Startup funding falls by 57% in Q1 – Report
TECHDIGEST – Funding into the Nigerian tech ecosystem and other African startups fell by 57.2 per cent year-on-year in the first quarter of 2023, according to Disrupt Africa.
In Q1, 2023, funding fell to $649.30m as the sector continued to grapple with a negative global economic climate.
According to a report from Disrupt Africa, 2023 has set a regressive tone with only 87 startups securing funding, less than half of the number (175) that did so in Q1 2022.
As of April 1, 2022, African startups had already raised $1.52bn.
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The report noted, “Last year’s Q1 ended up accounting for around half the startups and half the total investment for the whole of 2022, so if the current trajectory holds, then year-on-year funding looks set to decline by more than 50 per cent.”
Data from Africa Big Deal, a data insight firm that tracks deals above $100,000, disclosed that total funding (including exits) was $1.3bn in the quarter under review.
This signified a 29 per cent y-o-y decrease, which increased to a 52 per cent y-o-y decline if exits were factored out.
It said, “The number of $100k+ deals is also a matter for concern, with just over 150 recorded in Q1 2023, less than half the Q1 2022 tally (300+).
“In fact, you have to go all the way back to 2020 to find a quarterly number of deals this low. Worse still, with only $66m raised, March 2023 was the worst month in 2.5 years (since August 2020) and the first time the monthly amount of funding raised by start-ups in Africa dipped below the $100m mark since 2020. March funding shrank by a factor of 11x between 2022 and 2023.”
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2023 is shaping up to be a terrible year for tech startups in Nigeria, Africa, and the remaining parts of the world. Already more tech workers were laid off in the first quarter of 2023 (165,622) than in the whole of 2022 (164,411).
Also, funding into the global tech ecosystem has been on a steady decline since 2022 due to rising inflationary pressures, hikes in interest rates, and a fear of global recession. Regardless, startups on the continent were able to raise $4.85bn in 2022.
Commenting on this growth, the data insight firm noted, “So, yes, 2022 was definitely a good year, yet with talks of slowdown and uncertainty dominating the second half of the year, the mood isn’t always that celebratory.
“Not to mention that if the H2 trend were to continue, 2023 could be the first year of a decline in absolute numbers for the ecosystem. But with a lot of capital ready to be deployed, let’s hope that when the clouds eventually part, the ecosystem will take advantage of this to show us once again it’s got more than one trick up its sleeve.”
The clouds have not cleared and might linger for about 18 – 24 months. This a sentiment the Founder of Pivo, Nkiru Amadi-Emina, recently shared with The PUNCH.
“I do think that this dynamic will continue for about 18 months,” she said, “We are likely to see more layoffs. We have seen a couple of them over the last couple of months. Companies are learning that we need to be more conservative.”
Aside from global realities, professionalism and investors’ interest in the profitability of startups before investing is impacting the ability of startups to close rounds, the Co-founder of Dream VC, Mark Kleyner said.
He recently explained, “I would say the biggest change is the way investors are interacting with founders – the seriousness or professionalism around investing.
“2021-22 saw many investors back startups without doing proper due diligence and with limited oversight into the investee’s activities. The dynamics of raising funding are now substantially different as investors start to think about how global expectations, especially from late-stage investors, of startups, are changing.”
