2023 started with a lot of uncertainty for the tech industry. Many companies have struggled to find their rhythm since the economic downturn in 2022. As a result, we’ve seen a lot of layoffs, shutdowns, valuation cuts, and expansion halts in the last one year.

Tech funding in the first quarter of 2023 also painted a gloomy picture. Data from Disrupt Africa showed that funding for African tech startups declined by 57% in Q1 of 2023. Deal volumes were also a lot lower, as it recorded only 87 deals, which is only half of the 175 from last year.

But in May, things looked much better. After an exceptionally quiet March and April (the former being the worst month in two and a half years), African startups raised $645m. “Africa: the Big Deal” shows this was the best May ever for African tech funding. There were at least 50 $100k+ deals and the volume was more than four times what the ecosystem recorded in April.

“May 2023 was actually the best May the ecosystem has ever had in terms of funding raised,” Max Cuvellier, founder of Africa The Big Deal said. “Now, is it the light at the end of the tunnel? As always, it’s hard to say. While the numbers are certainly encouraging, they could also give false hope, as we experienced in February,” he adds. In February, African startups raised $700m –the highest ever recorded for that month. However, hopes for another exceptional year sharply declined after a 10-fold month-on-month drop in March, with only $70m raised.

Now that the numbers are high again, the question is whether or not the funding market is making a comeback. The short answer is no one knows for sure. The long answer, however, lies in the details.

May was a record month, but it’s not as exciting as it seems. Most of that money went to two Kenyan companies. M-Kopa, an asset financing platform, raised over $250m in equity and debt. Then, Sun King, an off-grid solar energy company and Africa’s most funded non-fintech startup announced a $130m securitisation led by Citibank. These two deals accounted for 62 per cent of all funding in May, while deals exceeding $10m represented 96% of the total raised.

The usual culprits dominated the funding scene. Kenya, Nigeria, and South Africa accounted for all the deals above $1m, except for one Namibian startup, Adaire, that raised $1.1m for its software development services. These three countries, along with Egypt, form the Big Four—the African nations that have consistently snatched the bulk of venture capital since 2019.

What’s even more concerning is that most of the funds raised this year came from three deals. “Three companies, namely MNT-Halan, M-Kopa, and Sun King, represent nearly half of all the funding raised on the continent in 2023 so far. And this percentage rises to 58% if we add Planet42 and TymeBank to the list,” Cuvellier said.

So, here lies the problem: a few big deals can distort the numbers and create a false impression of growth. But small deals are few as well. Meanwhile, it is in their multitude that serious growth happens.

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