last year.”
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Last year, African startups received more than $1 billion in funding in those two months. Anything less than that is contributing to a year-over-year decline, Cuvellier noted.
Stephen Deng, co-founder and partner at DFS labadded that the same investors who have pushed up the valuations of US companies at a later stage are also the same investors who mark African companies.
“I wouldn’t understand why, in the African context, this trend wouldn’t eventually hit the continent as well and we would see a slowdown,” Deng told gotechbusiness.com. “One of the better scenarios is we’re still seeing more funding, but not the same kind of percentage growth from year to year.”
“As these global funds pull back and do less, it also means more room for local funds to participate in the extensions or their pre-Series A.” Sherpa Ventures Co-Founder Aaron Fu
Big companies like Tiger Global and SoftBank have already taken a beating in developed markets. Likewise, large companies that spend some of their money on African startups may slow down the pace at which they invest on the continent, local investors told gotechbusiness.com.
Funding data shows the African ecosystem has already seen inflows of about $2.7 billion in the first half of this year† That’s more than double what the continent was yielding at 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 is true that stakeholders may overlook this as four unicorns have been announced in H2 2021, but it would be naive to project the same for the rest of the year ; we are in a very different market.
But some experts say Africa may not witness a massive decline if large Africa-focused companies continue to slacken controls.