TLDR:
- Africa’s growth stage startups are experiencing the impact of big tech investors withdrawing their support, according to a report by venture capital firm Partech.
- Last year, the average investment into African growth stage startups for equity deals was $34.7 million, a 31% decrease compared to 2022.
- The withdrawal of big-ticket firms like Tiger Global, Softbank, and Sequoia Capital affiliates has affected fundraising efforts, causing a 46% decline in fundraising to $3.5 billion last year.
Africa’s most mature startups have been hit hard by the tech funding crunch of 2023, with funding for growth stage startups significantly reduced. Last year, the average investment into African growth stage startups for equity deals amounted to $34.7 million, a 31% decrease compared to the previous year. This marks the lowest average since 2018, and fundraising fell by 46% to $3.5 billion in 2023, demonstrating the challenging environment for African startups looking to grow.
Growth stage startups, such as Flutterwave, OPay, Andela, and M-Kopa, have typically achieved stability through several rounds of fundraising. However, these growth stage tickets are often driven by large global venture capital players. The withdrawal of major firms like Tiger Global, Softbank, and affiliates of Sequoia Capital has contributed to the decline in funding for African startups.
Africa’s reliance on foreign investors for large tech deals is due to a lack of African private equity funds or venture capitalists capable of leading rounds of $100 million or more. This trend, known as mega rounds, highlights the limited funding capacity of African investors. While few African-led mega rounds occur, African startups also seek out top global venture capitalists to validate their ambitions and tap into their networks of companies and investors for sales and future exit plans.
This downturn in funding reflects a global trend and is considered an expected market correction after the high valuations of recent years. Investors are now focusing more on diligence and outcomes, raising the bar for startups looking to transition from early to growth stages. Despite the challenges, fostering solid fundamentals and scalability can benefit company-building and value creation in the venture.
Notable African growth startups, including Chipper Cash, Cellulant, Copia Global, mPharma, Marketforce, and Twiga Foods, have implemented cost-cutting measures such as layoffs and branch closures to survive. Marketforce, a Kenyan B2B e-commerce startup, even turned to a crowdfunding campaign to raise $1 million after experiencing a tough fundraising year in 2023, despite raising $40 million the previous year.
