Could the pipe be drying up?

Zooming in on low deal numbers in Q1 2023, especially for earlier-stage transactions

When we analysed Q1 2023 results last week, one thing that we noticed is that the quarterly number of deals in Africa decreased dramatically YoY. This week we wanted to dive a little deeper into these numbers, and focus specifically on equity deals. And here is what we found:

We recorded 126 $100k+ equity deals in Q1 2023, the lowest quarter since we started collecting this granularity of data in 2021. This represents a decrease of -30% QoQ and -50% YoY. For most of these deals, start-ups and investors often decide not to officially ‘label’ them, a trend that’s intensified recently: in Q4 22-Q1 23, only 40% of deals were labeled, versus more than 50% in previous quarters. Focusing on labeled deals, given the incredible performance of Q1 2022, YoY decreases are quite dramatic across the board. QoQ though, there is a stark difference between early-stage deals (pre-Seed + Seed: ÷3 YoY, ÷2 QoQ) and later-stage deals (pre-Series A and beyond: ÷2 YoY, x2 QoQ), which can partly be explained by the fact that later-stage deals had suffered a strong QoQ decline in Q4 2022. In other words, it seems like while investors were still investing in follow-on rounds, less of them were making bets on earlier-stage ventures, which could have knock-on effects for future activity.

Indeed, if we zoom in on labeled $100k+ pre-Seed and Seed deals, the numbers are quite concerning. We recorded 29 such deals in Q1 2023; the quarterly tally had never fallen below 45 since early 2021. In January and March, the monthly total was 6 and 8 respectively, 3x to 4x times lower than the monthly average in 2021-2022 (24). Is activity slowing down more in certain areas? To a certain extent, Yes: 1 in 5 early-stage deals in Q1 2023 were in fintech vs. 1 in 3 in 2021-2022; 2 out of 3 early-stage deals in Q1 2023 were in the Big Four vs. 4 out of 5 in 2021-2022. Diversification away from fintech and the Big Four could be positive, but not if overall numbers continue to drop. While it is too early to draw definite conclusions, should this trend continue, it could have a serious impact on the ecosystem’s future growth…

Don’t get us wrong: it’s not all doom and gloom! As we covered last week, Q1 2023 results - in particular February - were stronger than most had expected. But this slowdown feeds into a more global story of tech investments restabilising after a crazy period (mid-2021 to mid-2022 in Africa). That said, if you want to see for yourself and do some additional analysis, check out our database which contains over 2,500 deals now, and which you can access here with a discount. See you next week!