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Startups are companies that are built to grow fast. This was well articulated by Y Combinator’s Paul Graham in his 2004 article startups = growth. In this article, Paul Graham argued that what sets startups apart from small businesses/companies is their ability to scale and to scale fast.
For startups to be able to achieve this kind of scale, they turn to external investors. You see, if a startup grew internally, it will have to rely on its profits. This is called bootstrapping. The problem with bootstrapping is that the growth is limited to how much money a startup can make. But to grow at the speed the startup founders want, external investment comes. Startups use funding from investors to build new products, expand into new countries, make key hires and invest in research and development.
Ugandan startups are not any different. According to data from Africa The Big Deal, Ugandan startups raised USD70m in 2022, an increase of almost 2x from the USD36m raised in 2021. The USD70m raised was enough for Uganda to sneak into the top 10 countries in Africa in terms of VC funding raised. Uganda had a total of 24 deals, in which startups raised at least USD100,000. Some of the standout funding deals in Uganda in 2022 include Asaak’s USD30m Pre-series A and Numida’s USD12.3m Series A. (These two deals totalled up to USD42.3m which is 60% of all funding raised by Ugandan startups in 2022).
In East Africa, Uganda ranked third behind Kenya (USD1.1bn) and Tanzania (USD80m) ahead of Mauritius (USD10m), Sudan(USD8m), Ethiopia (USD6m), Rwanda (USD4m) and Madagascar (USD0.6m). There were no deals tracked for Burundi, Somalia and South Sudan.
In total, startups in Eastern Africa raised USD1.2bn (Kenya accounted for 92% of this funding). The USD1.2bn raised in 2022 was a 2x increase from the USD600m raised in 2021. But Eastern Africa lags behind Western Africa (USD1.8bn) and just edges out Northern Africa (USD1.1bn). Southern Africa raised USD600m while Central African startups raised USD50m.
In general, African startups raised at least USD4.8bn in 2022, a 5% increase from the 2021 tally. This is in line with the annual trends of funding in African startups increasing every year, as VCs scramble to get a pie of the last frontier.
But this funding is not evenly distributed with Nigeria (USD1.2bn), Kenya (USD1.1bn) and Egypt. Known as the big four, raising 75% of total funding in 2022. On the other hand, fintechs accounted for 37% (USD1.8bn) of all funding in 2022 and accounted for 4 out of 9 mega deals in 2022. (Mega deals are funding rounds where at least USD100m are raised).
Globally, the USD4.8bn raised by African startups was just 1.2% of all global funding. As per CB Insights data, global funding hit USD420bn. In comparison, North America accounted for 50% of all funding, followed by Asia (28%), Europe (19%) and Latin America (2%). Africa’s 1.2% is less than Africa’s contribution to global GDP (2.5% -3%) and also to the global population (14%). However, Africa was the only region to record positive year-over-year growth because of the economic downturn. (What this means is that funding declined in all regions except Africa in 2022 when compared to 2021 for example, funding for Latin American startups declined by 62% in 2022).
This shouldn’t be interpreted as Africa being special. The fact that it raised 1.2% of the global funding means that Africa is shielded from global trends in some way. Also, in an economic downturn, VCs tend to cut back on large checks. This is why other startup ecosystems were affected because they usually receive larger checks than in Africa. Even in Africa, the mega-deals fells from 15 to 9 in 2022. Also in Africa, the majority of startups are built for primary needs e.g payments, instead of secondary needs e.g savings. VCs still find the startup building for primary needs to be attractive for investment.