2022 was an eventful year from all indications. Last year we witnessed several events that had wide ripple effects and put the global economy under strain, from Russia’s invasion of Ukraine to the US Federal Reserve hiking rates to reign in inflation. The spillover effects of these reinforced the lessons we took away from the year of COVID-19, 2020—that the world is more interconnected than we realise and that events happening in one geography have an effect in another geography even though separated by thousands of kilometres.
Key takeaways
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Four notable statistics about Africa’s ecosystem include $4.85 billion raised by startups, $1.26 billion closed by VCs, 1,679 layoffs, and six (6) reported scandals.
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The combination of Investors with a war chest and startups desperate but unable to raise funding as quickly as they would have in 2021 means that Investors will wield more influence on their portfolio companies.
- These numbers
We can even see the effects of at least the Fed’s interest rate hikes on the funding flowing to Africa’s startup ecosystem. At the same time, the ecosystem had its own share of occurrences worth discussing. This article looks at four notable statistics about Africa’s ecosystem. So if you’re interested in getting a snapshot of what went down, keep reading.
$4.85 billion raised
Startup funding is an interesting metric. In many ways, it gives us a sense of activity within an ecosystem, shows the interest of investors in apparent opportunities and tells us whether startups can achieve rapid growth, which is implicit in their design. However, basing analyses solely on ‘how much’ startups attracted does not give the full picture of what is going on under the hood. In addition, why the availability of funding increases a startup’s chances of growing and becoming successful, but it is no guarantee.
Earlier in 2022, when funding was slowing down across other continental ecosystems, the African ecosystem looked like it was defying the trend. In this article, Stears' analysis comparing Year-on-Year (YoY) historical half-year data on funding in Africa vs other ecosystems showed that funding grew by 82% when other ecosystems experienced negative growth. A new analysis of the most recent dataset from the same source, i.e., The Africa Big Deal database, shows that the growth was actually much higher at 138%.
This positive growth led some stakeholders to estimate that funding would outpace the 2021 figure significantly. The African Venture Capital and Private Equity Association (AVCA), the pan-African industry body for venture capital and private equity investors, predicted that $7 billion would be the ‘magic number’. At the same time, in the article referenced above, we cautioned that although H1 funding had grown between 2021 and 2022, the quarterly trends were not as encouraging.
Alas, with the complete 2022 numbers from the Africa Big Deal Database released, we see that startups raised a total of $4.85 billion from investors. If you have been paying attention, you will notice that this figure is only 5% higher than the total funding raised in 2021—$4.63 billion. However, the number of deals in 2022 was 1,000, which is significantly higher than in 2021 and a milestone for the ecosystem per the dataset.
In the second half of 2022, funding took a significant hit, with the YoY change for Q3 and Q4 being negative, i.e., 52% and -63%, respectively. 
Interestingly, these are the most significant YoY quarterly drops in funding the ecosystem has experienced. Even in 2020, when COVID-19 lockdowns affected business activity, the lowest YoY quarterly change observed was between Q4 2019 and Q4 2020. If we were ever in doubt, the data shows that funding to African startups has taken a significant hit.
$1.26 billion closed
Even as startups took a hit in 2022, Venture Capital Funds focused on Africa were able to convince investors to commit to their funds. Per publicly available information gathered from announcements, several VCs closed their fundraising efforts to the tune of $1.26 billion. VC fundraising is a lagged variable, as most VCs do not begin and complete their fundraising in the same year, so we cannot interpret this figure as money available to startups presently. Also, some funds have already made some investments.
Still, looking at the individual VCs can give us a sense of how to think about this number. One thing that stands out among the VCs under focus is the oversubscription they experienced. Oversubscription is simply when a fund manager intends to raise a target amount for their fund, say $10 million but ends up receiving commitments from investors that exceed that target. For instance, Ventures platform and LoftyInc, two of the most active domestic investors in Africa by deal count, saw their fundraising oversubscribed by 15% and 40%, respectively.
