African startups funding is set to drop by nearly half in 2020

A customer conducts a mobile money transfer, known as M-Pesa.
A customer conducts a mobile money transfer, known as M-Pesa.
Image: Reuters/Thomas Mukoya
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Over the last five years, the dominant trend across Africa’s largest tech ecosystems has been a record-breaking investment boom. From payments and e-commerce to health and renewable energy, several fledgling startups have convinced backers of their long-term potential for growth and profits.

Last year alone, startups on the continent reached new heights, crossing the $2 billion mark as most forecasts suggested a continued uptick in funding. That seemed to be the case with deals like Jumo’s $55 million raise in February.

Until Covid-19 struck.

Over the past month especially, the pandemic has shut down economies and the world is on the cusp of a recession. For Africa’s tech ecosystems, the pandemic and its after-effects will likely result in a sharp fall in funding inflow, new forecasts show.

Startup accelerator AfricArena estimates total funding in African startups this year could drop by as much as $800 million  or 40% with a severe slowdown expected to become more visible in the next two quarters of the year. The report’s worst case scenario also suggests effects of the economic slowdown could last through 2021 with recovery only expected to come full circle by 2022.

The expected investment slowdown follows established trends during recessions as venture funds will typically look to be more capital efficient. That reality could prove most damaging for companies seeking early and seed stage funding as investors become more risk-averse and likely tilt more towards more established companies with more robust businesses and clearer paths to profitability. But the pandemic may yet prove pivotal even for larger tech companies on the continent who will have to adapt to prevailing macroeconomic headwinds.

As it turns out, some succor may yet come from within the continent as more homegrown venture funds, with a nuanced understanding of local realities emerge. One of those is The Future Africa Collective which launched last month in the wake of the coronavirus outbreak to “create new and more sustainable funding sources” especially for companies “at the earliest stages.”

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