We’ve all heard about the startup “funding winter” of 2022. The funding winter is here, and the world is shivering all over, with no exceptions.
In a message to company creators, the well-known Silicon Valley accelerator organization Y Combinator (YC) recently stated: “No one can foresee how terrible the economy will go, but things don’t seem good.” This was followed by a warning from Sequoia a few days later of a ‘crucible moment‘ of uncertainty for the venture market due to inflation, the markets, and geopolitical challenges.
The lack of new investment has affected start-ups at all phases, whether they are growth-stage businesses or early-stage businesses that must accept valuations and fund sizes that are lower than anticipated. There is a whirlwind of lay-offs making the rounds and even though Africa has seen a little increase in venture capital funding when compared to the rest of the world, it is still susceptible to the downturn and all of its negative effects.
According to some rather audacious forecasts, 2021 ended up being a record year for the global venture capital market, with entrepreneurs practically being inundated with cash. Global venture capital investments were $643 billion in 2018 compared to $335 billion in 2020, nearly doubling year over year. However, The speed of venture capital investing worldwide is shifting as a result of global macroeconomic upheavals, geopolitics, and declining public markets, but this year may be a perfect storm.
Some companies are carrying out these lay-offs silently, aiming to not attract media attention. But some have been found out. Some businesses are quietly implementing these layoffs in an effort to avoid media notice. However, some have been exposed.
While some firms that raised money before the recession have more runaway today, those that are raising money now are likely undertaking down rounds in addition to going through rigorous due diligence.
One thing is certain in the midst of all this ambiguity: African entrepreneurs are experiencing the winter, just like every other ecosystem, and they must find swift solutions for self-sustainability. They will eventually need to consciously give up vanity performance metrics like app downloads and user counts and prioritize creating significant revenue and profits till the venture capital market turns bull again. At that time, lowering expenses via layoffs or salary cuts won’t be sufficient to sustain them.
