The dreaded word — recession — is increasingly being bandied about as economists sound the alarm of tough times ahead.
This can be seen in how investors are reassessing their appetite for risk and starting to apply more restraint in making investments. For startups, particularly in the tech industry, it has meant less capital from venture capitalists in recent months, with founders having to cede larger shares of their business than they had in previous quarters.
Read more: As Tech Stocks Fall, Startups Find VCs Setting Much Stricter Terms
As investors demand more stock for less money, valuations inevitably plummet. The effect is only worsened by the current stock market performance, which means that even companies that aren’t in the middle of funding rounds need to reassess their own internal valuations to reflect the global picture.
In the FinTech sector, which has for a long time been the darling of venture capitalists and has attracted some of the biggest investments to date, startups have been severely hit and the overall picture has been one of shrinking budgets, layoffs and a rush to firm up whatever cash is left in the bank.
Africa ‘Least Hit’ by Drought
In Africa, FinTechs accounted for 62% of all startup investments last year, according to a report by Briter Bridges, and in the current bear market, some industry players perceive the continent’s ecosystem to have proven more resilient than in other regions.
Related: Global Startup Uncertainty Drives Mega Investments in Africa’s Burgeoning Tech Scene
In a recent interview with PYMNTS, Obi Emetarom, co-founder and managing director at Nigerian FinTech AppZone, pointed to the increasing size and maturity of African economies as opportunities the global investor community is waking up to. It’s the reason why he said the continent has been the “least hit” by the current funding drought.
And the year did start out well for African FinTechs.
One of the region’s most popular FinTechs, Flutterwave, tripled its valuation following a $250 million Series D in February, while the likes of Wasoko, Interswitch and MFS Africa also netted hundreds of millions of funding in the first half of this year.
See also: Flutterwave Raises $250M Series D at $3B Valuation
As a result of these rounds, total venture capital in Africa hit $1.8 billion in the first quarter of 2022 alone, a 150% increase compared with the same period in 2021, according to data from Africa-focused database The Big Deal. This feat topped the fact that 2021 was a record-breaking year for investment in African startups.
Read more: Venture Capital Firms Invested Record $5.2B in African Startups in 2021
Not Entirely Rosy Picture
In the last few months, however, the picture has not been entirely rosy for African FinTechs.
It was reported that in June, Dakar, Senegal-based mobile money platform Wave laid off about 15% of its workforce, less than a year after the unicorn startup raised $200 million in a round considered the largest Series A ever on the continent.
See also: African FinTech Wave Wraps up $200M Series A Funding Round
But one might assume that layoffs aren’t necessarily a sign of trouble for companies in the African FinTech space. Rather, they must be considered in the context of global recession fears. Even Microsoft has had to slim down its workforce recently, proving that no business is immune from global economic trends.
Moreover, the Senegal-based startup has been able to rake in more funds, securing a €90 million ($91.3 million) raise this month from investors including the International Financial Corporation (IFC), earmarked for expanding its operations in the Francophone markets of Côte d’Ivoire and Senegal.
But other issues in the ecosystem show that there is a need for startups to remain vigilant in this unpredictable economic environment and refocus on creating a sustainable, long-term business model.
This week, Flutterwave announced that it will be ceasing its virtual dollar card service also known as Barter card, effective from July 17, 2022, due to an issue with its card partner, according to a Nairametrics report. The move deprives Nigerians, who now have to unlink and replace their Dollar cards with another payment method, of the ability to carry out dollar transactions on their platform.
“Here is a breakdown of what to expect from 17th July: You will be unable to make online and in-store payments and purchases using your Virtual Dollar Card(s); You will be unable to fund existing Virtual Dollar Card(s); Your existing Virtual Dollar Card(s) will be terminated, and […] You will be unable to create new Virtual Dollar Card(s),” the company said in a message to its customers.
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