YC's latest batch slashes startup presence in Africa by more than half

Last month, Y Combinator said he had deliberately reduced its summer cohort by 40%. According to the accelerator, the decision to reduce the S22 lot — significantly smaller than its most recent lots — was a result of the economic downturn and changes in the venture funding environment this year.

It was the latest in a series of layoffs, layoffs and hiring freezes that the tech world was all too familiar with — and to some, no surprise.

YC’s summer cohort included 240 companies, noticeably smaller than its winter ’22 cohort, which had 414 companies. So that it also came as no surprise to anyone that this reduction would spread to other regions; for example, eight startups in Africa entered the accelerator this summer compared to 24 of the previous batch, which represents a 60% reduction. While the region accounts for about 6% of the entire winter batch, it is 3% for this batch.

As YC moved away during the pandemic, the number of companies it accepted in subsequent batches from summer 2020 increased, as did the number of African startups. Although this summer batch is still remote, it is YC’s first in-person batch in two years: about 30% of the batch moved to the Bay Area during its three-month program, and about 23% were already in the Bay Area when they applied to YC. It is therefore plausible that the in-person event has led to fewer start-ups in Africa.

All eight companies in this summer group say they are remote. But from a purely geographical point of view, five are based in Nigeria, one each from Kenya and Ghana, and one, albeit focused on Africa, is based in Geneva. They appear to be dealing with the challenges of accessing financial services and payments, food delivery, commercial accounting and wholesale car buying.

Fintech… and more

Fintech is the hottest startup segment in Africa and startups here make up the largest percentage of any typical YC cohort — in this case, five out of eight are fintech. The most funded sector in Africa is also fintech. One of the reasons it attracts the most VC dollars is how expensive it can be to build a fintech product when factors like integration, compliance and licensing are taken into account.

Globally, banking-as-a-service (BaaS) platforms such as Unit and Treasury Prime have helped start-ups reach thousands of customers. And as financial services proliferate in Nigeria and the rest of Africa just like the rest of the world, it makes sense for new entrants offering non-bank and embedded financial services to rely on BaaS platforms such as anchor — launch in this batch — for quick launch.

Meanwhile, Bridgecard, an Anchor partner, provides a card issuing API to allow businesses to create virtual or physical cards, one of many neobank offerings in Africa. And speaking of neobank’s offerings, Moneco, started by three founders with backgrounds in finance and payments, is targeting migrant communities in Europe, starting with the African diaspora. On the other hand, Beer (the second team founded entirely by women in one batch after Tress, a defunct black women’s hairstyle social community, in 2017) is focused on cargo carriers in Africa.

While Pivo helps SMEs in the freight space with cash flow issues by providing bank accounts, A sneaker aims to solve the same problem for a larger segment of businesses with its SaaS accounting tool.

According to reports, Africa will have the second largest number of vehicle owners in the world by 2050 with 400 million vehicles spending over $1,000 a year on vehicle parts. This is a huge market that YC is hoping for Mobility in a garage could be a dominant player in the coming years. He also talked about how YC is betting big on the auto parts distribution chain in Africa, as it has backed Mecho Autotech — whose business model is more retailer-oriented and geared toward auto maintenance and repairs compared to the focus of Garage on wholesale — in the previous summer batch.

YC 🤝 Africa food delivery place

Another segment that is attracting YC’s attention in Africa is the food delivery market. On the back of DoorDash’s IPO, YC seems poised to replicate that success in other markets, including Africa. The accelerator is back beU delivery, a food delivery app in Addis Ababa, Ethiopia, and an identical platform, Heyfoodbased in Ibadan, Nigeria. Chaudek and Restaurant mark YC’s third and fourth bets in consecutive lots.

“When it comes to ‘bets’, a reminder that we don’t invest because of the sector/category/idea; only the founder. So the trends in verticals that you’re seeing are from the founders and the areas where they’re pursuing/discovering problems – and we’ve found great ones that happen to be working in the food-tech space,” the YC spokesperson said when asked about the accelerator’s investment in the four platforms in two cohorts.

Revenue in the online food delivery segment in Africa is expected to reach over $2 billion by next year. Despite facing poor logistics infrastructure and an unpredictable regulatory environment, platforms such as Jumia Food, Bolt Food and Glovo have stepped up their efforts to capture market share. While these incumbents have bigger war chests than newcomers YC, Chowdeck and Foodcourt, in their respective profiles, have varying levels of traction to show they can compete in the ultra-local online food delivery space. This is a place to watch out for in the future.

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