Read time: 3 minutes

Tighter global economy could force African start-ups to opt for M&A deals

By , Sub Saharan Africa Business, Tech, News and Development Journalist
Africa , 19 Dec 2022

Competitors within Africa’s start-up ecosystem may have to consider M&A exit deals as the continent failed to attract as much VC funding as expected.

At the beginning of 2022, stakeholders within Africa’s start-up ecosystem projected an income of VC capital of over US$5-billion, based on the US$4.5-bllion raised in 2021.

However, the expectation now is that total funding for 2022 will be below the US$5-billion mark.

An executive within a Sub-Saharan Africa VC firm, who spoke to ITWeb Africa on condition of anonymity, said, “The honeymoon is over especially as the world gears for recession and everyone contents with high interest rates. The nature of capital flows for African start-ups has shifted and in 2022 we may just be above last year’s level which is a shift from the high growth rates of the past two years.”

Victor Basta, co-head at DAI Magister, an investment bank focused on technology and climate change companies, said African entrepreneurs have to consider a trade-off between further fundraising and the option of strategic exists via M&A deals.

Basta said, “The African market is a young ecosystem that is beginning to mature, and the overall focus is transitioning from raising cash through funding rounds to looking for the real money, which comes from M&A exits.”

Despite lower values in the third and fourth quarters of 2022, Africa’s start-up ecosystem has remained largely been resilient.

Regional media outlet, Arica: The Big Deal reported that African tech start-ups raised US$4.5 billion as at the end of November.

The source within the Sub-Saharan VC firm added, “Venture capital has been more timid in 2022. So this means that founders in more mature markets with sophisticated financial systems such as South Africa and Egypt have to start looking at exits as a way of raising much needed new capital. African start-ups also have to tighten their spending and to be more realistic than overly ambitious with valuations going into 2023.” 

Daily newsletter