Rough start to 2023 for tech startups in South Africa

After seeing a decline in investment throughout 2022, tech startups in South Africa have had a challenging start to 2023.

Last year, South Africa saw a year-on-year (YoY) drop in both the number of startups receiving funding and the total amount of funding received, according to the 2022 African TechStartups Funding Report by Disrupt Africa,

Despite South Africa’s disappointing year, 2022 was a record year for tech startups across the whole of Africa, with over 600 tech startups receiving $3.3 billion across the whole continent – a 55.1% increase from 2021.

However, African tech startups only received $649 million in Q1 2023, which marks a nearly 57.2% decline from the same period in 2022, with global economic headwinds across the world starting to catch up with Africa.

Despite the continent having a strong start to the year, a very quiet March hampered growth.

In South Africa, the E-health platform Envisionit Deep AI received over $1.65 million (R30 million).

In addition, Planet42, a Car subscription company, received over $100 million (R1.8 billion); Lulalend, a credit company, raised $35 million (R640 million); Carry1st, a gaming startup, got $27 million (490 million); and Naked, an insurance and tech company, received $17 million (R310 million).

Moreover, Sendmarc, an online security company; Yebo Fresh, an order-to-delivery service; Right Now Response, a breakdown management response app; and Flow, a prop-tech startup, also got millions of dollars in funding.

However, there is a drying up of international capital that has started to affect Africa for the first time.

Moreover, capital in South Africa will continue to be hard to find after Naspers closed its start-up-focused investment vehicle Foundry – blaming the global investment environment.

2023 expectations 

Speaking on The Month in VC podcast, Gabriella Mulligan and Tom Jackson from Disrupt Africa, said that 2023 is set to be a regressive year, with only 87 startups securing funding in Q1 2023 compared to 175 in Q1 2022.

Q1 2022 accounted for roughly half the startups that received funding and half of all total investment for the whole year, so if the current trajectory stays the same, YoY funding will decline by over 50%.

Despite a positive outlook at the start of the year South African tech startup environment, local companies look set to join their international counterparts for a challenging year.

Major international companies, including Twitter, Amazon, Google, and Meta, have retrenched thousands of employees due to global financial pressures and high levels of inflation,

As reported by the Mail and Guardian, industry experts said that many tech jobs in South Africa are also on the chopping block due to rising interest rates – the South African Reserve Bank has recently hiked interest rates by 50 basis points. 

Earlier this year, Telkom announced it would retrench 15% of its staff due to ‘restructuring’. However, there has been some positive news in the South African tech startup environment in the early stages of Q2 2023.

Earned wage access startup, Paymenow secured an R250 million (US$14 million) debt facility via Rand Merchant Bank. In addition, fintech startup Peach Payments raised over $31 million (R570 million) in Series A funding to fasten its growth across the continent.

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