Africa Remains The Strongest Performing Region, Despite The Decline In Startup Funding That Now Correlates With Global Trends

The map of Africa depicted by the flags of its 54 countries

According to a report by Africa: The Big Deal, in the third quarter, Africa’s quarter-on-quarter and year-on-year decline in funding were on par with global trends. Africa, however, remained the strongest-performing region. “Gone are the days when Africa was the ‘last continent standing’ still registering the triple-digit YoY quarterly growth while start-up funding was shrinking by -29 percent YoY globally. No more African exceptions in Q3 2022 unfortunately: all regions are now more or less on the same boat )and it’s taking on water…). According to CB Insights, global start-up funding was down -55 percent YoY in Q3 2022, a fall ranging from -38 percent YoY in Europe to -83 percent YoY in Latin America. According to our numbers, Africa experienced a -53 percent YoY decrease in the amount raised during the same period, therefore almost exactly aligned with the global trend. The same goes for QoQ decline actually, where CB Insight’s global estimate is the same as our estimate for Africa: -34 percent QoQ.”

The current macroeconomic realities, market conditions, inflation, and general decline being experienced by businesses generally have pushed investors to cut down on their investments. Back in August, we posted a report that said Africa was seeing a surge in funding amid a global decline. In this August report, we said that “… in the first half of 2022 African startups received $3.14 billion in funding. Compared to the same period last year, this more than doubled. Juxtaposing this result with other regions, Africa is ahead of other regions in terms of funding. Europe saw a decline of 3.7 percent in funding while Latin America and the Caribbean had a decline of 43 percent.”

According to a statement by Africa: The Big Deal, “June 2022 was the ecosystem’s strongest June ever in terms of fundraising. Q2 2022 was the ecosystem’s strongest Q2 ever. H1 2022 was the ecosystem’s strongest H1 ever. And we’re not talking small increments here; we’re talking 2.7x, 2.3x, and 2.4x year-on-year growth, respectively.”

We also noted that “If funding in Africa continues to tow this path, startup funding could exceed the record $5 billion raised in 2021.” Unfortunately, funding in Africa has succumbed to global trends. We also highlighted why funding in Africa wasn’t slowing down. Some of these reasons include; Africa’s markets remaining undeveloped compared to its budding young population who align very well with the technology being offered by startups; Startups identifying and tackling a problem faster and better, compared to the traditional system; investors recognizing the growth potential, etc. 

It is important to note that this decline in funding started towards the end of 2022. Prior to the third quarter, Africa was seeing a surge in funding amid global declines. However, “Africa is the only continent to still show positive YoY growth if we compare Q1-Q3 2022 TO Q1-Q3 2021: +27 percent YoY,” the report reads adding that “All other regions are showing year-on-year decline ranging from -13 percent YoY in Europe to -26 percent YoY in the US, -33 percent YoY in Asia and even -61 percent YoY in LatAm.”

The report also stated that “…another interesting way to look at the numbers is to compare how much startups have raised this year so far (Q1-Q3 2022) with what they had raised in 2021 as a whole, as it gives a good indication of how likely regions are to eventually match – or exceed – last year’s performance. Once again, Africa is an outlier. With just over $4bn at the end of Q3 2022, startups in Africa had already secured 87 percent of the total money they raised in 2021, which means they could still be on track to set a new record in 2022. Comparatively, at a global level, the amount raised in the first three quarters of the year (2022) only represents 52 percent of what was raised in the whole of 2021. In LatAm, this number is as low as 31 percent. 

In September, we also reported that more than 100 startups in Africa have raised their first $1 million (or more) so far this year, according to an older report by Africa: The Big Deal. According to this report, there were more than 100 African startups that have raised their first $1 million (or more) round this year. The report only took into consideration deals that have been announced. 

As of the 31st of August, there were only 99 African startups that had raised their first $1 million (or more) round. The number has, however, since surpassed 100. Compared to prior years, 2022 is a remarkable year of funding for African startups. At the end of August 2019, there were only 40 African startups that met the mark. The metric stood at 55 and 72 in 2020 and 2021 respectively. It is pertinent to know that in the whole of 2021, only 112 African startups raised their first $1 million, and by the looks of it, 2022 will surpass this mark. We also highlighted that;

• 99 startups in Africa had raised their first $1 million (or more) round in 2022 as of August 31st.
• 84 percent of them have their HQ in one of the “Big Four” – Egypt, Nigeria, Kenya, and South Africa.
• 70 percent of them were less than 3 years old when raising their first $1 million (or more) round.
• 73 percent of these rounds were labeled either pre-seed or seed rounds.
• $2 million is the median amount of funding raised in these first $1 million (or more) rounds.
• 11 percent only of the startups in question have a woman CEO.

In conclusion, although Africa might have suffered a decline in funding in the third quarter, the numbers still show that it is still an outlier and that there is the possibility of it making a comeback either in the last quarter of this year or by next year as the macroeconomic challenges plaguing the global economy are expected to start to fade, and investors are expected to make more investments.