Rising Above the Tech Downturn: African Startups' Guide to Securing Funding and Finding Success

24 Jan 2023

According to a report by AngelList and Silicon Valley Bank, a tech decline in Africa would damage early-stage firms in the second half of 2022. According to the report, series B valuations fell 50% from a median of $250 million in the first quarter of the year to $125 million by the fourth quarter. Furthermore, throughout the third and fourth quarters, fewer early-stage businesses raised fresh capital, and more cash was raised via down rounds. This digital industry slowdown may have a big effect on African businesses, making it more difficult for them to acquire investments and attain high valuations.
This is confirmed by statistics from the African Private Equity and Venture Capital Association (AVCA), which reveal that, as a consequence of the COVID-19 epidemic, venture capital investments in Africa would decline by 34% in 2020. Furthermore, Disrupt Africa research indicated that financing for African businesses fell by 34% in 2020, with seed and venture capital investment also falling by 34%.
It is crucial to highlight that the research focuses exclusively on startup activity on AngelList's platform and may not completely represent the situation of African early-stage businesses.

The statistics from AVCA and Disrupt Africa, on the other hand, reinforce the conclusion that the 2022 tech slowdown would have a severe effect on African startups. African businesses seeking investment during this slump may need to concentrate on several methods, such as developing strong alliances, developing unique products, and developing a sound business strategy. They may also explore other financing sources such as angel investors, crowdsourcing, or government subsidies. Overall, to effectively navigate this slump, African companies must be aware of market circumstances and change their strategy accordingly.
It's also worth noting that, despite the current economic slowdown, there are still prospects for African companies to prosper. Many investors are still seeking good firms to invest in, and the slump has not stopped them. Furthermore, Africa's population is expected to quadruple by 2050, presenting a major market opportunity for companies that can create new solutions to satisfy the demands of this rising population.
Furthermore, the downturn may provide possibilities for entrepreneurs to acquire assets and personnel at a lesser cost, as well as to distinguish themselves by delivering answers to the downturn's challenges. The COVID-19 epidemic, for example, has increased the need for digital solutions, and firms that can deliver such solutions will be well-positioned to capitalize on this trend.

In conclusion, the second half of the 2022 tech slowdown may have a substantial effect on African startups, making it more difficult for them to acquire financing and attain high valuations. African companies, on the other hand, may still flourish by adjusting their tactics, concentrating on good alliances, developing unique products, having a sound business plan, and seeking alternate sources of finance. They should also be aware of market circumstances and seek out possibilities that may come as a result of the downturn, such as increased access to technology and digital solutions.

African countries are also taking initiatives to help the startup sector. In South Africa, for example, the government has established the Venture Capital Fund of Funds (VCFOF) to assist venture capital businesses and provide investment for early-stage entrepreneurs. The Kenyan government has also established the $24 million Kenya Venture Capital Fund, which will provide investment to early-stage firms in the nation. Moreover, institutions such as the African Development Bank (AfDB) and the International Finance Corporation (IFC) have established a variety of projects to assist African businesses.
Aside from government funding, various private groups and angel investors are actively investing in African entrepreneurs. The African Business Angel Network (ABAN), for example, is a network of angel investors interested in investing in early-stage African firms. Through its Entrepreneurship Program, the Tony Elumelu Foundation (TEF) also offers financing and mentoring to African businesses.
It's also critical for African entrepreneurs to look into alternate financing sources like crowdfunding, which has grown in popularity in recent years. Platforms such as Thundafund, Metta, and M-Changa have been critical in providing finance for African entrepreneurs.

To summarize, although the tech slump in the second half of 2022 will have a substantial effect on African companies, there are still prospects for success. African companies should adjust their strategy by focusing on good relationships, developing unique products, having a sound business model, and seeking alternative financing sources such as angel investors, crowdsourcing, or government subsidies. African governments, private groups, and investors are also actively helping the startup ecosystem. To effectively manage this slump, African companies should be aware of these possibilities and make use of them.

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