2023 began with a mixed bag of celebrating another record year for startup funding, Africa’s first AI startup acquisition, and licking wounds from a layoff wave. Since then, we’ve seen more events than we bargained for in African tech. Nigeria’s artificial cash scarcity opened a door for fintech, Flutterwave reportedly suffered a hack, and we finally recorded a new unicorn.

One big event on everyone’s radar in March was the Silicon Valley Bank (SVB) failure. SVB was the 16th largest U.S. bank (by deposits). Known as the startups’ bank, it held deposits of almost half of all U.S. venture-backed startups. But although it’s in the U.S., many feared that several African startups could become casualties. Those who stashed investor funds with SVB to protect them from tight capital controls in their home markets were suddenly on the verge of getting caught with their tails between their legs.

The subsequent sale of SVB to First Citizens Bank helped assuage depositors’ fears of losing access to their funds, restoring a sense of calm. But the initial panic in early-mid March could have made investors tighten their purse strings, limiting capital raises for Africa’s startups who rely heavily on foreign capital.

Data from Disrupt Africa’s latest report showed that funding for African tech startups declined by 57% in Q1 of 2023. Deal volumes were not any less gloomy, as it recorded only 87 deals, half of the 175 from last year. Meanwhile, funding in Q1 made up more than half of the total capital raised by African startups in 2022.

The Big Deal also released its report recently, showing the same pattern — a 52% YoY decline. In March, investors made deals worth only $66 million. To put it plainly, we haven’t seen a March this bad since 2020 ($39.6 million—an outlier year due to the COVID-19 pandemic). It’s also a 91% drop from February when startups raised $696.3 million. It also shows that investors made fewer and smaller deals in Q1 2023. In 2022, Nigeria and Kenya closed five and six rounds above $20 million, respectively, in Q1. But this year, none of these two closed any deal above $20 million.

And as though that wasn’t enough, two notable funds announced they were closing down—Naspers foundry fund and Y Combinator’s (YC) continuity fund. Naspers’ $77 million foundry fund was South Africa’s largest early-stage VC fund. Since its inception in 2019, the fund has made 12 investments across various sectors. At its closure, $37 million of the $77 million fund hadn’t yet been disbursed (equivalent to 6% of South Africa’s deal flow in 2022). But beyond just the capital loss from South Africa’s ecosystem, this news is particularly worrisome because a significant share of deal activity on the continent is early stage (Pre-seed-Series A). 34% of deals in 2022 were early-stage. This ratio is even slightly higher in South Africa (36%).

On the other hand, YC is Africa’s 3rd most active investor (by deal count, as of 2022). They’ve traditionally backed early-stage startups through a $500,000 injection on admission into their incubator program. In 2015, they launched a continuity fund to offer additional funding to their program alumni. But Garry Tan, YC’s president, pins the closure of the $700 million fund on the need to refocus on their core: early-stage investing.

On the bright side, Nigeria recently announced a $618 million Investment in Digital and Creative Enterprises (iDICE) investment for startups and creatives. The fund size equals 50% of all VC funding Nigeria received in 2022 ($1.2 billion). Also, eyes are now coming to deep tech, which only raised 4% of capital in 2022. The acquisition of a Tunisian startup, InstaDeep, by German pharma giant BioNTech, for $446 million is Africa’s 2nd largest acquisition to date (after WorldRemit’s $500 million acquisition of Sendwave in 2020).

The biggest lesson of the first quarter is that Africa is not as isolated as many think. The events from outside the continent end up affecting it, whether for good or bad.

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