Africa’s S Curves

The unique shape of the African tech opportunity

here’s no way around it. 2023 was a brutal year for Africa’s tech ecosystem. Funding dropped by almost 50% and startups closures filled the headlines while those with runway slowed down expansion plans. The tone of investors shifted as well, with every group chat and podcast interview now filled with advice about trimming down expenses and preparing for a funding winter. It’s not unwarranted advice either.

At some point during the Zero Interest Rate Policy (ZIRP) years, the perceived momentum of African tech exceeded reality. The rapid influx of capital created an illusion that the future of African tech could be brute-forced into existence with cash and exuberance. Much of this capital came from global investors new to Africa, bringing with them Silicon Valley’s ZIRP era archetypes and models. In 2021, 77% of active investors in Africa were international.

A young tech ecosystem naturally shapes itself around the vision of its funding sources, and African tech was no exception. As portfolios were marked up, secondary markets thrived, and term sheets flowed, cracks began to show. Instances of poor diligence or over-enthusiasm highlighted deeper systemic issues. There were instances like this, and this, and definitely this. We had moved fast, and we had broken things.

Individual instances of poor diligence or over-exuberance is one thing, but African tech’s coming of age in the ZIRP era meant that our foundation itself was built on transient principles. And unlike Silicon Valley’s near seamless pivot from crypto to AI, our ecosystem takes longer to adapt. It certainly feels like VC in Africa is now stuck in a dead space left behind by the previous era of momentum-based decision-making.

The significant drop in deals in 2023 largely stemmed from the retreat of North American, European, and Asia-Pacific investors. This withdrawal coincided with record-breaking raises by African venture firms, amassing hundreds of millions in fresh capital. In theory, this should be a boon for African VCs, yet activity remains subdued; The first half of 2024 saw a 60% funding drop in equity funding activity vs a year ago.

Now more than ever, it’s critical that African VCs send a clear message about what we believe in, why we believe it, and how we plan to support the potential of the continent in the coming years. To do so, I think we need to get back to first principles.