Tech

South African tech startups had a disappointing 2022 – but things are looking up

South African tech startups saw a decline in investment in 2022.

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

Despite South Africa’s struggles, 2022 was a landmark year for tech startups in Africa. Over 600 African tech startups raised a combined $3.3 billion throughout 2022, a YoY jump of 55.1%.

The growth in investment is impressive when considering the global downturn in investments for the year, especially in riskier asset classes like venture capital.

However, South Africa had a challenging year, with 78 startups receiving financial backing (12.3% of Africa’s funded ventures). Together the South African startups raised $329.7 million (9.9% of Africa’s total), representing a 2% YoY decline.

South Africa fell to fourth in both measures, dropping below Nigeria, Egypt and Kenya.

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Prior to 2022, the amount of funding in South Africa had been growing YoY, and 2022 marks the first time the country’s numbers did not increase.

Fintech remains the dominant sector in South Africa, despite its lead decreasing as other sectors gained YoY. Last year, there were 28 fintech that received investment (31.5%), raising a combined $132,582,000 (40.2%).

The e-health and AI sectors both stood out, with 14 (15.7%) and eight (9%) ventures funded, respectively.

E-commerce and retail-tech also had a good 2022, receiving $97.8 million (29.6%), while other investments were spread across the reaminig sectors.

Despite the challenging year, the average ticket size in South Africa was up to over $4 million, speaking to a higher number of larger ticket sizes.

Disrupt Africa said that 2022 was a disappointing year for South Africa, with it being overshadowed by the vibrancy and enthusiasm of Nigeria and Egypt.

South Africa does not have its merits – a higher prevalence of mid and later-stage funding – but could use some rekindled energy.

2023 expectations

Despite 2022 being a difficult year for South African tech startups, 2023 has started well.

Speaking on The Month in VC podcast, Gabriella Mulligan and Tom Jackson examined how much money tech startups raised so far in 2023.

Car subscription company Planet42 raised $100 million in combined debt and equity funding.

Credit company Lulalend raised $35 million, gaming startup Carry1st got $27 million, and insurtech company Naked got $17 million.

Online security company Sendmarc, order-to-delivery service Yebo Fresh, breakdown management response app Right Now Response, and prop-tech startup Flow also received millions of US dollars in funding.

This is positive news for the South African tech startup environment in 2023, especially with the major tech companies facing a challenging year.

Companies such as Elon Musk’s Tesla and Twitter, retail giant Amazon and tech conglomerate Meta have all seen upwards of tens of thousands of employees being laid off work amid a faltering global economy and high levels of inflation.

South Africa has a 68% chance of entering a recession this year, with retrenchment expected in many sectors, including tech.

As the Mail and Guardian reported, industry experts expect tech jobs to be shed in 2023 amid rising interest rates, which have increased the cost of doing business.

Earlier this month, Telkom announced it would retrench 15% of its staff – putting an estimated 1,770 jobs at risk – as it looks for cost cost-saving initiatives.

Read: South African tech company sounds the alarm on skills shortage

Artmotion S.Africa

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