< Previous20 edge_may 2024 event CISO OF THE YEAR TUSHAR VARTAK, RAKBANK Tushar Vartak’s award for CISO of the Year acknowledges his exemplary leadership and innovative approach to cybersecurity at RakBank. With over two decades of experience in IT risk management and cybersecurity, Tushar has led RakBank in building resilient cybersecurity defences and implementing ground-breaking security initiatives. Through his strategic acumen and dedication to excellence, Tushar has made invaluable contributions to cybersecurity resilience within RakBank and the broader industry.edge_may 2024 21 event STRATEGIC CYBERSECURITY LEADER HE DR. MOHAMED HAMAD AL-KUWAITI, HEAD OF CYBER SECURITY FOR THE UAE GOVERNMENT HE Dr. Mohamed Hamad Al-Kuwaiti’s recognition as the Strategic Cybersecurity Leader of the Year highlights his exceptional contributions to cybersecurity within the UAE Government. As the Head of Cyber Security, Dr. Al-Kuwaiti plays a pivotal role in securing cyberspace for the entire nation. Through his strategic leadership and innovative cybersecurity initiatives, Dr. Al-Kuwaiti has positioned the UAE as a global leader in cybersecurity resilience and preparedness. cover story 22 edge_may 2024edge_may 2024 23 cover story REDEFINING AFRICA’S TECH LANDSCAPE Tech startups in the continent forge ahead despite funding hurdles BUSINESS By Sindhu V Kashyap I n recent years, the African technological landscape has started seeing a shift and growth. However, in 2023, and beginning of this year the African startup ecosystem has had a challenging time. In January this year, the ecosystem raised $83 million across 31 disclosed deals marking a 84.8 per cent year-on-year decline. However, when you look closer at the numbers, we note that while there has been a drop, the year-on-year reduction is 16.2 per cent, rather than the 42 per cent depicted. The reason for the large drop has been because of a single outlier deal made in January 2023. This kind of stableness indicates an underlying growth in the African tech startup ecosystem. Interestingly, profitability and economic strength have become crucial business parameters for startups, signalling a mature ecosystem focused on proven business models and solid execution. “Technology startups in Africa are primarily created more out of need. The existing systems in the region aren’t nimble or strong enough to cater to a young and digitally savvy population. This will just keep growing, thus creating more innovative solutions,” said Terry Antoinette, Managing Director, DTOS International Middle East DMCC, within the DTOS Group. Citing an example, Antoinette added Kenya was one of the first to use mobile money, and primarily because the financial needs of the region do not cater to the larger needs. He explains, “At DTOS Group, our overarching mission is to transform the global perception of Africa, showcasing its potential, resilience, and promise, particularly through African tech startups. We are dedicated to fostering meaningful connections between Africa and key financial centres like Mauritius and the UAE.” Despite the promise of Africa’s tech ecosystem, navigating its economic realities remains a complex endeavour. Currency depreciation, inflation, and political instability pose significant challenges to investors and startups alike. However, amidst these obstacles, there are signs of resilience and adaptability. Startups are finding innovative ways to thrive in the face of adversity, leveraging technology to create sustainable solutions that drive impact. An International Monetary Fund (IMF) report points out, Africa will be considered the second- fastest growing economic region in the world after Asia, at four per cent. The African real GDP is expected to grow by 3.2 per cent in 2024, up from 2.6 per cent in 2023. A report by Magnitt, the research firm stated, the growth mentioned by IMF will be driven by an increased demand for natural resource and the growing services sector, especially in East Africa. In 2023, African tech startups collectively raised $1.4 billion in the first nine months and of this $49.24 million was raised in Q3 alone. However, the drop in numbers cannot be ignored. “The less promising reality currently has been propelled by local conflicts, new and lingering global conflicts, weak global economic growth, and climate change shocks,” added the Magnitt report. One of the biggest macro-economic challenges are the currency depreciation against the dollar, as seen across Africa in 2023, which will continue through this year. This drop can be attributed to unsupportive monetary policies, high inflation, and 24 edge_may 2024 cover story diminishing confidence in local currencies. “Africa’s most transacted countries, Nigeria and Kenya, are experiencing unprecedented currency depreciation and inflationary pressures. Nigeria’s naira fell by 55 per cent against the US dollar in 2023, marking its worst year since 1999, while the Kenyan shilling saw the largest drop in 30 years. With no hopes of a rebound in sight, international investors remain unnerved and venture funding stands to suffer, as we have seen with Egypt,” stated the report. On the flip side, the key players driving Africa’s tech renaissance is TLcom Capital, a venture capital firm with a commitment to fuelling innovation across the continent. With a recent funding round totalling $154 million, TLcom brings hope for African startups, providing much-needed capital, and expertise to support their growth journey. As investors flock to Africa’s tech scene, the need to balance risk and reward becomes increasingly important. While the continent offers immense opportunities for growth, it also presents unique challenges that require careful navigation. TLcom’s investment strategy, which focuses on early-stage opportunities across various sectors, reflects a nuanced approach to risk management, ensuring that investments align with the firm’s long-term $83M The amount African startups raised across 31 deals in January 2024 Red Rocket’s $160 million deal accounted for 26 per cent of the country’s funding in 2023 vision for Africa’s tech ecosystem. Antoinette explained, “There still needs to be a shift in perception. The sub-Saharan African region has a significantly strong ecosystem, and we want to bring top investors from the UAE and Mauritius to the region. However, few people are aware of it.” A remarkable 85 per cent of the capital deployed in Africa was concentrated in the four most developed ecosystems (Nigeria, Kenya, Egypt, and South Africa) in 2023. The same four countries captured all the continent’s mega deal funding and three quarters of all deals. Excluding the big four geographies, the rate of funding decline stretches to 62 per cent. While Africa accounted for 12 per cent of funding across