Global Courant 2023-04-11 17:02:46
2023 kicked off with a mixed bag of celebrating another record year for startup funding, Africa’s first AI startup acquisition and lick wounds from a wave of layoffs. Since then, we’ve seen more events than we expected in African tech. Nigeria’s artificial money scarcity opened a door for fintech, Flutterwave was reportedly hacked and we finally have a new unicorn.
A big event on everyone’s radar in March was the bankruptcy of Silicon Valley Bank (SVB). SVB was the 16th largest US bank (by deposits). It was known as the bank of the startups and had deposits from nearly half of all venture-backed startups in the US. But even though it is in the US, many feared that several African startups could fall victim. Those who have deposited investor funds with the SVB to protect them from tight capital controls in their home markets were suddenly in danger of being caught with their tails between their legs.
The following sale from SVB to First Citizens Bank helped allay depositors’ fears of losing access to their money, restoring a sense of calm. But the initial panic in early mid-March could have led investors to pull their wallets, limiting capital raises for African startups, which rely heavily on foreign capital.
Dates from Disrupt the latest report from Africa showed that funding for African tech startups fell 57% in the first quarter of 2023. Deal volumes were no less dismal as it recorded just 87 deals, half of last year’s 175. Meanwhile, funding in the first quarter made up more than half of the total capital raised by African startups in 2022.
The Big Deal also has its report recently, with the same pattern — down 52% year-over-year. In March, investors closed deals worth just $66 million. To put it plainly, we haven’t seen such a bad March since 2020 ($39.6 million – an outlier year due to the COVID-19 pandemic). It’s also down 91% from February, when startups raised $696.3 million. It also shows that investors closed fewer and smaller deals in 2023. In 2022, Nigeria and Kenya closed five and six rounds above $20 million in the first quarter, respectively. But this year neither of these two closed a deal over $20 million.
And if that wasn’t enough, two noteworthy funds announced they were closing: Naspers Foundry Fund and Y Combinator’s (YC) continuity fund. Naspers $77 million foundry fund was South Africa’s largest early-stage venture capital fund. Since its inception in 2019, the fund has earned 12 investments across different sectors. At the close, $37 million of the $77 million fund was undisbursed (equivalent to 6% of South Africa’s deal flow in 2022). But beyond just the loss of capital from the South African ecosystem, this news is particularly concerning as a significant portion of the continent’s deal activity is in the early stage (Pre-seed-Series A). 34% of deals in 2022 were early stage. In South Africa, this percentage is slightly higher (36%).
On the other hand, YC is Africa’s 3rd most active investor (based on the number of deals, from 2022). They have traditionally supported early-stage startups through a $500,000 injection upon admission to their incubator program. In 2015 they launched a continuity fund to provide additional funding to their program alumni. But Garry Tan, YC’s president, pins the closure of the $700 million fund about the need to refocus on their core: early stage investing.
But on the other hand, Nigeria has recently announced one $618 million Investment in Digital and Creative Enterprises (iDICE) investment for startups and creatives. The fund size is the same 50% of all VC funding Nigeria received in 2022 ($1.2 billion). Eyes are also now on deep tech, which raised only 4% of the capital in 2022. The acquisition of a Tunisian startup, InstaDeep, by German pharma giant BioNTech, for $446 million is Africa’s second largest acquisition to date (behind WorldRemit’s $500 million acquisition of Sendwave in 2020).
The biggest lesson from the first quarter is that Africa is not as isolated as many think. The events from outside the continent ultimately affect it, be it for good or for bad.