DFS Lab’s 2022 Wrap Up

2022 has been a trying year.

For the African tech ecosystem, it’s been an especially harsh shift from the highs of 2021’s blistering funding sprees that saw the continent break $5 billion in venture capital dollars. This year, it’s likely we’ll beat that number by a bit, but the pace of growth as grinded to a halt.

For founders, this is a pronounced change. Joseph Benson-Aruna on our team penned a thoughtful message to our founders which he stressed a few points of focus:

• Don’t panic and prepare for the long term
• Re-evaluate for the short term by managing your burn
• Remember the difference between being cheap and frugal
• And finally, be kind to yourself and your team

For investors, 2022 has likely been defined by one’s experiences leading up to this year. Investors who jumped onto momentum-led deals at record high valuations are likely adjusting their fund models as paper returns are muted. Those who went through the crucible made of consistently oversubscribed rounds are likely feeling a bit of what Charles Hudson at Precursor termed the “Revenge of Capital.”

In startup ecosystems around the world, we are seeing the fallout of over-ambitious valuations combined with trigger-happy venture capital. Flat and down rounds are now commonplace. Teams with business models without clear pathways to profitability are forced to consider pivots, or reconsider operating entirely. Unfortunately, this also means layoffs everywhere.

It’s bad everywhere. However, the effect of this downturn on the African tech world is likely to be even more existential. While the end of cheap capital in most other tech ecosystems meant that the world of revenue-less growth was over, in Africa, this moment forces a deeper reckoning of what models are even possible.

Whereas in the U.S., Europe, Asia, and even most of Latin America — the pullback is against businesses that can’t monetize enough of a customer’s wallet, we are left to answer if those customer wallets even exist. From traditional ecommerce to neobanking, we are yet to see definitive traction that consumers in most African markets can be served profitably through models we’ve inherited from high-income areas. Just as the end of this cycle signals the death of the growth-at-all-costs model elsewhere, it also signals the end of the copy-and-paste model in Africa.

To that end, we see this as a year of (painful) transition. The ecosystem is being forced to mature beyond the singular metric of money raised.

Yet, the ecosystem is maturing. Founders are building tech companies for a growing list of industries. The discussion around the hybrid nature of our markets is growing louder. We hear more voices discussing both physical and digital approaches and we see deeper attempts to understand both formal and informal markets. We believe in building Cyborgs not Androids in Africa and our pipeline has grown tremendously in quantity and quality in 2022.

We at DFS Lab have kept pace to support those building the future of digital commerce in Africa. We added three new members to our team in 2022 who not only increased our ability to serve founders, but to serve them with authenticity as our team grew to be 50% African and 50% women, something Jake and I felt was critical when we started the firm.

We also kept investing. In 2022, we invested in over a dozen deals and added 8 new teams — bringing our portfolio of investments to just over 35 startups across several African markets (Egypt, Ghana, Kenya, Morocco, Nigeria, South Africa, Tanzania, Senegal, and Zambia). We believe they exemplify founders who understand the African tech opportunity in the next decade and all the challenges that come with it.

This year, we’re proud to welcome Garage, Catlog, Matta, Terminal, 500chow, Logistics Hub, Cutstruct, and Terraa to DFS Lab.

We’ve been busy outside of our direct investments. In 2022, we partnered with the Mojaloop Foundation and the Stellar Development Foundation to run virtual design sprints with 47 startups who are solving some of the most challenging problems in Africa’s payment space (read more here and here).

We continue to believe that evidence-based insights are critical to informing not only our investment thesis but also in supporting our founders and clients in navigating complexity. In addition to the plethora of research we do (often in stealth mode), this year we launched our own survey documenting the digital adoption and readiness of more than 2,500 micro and small enterprises across Kenya and Nigeria in the retail value chain — (to our knowledge) the first dataset of its kind.

We’re building this firm for the long haul and have been incredibly lucky to work with a community of founders, investors, mentors, and friends who share a similar vision of what we can accomplish together.

Thank you.

And as always, be kind to yourself and your team.

We’ve got some exciting announcements lined up for 2023 so please do follow us at @TheDFSLab and at dfslab.net.