Over the two years after the global pandemic, there has been a significant change in the VC landscape with a contraction in the number of deals being made. However, 2024 specifically has shown that there is some sign of recovery. Since the beginning of the year, we have seen some light at the end of the tunnel with VC funding for example climbing at 8% from Q1 to Q2 2024, reaching $66B. Late-stage tech valuations have experienced some rise in 2024, after tanking in mid-2023. Seed activity remains resilient as valuations are still trending up. Also in early-stage funding, series A deals will likely see an increase in 2024, as mature seed stage companies seek funding.
The impact of the pandemic valuation trends, has changed expectations across the board. VC are now asking for a clear path to profitability, favoring highly scalable businesses that have the potential to disrupt large markets. Consequently, IPOs will look like they did a decade ago with smaller, more efficient companies exiting earlier.
VC Activity in Africa
Africa’s venture capital ecosystem has seen deals in decline over the past two years. However, Q1 2024 recorded a modest increase in deal value. In Q1 2024, $360 million was invested in African startups, which is higher than the last two quarters of 2023. It is worthy of note that most VC activity in Africa is still led by foreign (outside Africa) investors.
The focus on profitability has created the phenomenon where startups are taking more time between rounds of fundraising. On the average, time between first and second rounds of funding is 19 months.
We believe that this is a good sign, ensuring a balance of hyper-growth and disciplined strategy.
Focus On AI
In May 2024, the market capitalization of NVIDIA, maker of AI-ready “superchips,” soared past $1 trillion. This is a reflection of the current innovation economy. AI startups have dominated global funding in 2024, capturing 28% in Q2’24 and a total funding amount of $18.3B (an increase of 32% QoQ). This was mainly driven by large deals like what we saw in xAI, Scale and CoreWeave.
Where Is The AI Investment Dollars Going?
Using the US as a benchmark, we see VC dollars split across the AI tech stack, with the application layer having a larger share of funding as expected. Below is a chart showing the split across the tech stack, which we believe is representative of the rest of the world.
AI Adoption in Africa
Many efforts to bolster the AI ecosystem in Africa have started with grassroots communities like Deep Learning Indaba, AI Saturdays Lagos, Data Science Africa, Ghana NLP, and Masakhane. We believe Pacer Ventures and its portfolio, including Optimus AI Labs, Ziki.Ai, and Optimus Digital Future, will significantly influence AI adoption.
Other notable companies include Intron Health in Nigeria, which develops NLP tools for understanding African accents in clinical settings, and minoHealth AI Labs in Ghana, which creates AI systems for diagnosing 14 chest conditions. Retail consumption of AI products is also on the rise. For example, according to the 2024 Stanford AI Index, 27% of Kenyans use ChatGPT daily, ranking third globally behind India and Pakistan.
Other Industry HighlightsGlobal Fintech funding rebounds 19% QoQ to hit $8.9B, led by funding rounds in Stripe and AlphaSense. Retail tech funding was stagnant from Q1 to Q2, while digital health funding slipped by 26%.
