Startups in Africa raised $3 billion in the first half of 2022, twice the amount obtained over the same time the year before, seemingly bucking the worldwide trend of declining venture capital. Nonetheless, the continent saw the effects of the VC market slump in the second half of last year, when ticket sizes shrank and fewer transactions were finalised as investors tightened their purse strings.
It is become difficult for new and established firms in Africa to acquire finance, and venture capitalists expect this trend to continue beyond 2023.
“My 2023 prediction is that things will get worse before they get better — down rounds, layoffs, closures and bridge rounds will continue to increase in the African startup ecosystem.” Abel Boreto, Novastar Ventures
According to Bruce Nsereko-Lule, general partner at Seedstars Africa Ventures, “with the global economic slowdown trickling into 2023 due to inflationary pressures and tightening monetary policy, investors on the continent will maintain a judicious approach to investment,” meaning that fundraising will remain difficult for African startups.
The operational climate for startups is likely to deteriorate this year, with knock-on effects including an increase in layoffs, reduced activity, down and bridge rounds, and company closures. This trend began at the end of 2022 and has continued into 2023.
The Big Deal, a database of publicly revealed agreements, predicts that mega-rounds will be limited, as they were in the second half of 2022 when no deals above $100 million were completed. The total number of mega-rounds concluded last year was six (all in the first six months), which is just half the number of transactions done in 2021 when VCs committed record sums.
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