In the midst of a global venture capital market slowdown, plummeting valuations, persistent inflation, and escalating operational costs, African startups are entering survival mode, implementing drastic workforce reductions.

African startups laid off 738 employees in the third quarter of 2023 as they strive to extend their lifespans in a climate marked by drying up funding sources and soaring operating costs. This is the main finding of a report released last November 10 by the digital economy consulting firm TechCabal Insights.

The "The State of Tech in Africa Q3 2023," report specifies that the number of layoffs increased by 210% compared to the second quarter of 2023. Kenyan agritech firm Twiga Foods executed the most significant workforce reduction, parting ways with 283 employees in August 2023 after letting go of 211 employees in 2022.

As venture capital funds maintain a cautious approach, valuations decline, and operational expenses surge due to persistent inflation, these workforce cuts within African startups signal a return to a more rational approach after the expenditure explosion on sometimes risky projects in recent years.

The report also highlights that fundraising efforts by African startups in Q3 2023 totaled $499 million, marking a 26% decrease compared to the same period in 2022 ($675 million). Quarter-on-quarter, there is a 45.5% decrease in raised funds, reflecting the challenging funding landscape faced by these innovative ventures.

The total number of transactions recorded between July 1 and September 30 of the current year reached 97 deals, against 74 during the same period in 2022. While no mega-deals (fundraising of $100 million or more) were recorded, the number of venture debt financing operations was limited to 6 transactions in the third quarter of 2023, down from 12 during the same period in 2022.

The ranking of startups with the highest fundraising in Q3 2023 by their country of origin reveals Kenya leading the pack with $131.1 million, followed by Nigeria ($103.4 million), South Africa ($82.4 million), and Egypt ($17.2 million). These four countries, known as the "Big Four," collectively account for nearly 67% of the total funds raised by startups across the continent during the period under review.

Moreover, two startups based in Benin and the Democratic Republic of the Congo secured $63 million and $40 million, respectively.

Dynamic funding landscape: energy sector takes center stage

For the second consecutive quarter, African startups operating in the energy sector emerged as the tech gems best funded on the continent during the third quarter of 2023. This trend showcases the resilience and attractiveness of the energy industry within the African tech ecosystem.

Young ventures specializing in the development of energy solutions in Africa secured $194.7 million across nine transactions during the reviewed period, constituting 39% of the total funds raised by startups across the continent. For the second consecutive quarter, fundraising by energy startups surpassed that of their counterparts in the financial technology (fintech) sector, with $112.7 million mobilized in the third quarter of 2023.

Following closely are startups operating in the sectors of transport & logistics ($63.2 million), retail ($35 million), health ($34.7 million), and agriculture & food ($31.4 million).

TechCabal Insights, in its comprehensive analysis, also noted 7 acquisitions and 4 geographical expansions (entry into one or more new markets) in the African tech scene during Q3 2023. This signifies a dynamic landscape where startups are not only securing funding but also engaging in strategic moves to enhance their market presence and impact.