We have witnessed a rise in GenAI use-cases and the attendant shift of global VC attention to investing in the industry. We share a brief overview of the overall landscape (global), and then provide a summary of the outlook in Africa.
Global Scene – Doubling Down On AI
VCs globally have shifted their focus to AI and ML solutions due to the unprecedented disruption these trends are bringing to industry. The graph below shows VC deal activity in the AI/ML space. According to Pitchbook data, VC deal activity in AI rebounded in Q2 2023 with $19.4 billion invested after Q1’s low deal value (apart from an outlier deal from OpenAI). OpenAI’s momentum benefited foundation model startups, spurring megadeals for Inflection, Anthropic, Cohere, Runway, and Mistral AI.
Overall, asides from this, over the past few months, VC fundraising has declined significantly. According to a recent Pitchbook report, “The major factor has been the absence of many $1 billion-plus funds, which accounted for more than 40.0% of commitment totals in 2018 and 2022. At just 15.0% of total commitments in 2023, these funds accounted for the lowest percentage of the total since 2013, at 12.9%”.
Africa – VC & M&A Making Significant Strides Amidst Global Economic Uncertainty
On the African scene, data from Briter Bridges H1 2023 report showed that at the conclusion of the first half of 2023, overall capital infusion into Africa’s startups surpassed an impressive milestone, exceeding the $20 billion mark over a span of 15 years. However, the past year has put pressure on startups and investors -forcing a number of notable startups to shut down, raise down-rounds or take deep cost cutting measures. We are however confident that the trend is upward in terms of deals going forward. From our educated judgement, the correction seen in the market is similar to the global scene where we witness inflated startup valuations over the past two years – which is now returning to pre-pandemic levels. We believe that the startups within the market that have survived this period are predominantly “default-alive”. Startups solving real and critical problems in mature industries tend to stem the tide.
On the M&A front, while number of deals slowed down since 2022, we saw a significant rise in M&A deals starting from Q2 2023, with a majority of them within the financial services sector. This is a similar trend to previous years.
