African startups defy global VC funding downturn, with M&A becoming the norm

African venture results have declined in recent quarters, echoing the trends in other startup regions around the world, but with $1.1 billion raised in the first half of 2023, Africa’s startup ecosystem shows resilience in the face of the global venture capital (VC) funding downturn.

Despite VC funding slowly retreating from the African market this year, the continent’s startup ecosystem continues to perform well compared with more mature markets like North America and Europe, according to figures from PitchBook, a capital market company.

In 2022, $2.9 billion was invested across 689 venture rounds in Africa, making it the only region with a year-on-year increase in both deal value and count, according to PitchBook data. However, even though the total value of the deals completed by VC-backed African companies dropped sharply from $948 million in Q1 2022 to $419 million in Q1 2023, the capital raised in Q2 2023 climbed to bring the total to $1.1 billion in the first six months of the year.

Meanwhile, mergers and acquisitions (M&A) activities are fast becoming the norm in the African startup ecosystem, offering a pathway for funding, market consolidation, and sustainable growth. The M&A have emerged as the primary exit strategy for startups especially in South Africa, Egypt, and Nigeria, with founders increasingly eyeing this path as a means of realizing the value of their ventures. For example, in Nigeria, the acquisition of Paystack by Stripe in 2020 also ignited M&A activities in the fintech space.

Other sectors have also seen smaller yet significant M&A, such as the acquisition of Lynk by EdenLife, Autochek’s acquisition of KIFAL Auto, CoinAfrique, and most recently, a majority stake in AutoTager.