According to tech accelerator, AfricaArena, startup funding to the continent could drop by US$800 million which is a 40% slowdown. The report gives a worst-case scenario that the trend might extend into 2021.
Over the past years, Africa has witnessed record investments in the tech startup ecosystem. The capital inflows have cut across all sectors, whether energy, agri-tech, health, or fintech. Most of the startups have convinced their backers over their long-term growth prospects. The fact that investors are preferring African ventures, is an indication of their trust in the potential for long-term growth.
The trend will be detrimental to companies seeking early seed funding as they try to be more capital efficient. They will instead opt for businesses already showing signs of profitability and classify as less risk. The effect of the pandemic will not spare the large tech companies who also have to adjust accordingly to the current macroeconomic conditions.
The AfricaArena Report, last year alone saw investments into these startups exceed $2 billion. The uptick in funding was attributed to large deals such as the $55 million investment into Jumo.
Everything was great until the pandemic struck resulting in worldwide economic shutdowns. The world went from steady growth to recession in a matter of weeks.