In the past few months, venture capital (VC) investments worldwide have seen some shaky markets, falling valuations, and big disappointments. Multiple tech giants are laying off workers and freezing hirings, CEOs are scrambling to keep their companies afloat by changing operation models and marketing strategies, and the general sense is that of dismay and even panic. While global interest rates rise and stock markets crash and burn, the VC investment sphere is catching up to the turmoil.
According to Crunchbase, May 2022 is the first time global VC funding has fallen under $40 billion in over a year, standing at $39 billion. This is down 20% from $49 billion a year earlier in May 2021 and far below the $70 billion peak of November 2021. Zooming in on geographic trends, during H1 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.
We are already used to Africa telling a different economic story than the rest of the world, but this time it is very positive.
African startups continue their uphill trend
For the past few years, Africa’s innovation and tech ecosystem have been flourishing, with zealous entrepreneurs trying to establish tech-based solutions to the continent’s problems. And while the ecosystem still only represents a fraction of global tech investments, these numbers are on a constant rise, defying all other markets worldwide.
According to Business Insider Africa, the continent 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. Moving on to the first half of the year, The Big Deal says funding reached $3.1b, a 2.4x leap from H1 2021 figures. This is an awe-inspiring start, and it might very well rise dramatically, as historically, the second half of the year has seen more venture funding flow to African startups compared to the first half, according to Quartz Africa. The latest example is Africa’s second half of 2021, which saw venture funding deals worth $3 billion compared to $1.19 billion in the first.
Albeit impressive numbers, investments in African startups still only comprise a small fraction of global VC activity. According to CB Insights, African startups attracted a mere 1% of all funding last quarter, with a 2% deal share, and that number has remained pretty much the same since 2019. This year’s trend and the fact that Africa is the only continent that witnessed such growth could lead to the ecosystem moving from that 1% status quo.
Solving real problems rather than presenting nice-to-have products
So what sets African startups apart from their other international fellows? We might think of it as what often sets many African residents apart from people living in wealthy parts of America, Europe, or Asia – the focus on needs vs. desires. As the western world continues its tech-savvy strides toward consumption-based humanity, hundreds of millions across Africa still live without access to the most basic infrastructure. Electricity, running water, clean cooking options, healthcare, and financial services are only a fraction of a long list of much-needed utilities and functions unavailable for billions in the region.
As many countries across Africa can present their children with better education over time, and as the internet becomes more accessible, opportunities for knowledgable entrepreneurialism grow. For local startups, solving the issues they see at home and in their communities is often the first choice and the one that dictates the entire course of their business or company.
With financial services being a common ground for needed infrastructure and development across the continent, fintech startups took the most significant chunk of the funding, raising 32% of the total funds. African fintech focuses on multiple aspects of financial services, the most important one being inclusion. Mobile money services, blockchain applications, and micropayment hubs allow hundreds of millions to finally access loans, savings, and remittances. Today, 6 out of 7 African unicorns are in the fintech sector, and according to Disrupt Africa, there are 573 fintech startups across the continent. As the sector becomes saturated, investors have more options, and DD is getting more accurate, taking companies to the next level regarding quality and conditions – excellent news for the customers.
Energy tech was the next sector, raising 8.8$ of total funds. With 660 million people still lacking access to electricity in their homes and a growing global interest and awareness of the importance of electricity for development on all human levels, the sector is blowing up. Clean energy is on the agenda, with startups offering solar-based electricity, clean mobility options, and more.
The numbers and statistics of our growing ecosystem tell an extraordinary story of an incredible entrepreneurial spirit that is solving problems for hundreds of millions. Africa’s innovation is unstoppable, even in these times of uncertainty. Investors are already taking notes.
The writer is an entrepreneur and investor,leading sustainability-driven companies in Africa and the Middle East