FinTechs in Africa remain immune to the current funding winter

By Puja Sharma

An industry report suggests that 62% of all startup investments were made in Africa last year and that the continent’s ecosystem has proven more resilient than others during the current bear market.

Economists are increasingly warning of tough times ahead, using the dreaded word recession or funding winter. Investors are beginning to apply more restraint to investments as they reevaluate their risk appetite. Founders of startups, particularly in the tech industry, have had to cede larger shares of their businesses in recent months due to lower venture capital funding.

Despite being the darling of venture capitalists for a long time and attracting some of the biggest investments to date, startups in the FinTech sector have been badly hit and are now frantically trying to close their books using whatever cash they have left.

Valuations drop when investors demand more stock for less money. Due to the current stock market performance, even companies that aren’t in the middle of funding rounds need to reassess their internal valuations to reflect the global situation.

Africa ‘Least Hit’ by funding winter

An industry report from Briter Bridges suggests that 62% of all startup investments were made in Africa last year and that the continent’s ecosystem has proven more resilient than others during the current bear market.

Obi Emetarom, co-founder and managing director of Nigerian FinTech AppZone, In a recent interview with PYMNTS, highlighted the growing size and maturity of African economies as opportunities for global investors. It’s the reason why he said the continent has been the “least hit” by the current funding drought.

African FinTechs had a good start to the year

During the first half of this year, FinTech startups like Flutterwave, Interswitch, and MFS Africa have also received hundreds of millions of dollars in funding, tripled their valuation after they received $250 million in Series D funding in February.

According to the Africa-focused database The Big Deal, these rounds resulted in a 150% jump in venture capital in Africa in the first quarter of 2022 alone compared with the same period of 2021. Investments in African startups reached record levels in 2021 as well.

African FinTechs have not had a particularly good few months, however. Earlier this year, Wave launched a $200 million Series A round that was thought to be the largest ever on the continent, but the unicorn company laid off about 15% of its staff.

Layoffs, however, aren’t necessarily a sign of trouble for African FinTech companies. It is more appropriate to consider them as part of the global recession fears. There is no business that is immune to global economic trends, as Microsoft recently had to reduce its workforce.

As well as this, the company secured a $100 million raise this month from investors such as the International Financial Corporation (IFC) aimed at extending its operations in the Francophone markets of Côte d’Ivoire and Senegal. However, other issues in the ecosystem indicate that startups need to remain vigilant in this uncertain economic climate and refocus on long-term sustainability.