The 2022 venture finance and investment ecosystem in Africa in 4 charts
Digging deeper into the data
At Briter, we recently released our 2022 Africa Investment report (#AfricaInvestmentReport). Along with other annual publications, it was picked up by media outlets looking to make sense of the state of venture finance and investment in 2022, and what was ahead in 2023. Articles covering the report noted that 2022 was a record year for investment in African startups despite other regions suffering significant downturns. But the articles around venture finance and investment in Africa in 2022 aren’t all positive. They rather point towards a more complicated landscape with several potential red flags for the ecosystem. For example, they highlight the reliance on a few mega deals and investors, the absence of new unicorns in 2022 (which usually accompany record growth in an ecosystem) and the slowdown in deal flow in the second half of the year.
Our new digging deeper into the data series that we will be running through February aims to look beyond the headlines to help you make sense of what happened in the venture finance and investment landscape in Africa in 2022 and share what we will be tracking in 2023 to help you stay on top of the market.
First up, we’ve pulled together four charts from our Briter Intelligence data to help make sense of the 2022 landscape by zooming out to see where we are on the long-term growth trajectory for Africa, but also zooming in to see if and where this trajectory is changing.
1. The volume of deals peaked in Africa from Q3 2021 to Q2 2022.
Chart 1 above shows that the volume of publicly disclosed and announced deals peaked from the second half of 2021 to the first half of 2022 in Africa. Over this period the volume of publicly disclosed and announced deals averaged more than $1.5bn per quarter. Another way to interpret this is that the “bubble” in the volume of investment fell over 2021 and 2022. This is part of the reason that the volume of deals looks so similar between the years despite there being very different attitudes amongst startups and investors in the second half of 2021 to the second half of 2022. One reason for this is that publicly disclosed and announced deals typically lag when the deal was actually agreed between the investor and the startup. Therefore it is very likely that this “bubble” actually occurred within a single financial year for the investors and that we’ve already been going through the “funding drought” in 2022.
2. The volume of deals in Africa fell 50% from Q1 to Q4 2022
Chart 2 shows that Q1 2022 alone accounted for 37% of the total announced and publicly disclosed deal volume for 2022. Each quarter following Q1 saw a decrease in the volume of deals. By Q4, the volume of deals was down more than 50%. This shows a market more in line with global trends.
3. The volume of deals returned to pre-Covid levels in Q3 and Q4 2022, but the number of deals grew.
Chart 3 above shows that the volume of deals in Q3 and Q4 was comparable to 2019 and 2020. However, while the volume of deals has returned to pre-covid levels there is no slow down in deal activity. Despite more than a 40% drop off in volumes from Q2, deal activity peaked in Q3 2022.
4. Early stage investing was an overlooked story in 2022
Much of the media attention in 2022 was focused on what was going to happen to growth or later-stage deals in Africa with the global downturn. Initially, the data looked good, as we covered above, but as the year went on fewer and smaller deals were being announced with many notable startups needing to make layoffs or even close down. Many of these were startups that rode out the first wave of investment into Africa focused on fintech and e-commerce. What was overlooked was the growth in early-stage investing.
Chart 4 shows the change in the distribution of the size of deals being done in the first half of 2022 compared to the second half. Investments over $10m, typically associated with growth or later-stage deals in Africa, fell by 40% whereas investments under $250k nearly tripled. This was no accident. The market was well prepared for this shift to early-stage investing. There are many more angels writing small cheques thanks to several notable exits in 2021. International angel investors have also now seen what is possible in Africa and are around for the long haul. Several incubators and accelerators have raised their own funds and many VCs have partnered with incubators and accelerators to get access to earlier and earlier-stage startups. Development finance institutions (DFIs) have also played a key role here by partnering with early-stage investors directly or indirectly through investing in funds focused on early-stage startups.
So what?
There have been many attempts to define the landscape of venture finance and investment into startups in Africa in 2022. For example, reversion, outlier, default, and survival, have all been terms picked up in the media or heard at conferences. But there may be another way to look at it.
From 2018 to the first half of 2022, the market grew rapidly. The only exception was the second quarter of 2020 with the onset of the COVID-19 pandemic. Fintech and e-commerce startups were at the forefront of this growth and rode the wave to massive valuations. Four achieved the coveted unicorn status. The world took notice. This is nothing to shy away from.
But perhaps we are experiencing a reset moment. The charts above show that we are not entering a funding downturn, we’ve been in one. The startups and investors know it and have lived it. The growth and later-stage deals that became bigger and bigger and drove the rapid growth in numbers have stalled as investors wait for the next big thing. Startups that have already raised Series A in 2020 or 2021 are being forced to take bridge rounds or look for alternative financing. This is not unique to Africa either. The United States saw a similar trend from later-stage and growth investing to early-stage investing.
Will this trend continue? What does this look like in Africa? Will fintech be dethroned? Will another market jump in the Big 4?
We don’t pretend to be forecasters. What we do is track and analyse trends. Through our Intelligence platform we will be monitoring where the momentum is going for investment stages, sectors, products, demographics and geographies, amongst others. If it is a reset, it will create real opportunities for startups and investors alike that are attuned to these trends. Similar to those seen in the last wave, but off a much stronger base with a more robust ecosystem behind it. Further, it doesn’t mean all doom and gloom for growth or later stage startups as well. Many are already making the hard decisions to make themselves more attractive to future investors or acquisitions. Their growth is likely to continue, albeit at a lower pace initially. Several will likely find good exits through later stage institutional investors or corporates as they find a price point in line with the market.
In our next article in the digging deeper into the data series we will be exploring what sectors and products out performed or picked up momentum in 2022 and what you should be on the lookout for in 2023. As always, follow us here to stay updated on the latest data and insights coming out of Briter or sign up for a demo of the Briter Intelligence platform here.