Afrigather With 2023 now behind us, we glance again on a yr marked by sturdy financial headwinds and market upheavals. A cursory take a look at funding numbers exhibits that 2023 was a blended bag. Enterprise capital (VC) funding fell by 41.7%, quarter-on-quarter, going from $916m in Q2 to $499m in Q3.
In 2022, funding raised by African startups peaked at $5bn. As of November 30, 2023, this determine stood at $3.246bn, which, to date, exhibits a stark 36% dropoff from final yr, highlighting the issue buyers confronted in elevating funds in 2023. The variety of $1m+ fairness offers additionally waned significantly from a excessive of 125 in Q1 2021 to 42 in Q3 2023.
Regardless of the low numbers, 2023 had some positives. Notably, a brand new African unicorn emerged within the form of MNT-Halan, the Egyptian fintech startup. Companies like Partech—by way of its Africa II fund—and M-Kopa raised cash above their expectations, exceeding $250m every. Flutterwave made strides in the direction of its objective of an preliminary public providing (IPO) after being cleared of monetary misconduct in Kenya, and Nigeria’s central financial institution shifted its posture on crypto to undertake a crypto-friendly coverage stance. So, what traits ought to we glance out for heading into 2024?
- Funding downturn and cost-cutting measures prone to stay
In 2023, fintech, logistics, and e-commerce platforms, which historically attracted heavy funding, witnessed a slowdown marked by downsizing and, in some cases, shutdowns. In Q1 2024, startups will seemingly proceed cost-cutting measures and refocus on unit economics in an unsure funding atmosphere. This may very well be something from localizing prices and scaling again operations, elevating funds in native foreign money, revising medium to long-term targets by prioritizing survival, and lowering publicity to markets inclined to overseas alternate volatility. Latest traits level to this, as we’ve seen firms like Paystack scaling again its actions outdoors Africa and Jumia shutting down its meals supply enterprise. Resilience would be the watchword.
- Consolidation by way of mergers and acquisitions
Seven mergers and acquisitions offers (M&A) led the best way in African tech initially of 2023, valued at ~$710m, with Biontech the pacesetter by buying AI agency Instadeep for $680m. Extra lately, there have been merger talks by B2B platforms Kenya’s Wasoko and Egypt’s MaxAB, which, if finalized, would make it the most important merger throughout the e-commerce subsector. Up to now, there have been no less than 29 such offers, though most have been for undisclosed quantities.
Market dynamics, capital availability, and startup agility drive M&A in Africa, usually initiated by bigger firms trying to purchase earlier-stage firms on the trail towards going public. The presence of quite a few small and medium-sized firms working throughout numerous areas and sectors creates a fragmented market. By coming collectively, they are often higher outfitted to compete within the international market and entice investments. Anticipate such collaborations in 2024.
- Synthetic Intelligence to realize wider utility
Past its widespread use in massive language fashions (LLMs), there will likely be extra integration of synthetic intelligence (AI) throughout numerous sectors starting from funds to health infrastructure. Nevertheless, digital commerce platforms are prone to undertake AI instruments utilizing surgical precision fairly than implementing them on a sweeping scale.
Africa’s AI market is projected to succeed in $6.9bn in 2024. Most of will probably be powered by machine studying, pure language processing, and autonomous and sensor expertise.
- African buyers to take care of cautious optimism
A survey by the AVCA on the expectations of 88 African buyers, together with Restricted Companions (LPs) and Common Companions (GPs), famous that 85% of LPs plan to extend their allocation to personal capital in Africa over the following two years, with impression (77%) and funding mandate (68%) recognized as their main causes. Information from our Founders’ Outlook Survey revealed that 65% of buyers preserve an optimistic outlook for the African startup ecosystem in 2024.
The optimism doesn’t seem misplaced, because the Financial Derivatives Company initiatives that inflationary pressures will ease throughout Africa, falling from 18.6% in 2023 to 16.1% in 2024. The Economist Intelligence Unit (EIU) predicts that “Africa would be the second-fastest-growing main area in 2024, with most nations growing financial development in contrast with 2023. East Africa is predicted to champion African development.” Nevertheless, the EIU additionally says many African nations will really feel the load of extreme debt and a heavy compensation burden in 2024.
- Potential shifts in regional preferences
In 2024, buyers may reevaluate their regional methods in response to altering macroeconomic and political circumstances. Per the EIU, fifteen African nations have elections subsequent yr, and buyers will observe their outcomes keenly. Elections are fraught with danger, particularly in areas the place armed battle is rampant. The EIU notes that elections in Algeria, Egypt, Ghana, and South Africa will add to political danger, which may have long-term implications on the place buyers put their cash.
The AVCA survey revealed that LPs favored investing in West Africa whereas GPs leaned in the direction of East Africa. The information aligns with this: between 2019 and 2023, per The Big Deal, there have been over 700 recorded offers price $1m or extra. West Africa led the pack with 246, East Africa with 175, Northern Africa with 160, Southern Africa with 147, and Central Africa with 14. Relying on the diploma of confidence, the numbers may realign with buyers turning into extra risk-averse. It’s all “wait and see” going into 2024.
