We saw during the first quarter of last year, investments in African start-ups evolve downwards. How do you analyze these latest figures ?
According to Big Deal data, there is indeed a slowdown in investment in the first half of the year. But in fact, it started earlier than that. It started in the second half of 2022. So we went from what we called the funding heat wave to the funding winter. And we've seen a significant slowdown in this funding winter.
However, it is important to note that this slowdown does not affect all sectors or all geographical areas in the same way. It is therefore important not to put them all in the same bag.
“There is a general slowdown, but it does not affect all sectors and all regions in the same way”
We have seen a very strong slowdown, for example in Nigeria, with a decline of almost 80% year-on-year. On the other hand, in Egypt, the slowdown is much less. Egypt remained above half a billion dollars in funds raised. The decline is only 30% year over year and in South Africa the decline is only 50%. It really varies from region to region. Things are also different from one sector to another.
If we look at fintech for example, the downturn is quite significant, actually reduced by $3 billion during what we call the funding heat wave, from June 2021 to June 2022. It went to less than a billion dollars in the last twelve months. So there has been a significant drop both in absolute terms and in the proportion of funding that goes to fintech, which has dropped from 53% to around 40%.
But there are areas where things have progressed. For example, in the climate tech sector, where we're very active with my Catalyst Fund, there's actually growth in funding in terms of proportion. For example, some time ago the percentage of funding for climate technologies was around 13%, then between 10 and 15%. If we consider the last six months, it is already 33% of funding that goes to climate technologies in general. And that percentage has increased between last year and this year.
So, again, yes, there is a general slowdown, but it's not affecting all industries and regions equally.
This slowdown is not unique to Africa. Earlier, the global tech ecosystem was experiencing the same slowdown. What can we deduce from this in terms of medium and long-term prospects ?
It's a good question. And yes, you're right that it's not just about Africa. This is a global slowdown. There is fundamentally less capital deployed in startups globally and specifically in Africa.
You know, it's always hard to know what the future holds. I don't have a crystal ball. The warning signs that we have to take with a pinch of salt is the number of start-up transactions. Last month, we closed over 75 deals, which is quite similar to June 2022 in terms of number of deals. So things are slowly starting to pick up again. In terms of total funding, it's even less, of course.
“When you have investments in these early-stage companies, that's always a good sign, because it means that eventually these companies will be able to reach Series A and Series B. So we're in the process of to build the future”
In June, we had just over $200 million raised by startups compared to more than double the same month last year. So it's even slower. But what's encouraging is that it's started to increase again from the start of the year, particularly in March and April, and we're seeing that increase with an increased number of pre-seed operations and priming.
So when you have a pipeline, when you have investments in these early-stage companies, that's always a good sign, because it means that eventually these companies will be able to get to Series A and Series B. So we are building the future. So that's encouraging.
Despite this global context of slowdown, in recent years we have seen the interest in African startups increase. What can we expect in the years to come in terms of the attractiveness of African startups?
The ecosystem remains very attractive. Looking at the past six months, we've had 400 investors writing checks for start-ups on the continent. So it's a pretty significant number. Most of them, the vast majority of them, are not based in Africa. Only a third of them are in Africa. So that's encouraging. This shows that there is still very strong activity. And again, you know, maybe there will be a readjustment, maybe it won't just be fintech in Nigeria anymore and there will be a readjustment in terms of phases, in terms of of sectors, in terms of geography.
“But the scale of the problems that African startups are solving are such that there is sure to remain huge potential for innovators across the continent and therefore a strong opportunity for investors to invest”
But the scale of the problems that African startups are solving are such that there is sure to remain huge potential for innovators across the continent and therefore a strong opportunity for investors to invest.
We are not talking about, say, comfort solutions, we are talking about access to energy, access to education, access to health care. We are talking here about primary needs and these primary needs will remain to be solved. Therefore, investors will always be ready to support these companies because of the type of problems they solve.
So I remain very optimistic about the continent. And, of course, I'm biased, but in my opinion and that of my team, climate tech is definitely a sector that we will see grow in the months and years to come. And we are already seeing that investors are increasingly keen to support startups in this sector.
To conclude on this positive note, climate technology is really the key word for us at the moment.
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