NAIROBI - Africa’s most mature startups felt the toughest end of the tech funding crunch of 2023, a new report by venture capital firm Partech said. The average investment into African growth stage startups last year was $34.7 million for equity deals, 31% lower than in 2022. Except for 2020, it was the lowest average since 2018 and part of a trend that saw fundraising fall by 46% to $3.5 billion last year, Partech said.
Growth startups have typically attained stability on product and customer focus after a few rounds of fundraising. A number of them — Flutterwave, OPay, Andela, and M-Kopa — are Africa’s most funded startups. But “growth stage tickets are mostly driven by large global VC players,” Tidjane Deme, general partner at Partech, told Semafor Africa. The withdrawal of those big-ticket firms like Tiger Global, Softbank, and affiliates of Sequoia Capital, resulted in a hit on African growth startups, he said.
“Most of these global investors retrenched and focused only on their existing portfolio, driving reduction in the pricing and volume of growth-stage deals,” Lexi Novitske, partner at Africa-focused firm Norrsken22, told Semafor Africa. It is unlikely that Tiger Global or Softbank will invest in Africa in the next 12 months because those firms are now conservative, investing in “sub sectors and geographies they have an expertise in and where there is a more liquid market for big $1billion-plus exits,” Novitske said.
However, the drop in growth stage funding reflects a global trend not unique to Africa and is “an expected market correction after the unusual highs of recent years,” says Eloho Omame, partner at Lagos and Nairobi-based firm TLcom Capital. As part of this correction, startups — many of whom raised money at huge valuations — could need more time to grow from early to growth stage, as investors raise the bar on diligence and outcomes. “Fostering solid fundamentals and scalability is good for company-building and value creation in venture,” she told Semafor Africa.