This tells us there is still interest in investing in African Startups. And this is something to be happy about, primarily as most of these funds are led or operated by Africans and are attracting local capital.
1,679 layoffs
As funding slowed, we saw African startups trim their roster with layoffs across the board. Per data from layoffs.fyi, the database that tracks layoffs at global technology companies and startups and other publicly available sources, we can count at least 1,679 people laid off by startups in Africa.
According to some reports, some startups slashed the salaries of their staff as a way to work around having to lay off staff. We saw something similar in 2020 when some startups let go of staff in response to the economic slowdown from lockdowns and quarantine measures to deal with COVID-19. Despite this, available data from layoffs.fyi puts the 2020 number at approximately 391.
The bulk of the layoffs took place in the 3 of the Big four (4) countries—Egypt, Kenya and Nigeria, with Senegal showing up with one entry due to Wave cutting down 300 of its workforce.
But this is not unexpected because 2022 saw the tech companies let go of 153,160 staff as at the most recent count before publishing, with the tech giants like Amazon and Meta not spared in this reckoning. A glance at some lists of individuals laid off from layoffs.fyi, shows that even technical talent like software developers(full-stack, front-end and back-end) and product officers typically in high demand lost their job at foreign companies. Since foreign demand for domestic talent contributed to the tech talent shortage, some African startups may find technical talent. At the same time, African developers may be open to taking a lower salary than in 2021, making them attractive and reinforcing the current situation.
6 incidents
The final number worth discussing is the six scandal incidents reported at African startups. Although we had whispers of some occurrences in previous years, 2022 was the year where we saw major scandals at startups that reverberated across the ecosystem. As they say in Nigeria, 2022 was the year where “e touch everybody.”
These scandals ranged from allegations of toxic workplace culture to financial impropriety and even sexual misconduct. The fallout saw some founders being asked to step down and Nigeria’s anti-corruption agency, the Economic and Financial Crimes Commission (EFCC), being petitioned to intervene, as in the case of Kloud Commerce.
There are two ways we can react to this statistic. On the one hand, we can either get worried about the nature and severity of the incidents that occurred because they cast the ecosystem in an unfavourable light. On the other hand, we can see this as a cautionary tale, and startups can take the lessons to ensure that we avoid future occurrences and build a more sustainable startup ecosystem composed of actors responsible to society and their communities.
It is all connected
Although we have looked at these numbers separately above, they are, in reality, much more intertwined.
When presented with the reality of funding slowdown, the first response is to conclude that investors cannot secure capital or are parking it in safer treasuries. However, as we have seen, VCs are still closing their funds at amounts higher than their targets, which tells us that they are minimally affected, if any.
It is more plausible, then, that investors are being more cautious with throwing money at startups and taking time to evaluate companies’ viability in terms of monetisation potential, scalability and strong unit economics before investing. Khaled Ben Jilani, a Senior Partner of Cathay AfricInvest Fund, which closed a $112 million fund, expressed these exact sentiments, where he mentioned that companies' ability to break even in the short term would become part of their assessment criteria before investment. Considering this, we are likely to see startups attempt to extend their runway and reduce burn in the face of uncertainty. Since labour costs constitute a major part of some startups’ payroll, the number of layoffs is set to increase.
At the same time, the combination of Investors with a war chest and startups desperate but unable to raise funding as quickly as they would have in 2021 means that we are entering a buyer’s market, where Investors will wield more influence on their portfolio companies. This means that startups and their founders do not have the leeway for the last number, i.e., six incidents, to keep increasing, as this will lead to shakeups that will see founders leave the companies they have worked hard to build. But this allows the ecosystem to embrace stronger corporate governance, adopt better resource stewardship and have critical discussions about the optimal arrangements that ensure sustainability while promoting innovation and creativity.
All in all, these numbers taken together tell us that we have a unique opportunity in 2023 to build companies that will have resilience and sustainability ingrained into their DNA, which would, in the long run, be net positive for investors, employees and the African continent.
