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Africa’s VC market braces for tougher times

Despite defying the global venture downturn last year, the African VC market is expected to become more challenging as deal flow slows.

 Iyinoluwa Aboyeji, founding partner of Nigerian VC firm Future Africa
(Tasos Katopodis/Getty Images)

Most of the world’s regional VC ecosystems were hit last year with rising inflation and tumultuous public markets, causing dealmaking to drop significantly.

But in Africa, the opposite was true.

In 2022, $2.9 billion was invested across 689 venture rounds in Africa, making it the only region with a year-over-year increase in both deal value and count—up 16% and 11%, respectively—according to PitchBook data.

Now, however, some investors say they expect a significant cooling of VC investments in Africa, and signs of a more muted dealmaking environment have begun to emerge.

Startups are already tightening their belts in anticipation of tougher fundraising conditions. In March, Nigeria-based B2B ecommerce platform Alerzo cut 15% of its workforce, while Chipper Cash, which offers African cross-border payments, laid off staff across all of its departments a few weeks earlier.

Like elsewhere, valuations have come under pressure in Africa. Startups such as social-commerce specialist Brimore and biotech company 54gene have reportedly been marked down. The latter’s valuation is said to have fallen by two-thirds to around $50 million.

“Average valuations have dropped and it’s becoming more of an investor’s market,” said Olu Oyinsan, managing partner of Nigeria’s Oui Capital. “The firms who have dry powder are realizing that they might not be able to replenish their treasure chests as easily as before, so [they] are becoming more careful with how they deploy capital. People are preparing for winter.”

In Q1, VC-backed African companies completed 91 deals worth $419 million, a significant decline from the 257 rounds totaling $948 million in the corresponding period last year.


Oyinsan said layoffs and down rounds will likely be more prevalent as the downturn sets in. Meanwhile, deals above $100 million will be fewer and far between, he added, and none have been announced yet in 2023.

Africa is likely to see a slowdown in the amount of capital invested by foreign VCs, said Gbite Oduneye, general partner at ODBA. Roughly 70% of the region’s deals include funding from firms based outside Africa.

Lured by cheaper valuations and a massive market, investors from the US and Europe stepped up their interest in African companies as their domestic startups became overpriced. But many are now focusing more on their core markets as they grow more cautious with their capital.

“For a lot of [foreign investors], Africa is a nice-to-have, but not the norm,” Oduneye said. “We are seeing now that as VC comes under a spotlight, these investors are not wanting to take big risks. Also, for VCs in places like the US, their dream startups are now much cheaper. So Africa, which was nice and sexy two years ago, is becoming more of a second thought.”

Although Africa does have a strong dependence on foreign VC capital, domestic investors have grown both in size and number in recent years, which could cushion the impact at least for early-stage startups.

VCs in Africa are advising their portfolio companies to be more conservative with their cash in order to extend their runways. But some investors believe that African startups may have an advantage over other regions when it comes to surviving the downturn.

Although Africa’s startup ecosystem set a record in 2022, its total capital raised represents only a tiny portion of overall global funding. Doing more with less is a reality of operating that these startups have lived with for many years, so being lean is a much smaller task for them than for companies in more established VC hubs.

“A lot more companies are going to survive,” Oyinsan said. “There’s a different mentality in Africa compared to other regions when approaching expenses and cash burn because capital is more scarce. I know African companies that have a four-year runway, which is not something I saw really when working with startups in the US.”

Because the region has been underinvested in for many years, its valuations aren’t as inflated as in other regions, leaving room for growth.

“As capital gets more expensive, everybody’s starting to think about where they can get more returns,” said Iyinoluwa Aboyeji, founding partner of Nigeria-based Future Africa. “There’s a lot of capital sitting on the sidelines that needs to be deployed. And Africa is probably the best place to get great companies at affordable prices.”

  • leah-hodgson-photo.jpg
    Written by Leah Hodgson
    Leah Hodgson is a London-based senior reporter for PitchBook covering venture capital across Europe and the Middle East. Leah graduated from the University of Surrey with a BA in international politics with French. She has previously been a radio reporter in France. She later turned to financial journalism, covering the wealth management industry. She joined PitchBook in 2018.
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