Uncertain Global Economy Impacts African Tech Startups Funding in The First Quarter of 2023

The uncertain global economy has impacted African tech startups’ funding in the first quarter (Q1) of 2023 as there is a visible decline in funding received in the concluded quarter when compared to the same quarter last year.

Tech startups in Africa raised a total of $649,303,000 between January 1 and March 31 this year, down from 57.2 percent of the total funds received in the same quarter last year.

In the just concluded first quarter (Q1), only 87 startups secured funding, less than half the number 175, that raised funds in the same quarter last year. It is however interesting to note that last year’s first quarter ended up accounting for around half the startups and half the total investment for the whole of 2022.

It remains uncertain how long the economic downturn will last, however, if it persists for a long period, it could affect funding for African tech startups in the next quarter.

As the economy continues to slow down, the global Venture Capital (VC) industry for startup funding is stagnating, as data reveal that the overall venture investment keeps declining. Raising money for start-ups has become more challenging in recent times, as there as stories of startups raising down rounds and investors backing out of agreements.

Investors King understands that some startups anticipated the economic slump, and chose to accelerate their fundraising effort by opting for an unpriced round at the start of the year.

Several African tech ecosystem stakeholders disclosed that there was a capital rush in the startup field last year, but all of that is changing following the severe economic downturn.

Meanwhile, last year these stakeholders disclosed that the African tech ecosystem will remain relatively unscathed regardless of the uncertain economy, as they noted that startups find footing at times like this. Unfortunately, it has not played out as predicted, as fundings continue to decline.

Even though Africa seemed to defy the global venture funding decline in the first quarter of 2022, the Venture Capital market correction has caught up with the continent as investors have tightened their purses as the economy tightens. These VCs predict that the funding slowdown will be sustained this year as investors continue to pull back from investing, making it harder for new and existing startups to raise capital.

A general partner at Seedstars Africa ventures Bruce Nsereko-Lule said “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 and African startups will continue to find fundraising challenging”.

As a ripple effect, the operating environment for startups is expected to worsen, leading to a surge in layoffs, scaling down of activities, down and bridge rounds, etc.

It would be recalled that 2022 was a record year for funding activity in the African tech startup ecosystem, with total investment passing $3 billion. The $3 billion funding was raised in 27 countries and across 15 different tech sectors and as usual, the ‘big four’ countries (Nigeria, Egypt, Kenya, and South Africa) championed the funding recorded with Nigeria getting the most funds of $976,146,000.