Last month, Y Combinator said that it had intentionally reduced its summer cohort by 40%. According to the accelerator, the decision to downsize the S22 batch — significantly smaller than its most recent batches — was a result of the economic downturn and changes to the venture funding environment this year.
It was the latest in a series of down round, layoff and hiring freeze events with which the tech world had become all too familiar -- and to some, it was no surprise.
YC’s summer cohort includes 240 companies, noticeably smaller than its winter ’22 class which had 414 companies. So it also didn’t surprise anyone that this reduction would trickle down into other regions; for instance, eight startups in Africa got into the accelerator this summer compared to 24 from the previous batch, representing a 60% reduction. While the region represented about 6% of the entire winter batch, it’s 3% for this batch.
When YC went remote during the pandemic, the number of companies it accepted in subsequent batches from summer 2020 ballooned, and so did the number of African startups. While this summer batch is still remote, this is YC’s first in-person batch in the last 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. Therefore, it is plausible that being an in-person event has led to fewer African startups.
All eight companies in this summer batch say they’re remote. But from a purely geographical standpoint, five are based in Nigeria, one each are from Kenya and Ghana, and one, though Africa-focused, is Geneva-based. They appear to tackle challenges concerning access to financial services and payments, food delivery, merchant bookkeeping and wholesale automobile purchase.
Fintech … and others
Fintech is Africa’s hottest startup segment, and startups here make up the largest percentage of any typical YC cohort — in this case, five out of eight are fintechs. The most funded sector in Africa is also fintech. One reason it attracts the most VC dollars is how expensive building a fintech product can be when factors such as integration, compliance and licensing are considered.
Globally, banking-as-a-service (BaaS) platforms, such as Unit and Treasury Prime, have helped newly launched businesses scale to thousands of customers. And as financial services proliferate across Nigeria and the rest of Africa just like the rest of the world, it’s logical that upstarts offering neobank and embedded finance services rely on BaaS platforms such as Anchor — a startup in this batch — to launch quickly.
Meanwhile, Bridgecard, a partner of Anchor, provides card-issuing APIs to allow businesses to create virtual or physical cards, one of many neobank offerings in Africa. And talking about neobank offerings, Moneco, launched by three founders with finance and payments backgrounds, targets the migrant communities in Europe, starting with the African diaspora. On the other hand, Pivo (the second all-female-founded team in a single batch since Tress, a defunct social community for black women’s hairstyles, in 2017) is focused on freight carriers in Africa.
While Pivo helps small and medium businesses in the freight space with cashflow problems by providing bank accounts, Patika aims to solve the same problem for a larger segment of businesses with its SaaS bookkeeping tool.
According to reports, Africa will be home to the second most vehicle owners in the world by 2050, at 400 million vehicles, spending over $1,000 annually on vehicle parts. That’s a vast market where YC hopes Garage Mobility can be a dominant player in years to come. It also speaks to how YC is betting big in Africa’s auto parts distribution chain as it backed Mecho Autotech -- whose business model is more retailer-centric and tilts toward auto maintenance and repairs compared to Garage’s wholesale focus -- in the previous summer batch.
YC 🤝 Africa’s food delivery space
Another segment catching YC’s eye in Africa is the food delivery market. Off the back of DoorDash’s IPO, YC seems set on replicating that success in other markets, including Africa. The accelerator backed beU delivery, a food delivery app in Addis Ababa, Ethiopia, and an identical platform, Heyfood, based in Ibadan, Nigeria in this year’s winter batch. Chowdeck and Foodcourt mark YC’s third and fourth bets in successive batches.
“When it comes to ‘bets,’ a reminder that we don’t invest due to the sector/category/idea; solely the founder. So the trends in verticals that you’re seeing are from the founders and the areas they are pursuing/finding problems in -- and we found great ones who happened to be working in the food tech space,” said YC’s spokesperson when queried about the accelerator’s investments in the four platforms in two cohorts.
Revenue in Africa’s online food delivery segment is projected 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 ramped up efforts to grab market share. Although these semi-incumbents have bigger war chests than the YC newcomers, Chowdeck and Foodcourt, in their respective profiles, have varying levels of traction to show they can battle it out in the hyper-local online food delivery space. That’s a space to watch out for in the future.