First Published 25 August, 2024
The year 2021 marked a watershed moment for Africa’s tech ecosystem. A confluence of factors, including abundant foreign capital and a low-interest rate environment, fuelled a surge in startup funding. Global giants like Tiger Global and SoftBank, once synonymous with Silicon Valley, poured billions into African ventures, propelling several companies to unicorn status.
However, this era of unbridled optimism was short-lived. A combination of macroeconomic factors, including rising interest rates, geopolitical tensions, and a global funding crunch, led to a significant pullback from these major investors. The continent’s overreliance on foreign capital became evident as the funding landscape shifted dramatically.
Tiger Global and SoftBank, while influential, had distinct investment strategies. Tiger Global prioritised short-term returns, pleasing large institutional investors. SoftBank, on the other hand, favoured a cluster of number ones” approach, connecting diverse companies within its portfolio.
Despite their differing approaches, both firms shared a common trait: a willingness to invest in emotionally appealing startups. This, coupled with their own financial setbacks, led to a slowdown in their investment activities in 2016 and 2019
For instance, Tiger’s woeful Q1 2016 performance slowed its hands. Softbank also stalled its investment in 2019 after it made a risky bet, backing WeWork. In 2021, Tiger Global and Softbank picked up the pace of their investment, leveraging on the low-interest rate environment and increasing their investments by over 300% year-on-year.
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The low-interest rate environment of 2021 provided a catalyst for renewed investment, fuelling a wave of funding for African startups.
Notable deals included Tiger Global’s $170 million investment in Flutterwave and SoftBank’s $400 million investment in OPay. These deals played a crucial role in establishing Africa’s presence in the global tech landscape—minting new unicorns.
However, the euphoria was short-lived. As global economic conditions deteriorated, these investors faced mounting losses, forcing them to reassess their strategies. The withdrawal of these major players had a significant impact on Africa’s tech ecosystem, as the continent’s overreliance on foreign capital became apparent.
While the departure of global investors has presented challenges, Africa’s tech ecosystem is far from stagnant. Local investors and accelerators have stepped up, fostering a more sustainable and resilient environment. Some of them include early-stage VC firm, Launch Africa Ventures, a Pan-African VC fund solving the significant funding gap in seed and pre-Series A investment. The fund has the widest geographical spread, involved in 12% of all equity deals between $100,000 and $10million that happened on the continent since 2021. They sign more than one deal a week on average. Other prominent African firms like Flat6Labs, LoftyInc, and Future Africa are also active in this space.
Other investors like Verod-Kepple Africa Ventures, Founders Factory, Norrsken, Plug and Play, Ventures Platform, Musha Ventures, 4DX Ventures and 500 Global participated in at least one $100,000+ deal a month in Africa in 2021–2022. Most of these investors have been active in more than one region in Africa, contributing immensely to the new growth of the ecosystem.
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The focus has shifted from rapid growth to profitability and long-term value creation. The new Africa-focused investors are the product of a 2021 bet on the continent. This development points to the fact that the success of Africa’s tech ecosystem is a catalyst for future development and win-win for everyone.
As Africa continues to develop its talent pool, improve its infrastructure, and address regulatory challenges, it is well-positioned to become a major player in the global tech landscape. The future of the continent’s tech ecosystem will depend on its ability to attract and retain top talent, develop a robust exit market, and foster a supportive regulatory environment.
Joseph Olaoluwa
Senior Reporter, TechCabal
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I am the CEO of 9JAGISTLAND.My name is Adedeji Timothy and my co-owner is Oyekola Damilare.This blog is born out of our passion to educating to people in all aspect of internet life.We are enthusiastic about writing posts and articles online.
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