emerging venture markets on average across the five years preceding 2023, the country’s share grew to 16 per cent this year, up from 13 per cent in 2022. Another shift that organisations like DTOS Group aim to make is bring in more intra-African investors to invest in the region. “There also is a need to deploy higher volumes and sizes of deals,” added Antoinette. Most venture funding in Africa, especially at Series “A” and beyond, comes from international investors who can write bigger cheques. Considering edge_may 2024 25 cover story Africa’s four most transacted countries brought in 74 per cent of the deals “Technology startups in Africa are primarily created more out of need. The existing systems in the region aren’t nimble or strong enough to cater to a young and digitally savvy population. This will just keep growing” the global funding winter, these investors are holding off making new investments in Africa, contributing to the decline in Series A mean valuation. Several African startups that raised Series “A” funding in recent years have shut down after failing to raise fresh capital. Prominent examples are Sendy, which raised $20 million and WhereIsMyTransport, which raised $27 million. Also, compared to MENA and SEA, which saw an uptick in seed stage mean valuation of 59 per cent and 19 per cent, respectively, the seed funding mean valuation in Africa declined by 29 per cent year-on- year in what might be considered a market correction. Previously low-interest rates and the influx of capital into the region contributed to increased competition among investors, which likely contributed to the fast growth in seed valuations. The seed funding and deal flow retracted at a much faster rate than the overall rates in Africa, declining by 76 per cent and 71 per cent, respectively. Common to most advanced ecosystems in Africa are supportive government policies, progressive reserve banks, and the opening of digital financial services. This tends to translate into capital deployment. There were several large deals in recent years, including Red Rocket’s $160 million deal, which accounted for 26 per cent of the country’s funding in 2023. Also, Africa’s four most transacted countries, despite recording double-digit declines, brought in 74 per cent of the deals in 2023. Excluding the big four geographies, Francophone countries in Africa accounted for 63 per cent of all transactions and captured 73 per cent of deployed capital in the Rest of Africa (ROA) region. These geographies secured four spots among the ten most transacted geographies and five spots among the ten most funded. On the bright side, fintech has surpassed the remaining top four industries combined in terms of funding. The sector has benefitted from the ongoing implementation of the Pan-African Payment and Settlement System (PAPSS). This could nurture investments in African geographies where fintech traditionally lagged due to unsupportive legislations. Close to 74 per cent of fintech transactions were concentrated in the four most transacted countries - Nigeria, Kenya, Egypt, and South Africa. Also, the energy sector grew at an unprecedented pace during a year marked by climate- derived crises across Africa. This was propelled by Red Rocket’s $160 million deal, among other late-stage rounds such as Nuru’s $40 million deal. Concurrently, we saw multiple announcements of funds focused on energy and sustainability in 2023, notably from Equator VC, Gaia Impact Fund, and E3 Capital. This is due in part to tech friendly, progressive central banks. A common feature among those countries is that they all introduced fintech 26 edge_may 2024 cover story and/or digital financial services regulations. Healthcare, which has seen a consistent growth in funding since 2021, propelled by the pandemic, made its entry to the top three industries by deals in 2023. Several healthcare-focused fund announcements were made this year, too, notably Africa Healthcare Fund 2 ($87 million) and Transform Health Fund ($50 million). Geographical and industry dominance were reflected in the ten largest deals, where close to 88 per cent of funding among the ten largest deals went toward the four most active geographies in Africa, and 67 per cent of the funding went toward fintech startups. The average value of the ten largest deals in Africa was $82 million in 2023. Although it fell from $98 million in 2022, by contrast the average value of the ten largest deals in the MENA region was $142 million in 2023. While the global IPO market and late-stage funding are hurdled, early-stage funding remains robust, albeit with some restraint. Presently, venture funding in Africa is concentrated in early- stage investments, with increased demand for late and growth stage financing. Demand for the latter was traditionally met by international investors, who are now switching their focus toward their local markets. As international investors shifted their focus toward their local portfolios, Africa- based investors picked up some of the slack. Their share increased to 23 per cent, despite a decline in their absolute number, marking the second consecutive annual increase. On average, each investor of the ten most active by deals in Africa made 13 transactions in 2023, The average value of the 10 largest deals in Africawas $82 million in 2023 85 per cent of capital deployed is across - Kenya, Nigeria, Egypt, and South Africaedge_may 2024 27 cover story compared to 18 transactions in MENA in the same year. The African average was 24 transactions in 2022. Only two international investors made it to the ten most active list in 2023, compared to five last year. The number of transactions these two international investors made was below the average for the ten most active investors in Africa, highlighting the decline in international investor participation in Africa. Despite the decline in their absolute numbers, international investors dominated the list of the ten most active investors by deployed capital. Foreign investors took up eight spots in Africa’s rankings, in contrast with three spots in MENA’s. As Africa’s tech ecosystem continues to evolve, the future holds immense promise and potential. With the right support and investment, African startups have the opportunity to transform the continent’s economic landscape and drive sustainable development. “Africa’s four most transacted countries, despite recording double-digit declines, brought in 74 per cent of the deals in 2023” With the right support and investment, African startups can transform the continent’s economic landscape28 edge_may 2024 interview Driving startup growth the ‘Confluent’ way Tim Graczewski, Head of Confluent for Startups, talks about the programme, and its main aims STARTUP By Sindhu V Kashyap edge_may 2024 29 interviewNext >