Africa's Q1 Check-Up: Where's the Tech Money Amidst the AI Hype?

Good morning savvy entrepreneurs and tech enthusiasts!

The first quarter of the year saw a relatively slow start for African tech and startups, primarily in relation to funding. January was especially quiet, but things picked up as the quarter progressed. Let's take a closer look at African tech and startups in Q1.

Headlines & Funding Trends

The first quarter generated plenty of headlines, and we covered some of them right here at Rooibos Radar. Several startups across various industries drew significant interest, although, unfortunately, funding remains concentrated in the same handful of countries.

Financially, the year started at a sluggish pace. Startups secured only $83 million in January, but by the end of March, they'd collectively raised $466 million. While this represents growth, it still reflects a 27% quarter-over-quarter (QoQ) and a 47% year-over-year (YoY) drop in funding.

Equity financing accounted for 71% ($332 million), a 9% QoQ and 47% YoY decrease. Debt financing made up the remaining $134 million, a significant 44% QoQ and 46% YoY decline.

Unsurprisingly, 87% of investment went to the 'Big Four' – Nigeria, Kenya, South Africa, and Egypt. Nigeria received the lion's share at $160 million (35%), followed by Kenya with $108 million (24%). South Africa and Egypt received $72 million and $53 million respectively. Other countries attracting notable investments include Uganda ($16 million), Ghana ($10 million), Tanzania ($9 million), and Morocco ($7 million).

Transport and logistics took the top spot in terms of funding, securing 32% of the total investment. Fintech, that long-time favourite, along with Agri-tech, Energy, and Healthcare complete the top five. Nigerian vehicle financing startup Moove was the standout, securing over $25 million in Q1.

Industries in Focus

Fintech has always been Africa's darling, but this year we're seeing a shift. It's too early to say if this reflects a new normal or if things will even out later in the year. Either way, the top five focus areas represent crucial needs for Africa. Ride-hailing and vehicle financing are thriving within transport and logistics as Africa industrializes and its working class grows.

Fintech remains a strong contender at number two, working to solve a multitude of financial challenges. The continent is ripe for diverse fintech solutions, from cross-border remittances and digital savings to 'buy now, pay later' models. Expect to see even more innovation in this space.

Agri & Food, Energy, and Healthcare round out the top five, fueled by the direct impact of recent events like climate change, Africa's energy crisis, and the COVID-19 pandemic.

Active Investors & VCs

Uber's $100 million Series B investment in Moove marked its first foray into the African market. Other notable Q1 investments include Mubadala Investment Capital. Shell-backed All On, alongside investors like Bill Gates's Breakthrough Energy Ventures, ElectriFI, and Norfund, were active in the energy space. Investors like COTU Ventures, Sukna Ventures, RZM Investment, Dubai Future District Fund, and VentureFriends participated in the $4.5 million funding round for Egypt's payments orchestration platform, MoneyHash.

Notable Mentions (Y Combinator Startups and more)

• Google and Microsoft announced plans for African data centers, fueled by the rapid growth of AI and the need for increased capacity.

• The debate around Elon Musk's Starlink satellite internet service raged on, with some governments opposing its availability while citizens find creative ways to access it.

• Three African-founded startups – Miden, Triply, and Cleva – made it into Y Combinator's prestigious Winter 2024 cohort. As expected, they're all fintech players, offering card issuing, travel finance, and USD banking solutions.

Our Thoughts

The first quarter of 2024 doesn't exactly paint a rosy picture. It's not hard to see why things have been slow. Much of 2024 has been about downsizing and refocusing, kicked off by tech layoffs in the US – largely blamed on the explosion of AI. Big tech, investors, and VCs are channeling resources towards AI development. OpenAI's release of ChatGPT in November 2022 was just the beginning, with AI reaching fever pitch in 2023 and dominating corporate strategies in 2024.

The limited funding in Q1 reflects this shift. AI hasn't found its niche in Africa yet. Our problems are still fundamental, and the 'over-engineering' of AI-based solutions often isn't the right fit. That's not to say Africa isn't ready for AI – it'll just take time for AI applications aimed at our everyday challenges to mature.

Even YC's cohort was shocking – at least 50% of this year's startups are heavily focused on AI, leaving little room for the industries that truly fuel Africa's growth.

Parting Words

This quarter's analysis should spark a conversation. Is Africa ready to shift focus beyond tried-and-tested sectors like fintech? If not, investors need to re-evaluate their risk tolerance to match the challenges at hand. African entrepreneurs need continued support to navigate uncertain times and those with long-term visions for the continent should be a priority. The future of African tech relies on a collaborative effort, less over-mentorship we’re seeing, and yes, more big fundraising rounds for the solutions that struck out.

Oh, and one more thing we are researching to understand the entrepreneurial landscape in the continent. To do this, we have created a neat Google form that will help us understand the challenges experienced by entrepreneurs. Click here to share your experiences as an entrepreneur in Africa.

Catch you next time, and stay caffeinated.

>>> Google Jr