In recent weeks, tech media has been awash with coverage of falling startup valuations and sell-offs of once-booming stocks in vibrant sectors.
May 2022 is the first time in over a year that global VC funding has fallen under $40 billion, standing at $39 billion according to industry trends analytics company, Crunchbase. This is down 20% from $49 billion a year earlier in May 2021 and far below the $70 billion peak of November 2021.
In the first quarter of 2022, the US and Asia both recorded 1% year-on-year declines in venture funding. Europe and Latin America saw growth of 33% and 35% respectively.
Africa though tells a different story. According to Africa-focused database The Big Deal, Africa was the only region to record three-digit growth in the first quarter of 2022, with venture funding up 150% to hit a record $1.8 billion compared to $730 million in the same period in 2021.
Kenya alone attracted more venture funding in the first three months of 2022 ($482 million) than it did in all of 2021 ($412 million).
Why is Africa seemingly defying global trends? And how long will it last?
Africa’s VC funding is starting from a lower base
Despite the steady and consistent growth, funding flowing to African startups is still a drop in the ocean of global venture funding. It represented just 1% of global venture funding in the first quarter of 2022 according to CB Insights State of the Venture Report. Therefore even though the figures are phenomenal for the continent, they are miniscule in the grand context of global VC funding and shielded somewhat from global capital markets.
Maxime Bayen, venture builder at Catalyst Fund and co-founder of The Big Deal, believes that another big reason startups in Africa have continued to raise money amid the global slowdown is that they solve for primary needs. While consumers in Europe or the US looking to reduce their expenses in response to the economic crunch may, for example, axe a fast-delivery service or an investment app, a mobile banking or edtech service is less likely to be dropped.
“Startups raising funding in Africa have two common characteristics, and one is that they’re solving big problems like access to banking and energy,” he tells Quartz.
Fintech, in particular, continues to dominate venture funding for African startups. It represented 54% of all venture funding on the continent in 2021 and is responsible for the biggest deals in 2022 so far such as Flutterwave’s $250 million Series D raise at a $3 billion valuation.
Another key factor Bayen suggests has contributed to the resilience of the African ecosystem in the face of the global downturn is the fact that many of the startups raising funds have strong traction in terms of revenue.
Will Africa’s VC funding boom last?
Historically, the second half of the year has seen more venture funding flow to African startups compared to the first half. The second half of 2021 in Africa saw venture funding deals worth $3 billion compared to $1.19 billion in the first.
There’s every possibility that the growth witnessed in early 2022 could carry on into the second half of the year, but it’s still too early to say for sure.
The $4 billion total raised in 2021 was almost three times what was raised in 2020 and 2019, when venture funding for African startups was pegged at $1.7 billion and $1.3 billion respectively.
Emerging trends offer a glimpse into what the future could look like. For instance, while fintech remains the biggest draw for investors, an influx of startups offering similar financial services and vying for the same pool of customers has investors offering more scrutiny and stepping up their due diligence efforts. This is a trend Rest of World explores.
More attention is also being paid by investors to startups operating in other sectors such as logistics, blockchain, education, and green energy. Blockchain startups in Africa, for instance, raised $91 million in the first quarter of 2022, representing eleven times growth compared to the first quarter of 2021 according to a report by blockchain investment firm Crypto Valley Venture Capital (CV VC) and Standard Bank.
What is almost certain is that African startups’ share of global venture funding will continue to rise.
“It should increase (from the current 1%). It’s been increasing. Fundraising in Africa is growing,” Bayen says.