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How global credit crunch will affect tech startups

African startups are proving to be game-changers. Apart from their capacities to scale, they are attractive to investors owing to innovations and the ability to move into uncharted waters.

In 2021, startups in Africa raised about $4.3bn from 818 deals that were above $100,000, according to ‘Africa: The Big Deal’, a database and insights firm which focuses on startup funding above $100,000 on the continent.

Startups in Nigeria raised about $1.5bn. Thirty of the 54 countries on the continent raised at least one $100,000 deal during the year. Since 2019, startups in Nigeria have raised more than $3.5bn, 36 per cent of the total funds on the continent.

According to the firm, an average of one $1m+ deal had been announced every week (192 in total), and $20m was raised weekly on average in Nigeria since 2019.

However, the global tech ecosystem has been witnessing a funding squeeze. Data from the firm revealed that in the first quarter of 2022, both the US and Asia recorded negative year-on-year growths while Europe and Latin America managed to hold a Y-o-Y growth of over 30 per cent.

This indicates that three-digit year-on-year growths are becoming a thing of the past, except in Nigeria and Africa. In Q1 2022, funding into startups in Nigeria and Africa grew by 150 per cent year on year, indicating a fourth consecutive quarter of 3-digit growth.

In the quarter under review, startups raised $1.8bn in Nigeria and other African countries. This squeeze and uncertainty in funding are causing startups in the global west to halt expansion plans and lay off workers.

According to www.layoffs.fyi, a global tech and startup layoff website, 31,707 employees were laid off from startups in the first two quarters of 2022. This is a 229.49 per cent increase from 9,623 that were sacked in the preceding quarters of 2021.

Venture Capital funding has paved the way for scale on the continent, according to experts in the startup space, as most startups would have struggled to grow without VC funds.

Analysts said any negative impact on VC funding might affect the nation’s tech ecosystem, although the sector had shown resilience to be where it was today.

According to the founder of Lendsqr and a trustee of Open Banking Nigeria, Adedeji Olowe, funding raised on the continent had started to slow down and might dip from July.

He said, “The funding raises have started reducing from Q2. If we wait till July when the quarterly numbers come, we will see the dip. The dip is affecting everyone. We are going to witness a reduction in funding raises.”

He explained how money flew into VCs before they were redistributed to startups and what was influencing a global squeeze in funding raises. He stated that funding often came from limited partners or institutional investors with huge finances in their trusts.

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