Africa’s tech sector has seen exponential growth over the past five years, with start-ups raising nearly $5 billion in 2021. That’s nine times more than the amounts raised five years ago, according to a Techcrunch report. year.

The Fintech sector accounted for 60% of total funds raised. These include companies such as Opay, which raised $400 million in Series C funding; Flutterwave, which raised $170 million in a Series C round; and TymeBank, which raised $180 million in a Series B round. The funding positions these fintech companies to play effectively alongside global companies such as Stripe, Visa and Mastercard; accelerate transaction volumes, revenue growth and geographic expansion.

Other sectors also benefited from fundraising, including HR-Tech company Andela which raised $200 million; Mobility company Moove which raised $23 million, auto finance company Autocheck which raised $13 million, Edtech company uLesson which raised $15 million among many others.

The first quarter of 2022 followed the same trajectory with total venture capital funding in Africa amounting to $1.8 billion. This represents a 150% increase from Q1 2021, which was $730m. The largest deal by value is fintech company, Flutterwave raising $250m, logistics company, Moove raising $105m, Wasoko $125m and InstaDeep $100m.

The second quarter of 2022 saw a downturn on the global front, with the Russian invasion of Ukraine triggering energy, food and commodity crises. This led to global supply chain issues and higher inflation; causing a global economic slowdown, a slowdown in capital and cryptocurrency markets, and concerns around a recession.

Global venture capital funding fell below the $40 billion mark for the first time in May 2022, according to a report by Crunchbase. This is down 20% from $49 billion a year earlier in May 2021 and well below the November 2021 peak of $70 billion.

This apparently raises concerns for the future of the African start-up ecosystem and funding.

Some stakeholders are speculating about a possible funding crisis for African startups. These speculations are not misplaced given that Africa is not isolated from the rest of the world. Typically, when capital markets fall, company valuations suffer; and this affects start-up valuations and possibly future funding prospects.

Despite this, it is widely envisaged that the African start-up ecosystem should remain resilient in the face of the global recession.

This resilience can be attributed to the assumption that most African start-ups are fundamentally solving big local problems in their environment. These include access to banking services, the provision of more efficient technological solutions in health, mobility and energy to meet the needs of Africa’s growing population. With growing mobile and internet penetration and a large youth population, these companies are expected to continue to generate more revenue and record stronger growth.

Moreover, despite the exciting growth in funding for African start-ups in recent years, the size of the investment is curiously tiny compared to the rest of the world. According to CB Insights State of the Venture Report, total venture capital funding in Africa accounted for around 1% of global venture capital funding in the first quarter of 2022. To some extent, this provides a protective shield against global shocks such as economic downturns and market downturns.

Regardless of the assumptions above, going forward it will not be business as usual when it comes to funding African start-ups. Global investors should focus more on verifying the quality of companies; against sentiment-based investing, including FOMO which once drove some venture capital investments in African start-ups. We expect more emphasis on due diligence and scrutiny before investing. Therefore, only quality start-ups with strong fundamentals can end up receiving the check.

On the part of start-ups, it’s time to start focusing on building a quality business. The best brands will no longer be measured on “amount of funds raised” hype, but rather on fundamental metrics such as revenue growth, revenue quality, market share, customer satisfaction and retention. In addition, more attention would be paid to corporate governance and overall corporate integrity.

Additionally, as the African start-up ecosystem continues to face brain drain challenges, strategies need to be deployed to attract and retain quality talent.

Going forward, we foresee resultant changes in the dynamics of the start-up landscape in Africa and it is already happening. More and more companies will embrace inorganic growth as a strategy for survival and scale.

Other start-ups are planned to expand geographically in other countries in Africa and the Middle East; in search of new markets, new customers and new sources of income. In the Fintech space, companies such as Opay, Flutterwave and Kobo have led the way with strong expansions in 2021 and early 2022. We have seen Helium Health acquire Meddy, a Qatar-based telemedicine start-up. Auto-tech Autocheck acquired Cheki in Kenya and Uganda, and KIFAL in Morocco. Moove is expanding beyond Nigeria to other countries such as South Africa, Ghana and Kenya.

To drive scale, we expect to see more market consolidation among industry players. This may include mergers and acquisitions between start-ups offering complementary or competing services; and other vertical integrations in value chains. In Q4 2021, Flutterwave acquired Disha, a global content creation platform with strong growth and revenue prospects. MFS Africa also acquired Capricon, in the second largest fintech acquisition after Paystack. MaxAB acquired Moroccan WaystoCap and Piggyvest acquired Savi, among others. In the first quarter of 2022, Casablanca-based Chari, a B2B e-commerce startup, announced that it was acquiring Axa Credit, the lending division of Axa Assurance for a record $22 million.

While the opportunities in the African fintech space are still huge, investors may pay increased attention to non-fintech businesses such as logistics, mobility, blockchain, health tech, education, agricultural tech and green energy.

Finally, there are more and more conversations around crypto/blockchain/web3/DeFi. More of these projects are being deployed in different sectors of African tech ecosystems. Startups such as Nestcoin and Canza Finance in Nigeria, and Jambo in the Democratic Republic of Congo are setting the pace in these markets while raising pre-seed/seed funds. In Q1 2022, Blockchain startups in Africa raised $91 million, eleven times the growth compared to Q1 2021 according to a report by blockchain investment firm Crypto Valley Venture Capital (CV VC) and Standard Bank.

Looking ahead, it is safe to say that there are very exciting times ahead for the African start-up ecosystem and we are here for it.

Chinyelu Chikwendu is a strategy and finance expert who leads execution in emerging markets.

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