Is the African tech funding market making a comeback?

2023 began with loads of uncertainty for the tech business. Many firms have struggled to seek out their rhythm because the financial downturn in 2022. Because of this, we’ve seen loads of layoffs, shutdowns, valuation cuts, and enlargement halts within the final one yr.

Tech funding within the first quarter of 2023 additionally painted a depressing image. Knowledge from Disrupt Africa confirmed that funding for African tech startups declined by 57% in Q1 of 2023. Deal volumes have been additionally lots decrease, because it recorded solely 87 offers, which is just half of the 175 from final yr.

However in Could, issues regarded a lot better. After an exceptionally quiet March and April (the previous being the worst month in two and a half years), African startups raised $645m. “Africa: the Huge Deal” reveals this was the very best Could ever for African tech funding. There have been a minimum of 50 $100k+ offers and the amount was greater than 4 instances what the ecosystem recorded in April.

“Could 2023 was really the very best Could the ecosystem has ever had by way of funding raised,” Max Cuvellier, founding father of Africa The Huge Deal stated. “Now, is it the sunshine on the finish of the tunnel? As all the time, it’s laborious to say. Whereas the numbers are actually encouraging, they might additionally give false hope, as we skilled in February,” he provides. In February, African startups raised $700m –the very best ever recorded for that month. Nonetheless, hopes for one more distinctive yr sharply declined after a 10-fold month-on-month drop in March, with solely $70m raised.

Now that the numbers are excessive once more, the query is whether or not or not the funding market is making a comeback. The brief reply is nobody is aware of for positive. The lengthy reply, nevertheless, lies within the particulars.

Could was a document month, but it surely’s not as thrilling because it appears. Most of that cash went to 2 Kenyan firms. M-Kopa, an asset financing platform, raised over $250m in fairness and debt. Then, Solar King, an off-grid photo voltaic vitality firm and Africa’s most funded non-fintech startup introduced a $130m securitisation led by Citibank. These two offers accounted for 62 per cent of all funding in Could, whereas offers exceeding $10m represented 96% of the whole raised.

The standard culprits dominated the funding scene. Kenya, Nigeria, and South Africa accounted for all of the offers above $1m, aside from one Namibian startup, Adaire, that raised $1.1m for its software program growth providers. These three nations, together with Egypt, type the Huge 4—the African nations which have constantly snatched the majority of enterprise capital since 2019.

What’s much more regarding is that a lot of the funds raised this yr got here from three offers. “Three firms, specifically MNT-Halan, M-Kopa, and Solar King, signify almost half of all of the funding raised on the continent in 2023 up to now. And this proportion rises to 58% if we add Planet42 and TymeBank to the checklist,” Cuvellier stated.

So, right here lies the issue: a number of huge offers can distort the numbers and create a misunderstanding of progress. However small offers are few as properly. In the meantime, it’s of their multitude that critical progress occurs.