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Startups’ fundraising : 36 % decline in 2023

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Startups’ fundraising : 36 % decline in 2023

The potential of African startups is often highlighted, notably at the Africa Tech Summit in Nairobi. However, funds raised in Africa experienced a 36 % recession in 2023 compared to the previous year.

Market dynamics of investments in 2023

African startups raised nearly 3.2 billion USD in 2023, compared to 5 billion USD in 2022. This marks the lowest level of funding since 2020, amounting to 2.1 billion USD. A decrease also affects the main hubs of the African startup ecosystem, namely South Africa, Egypt, Nigeria, and Kenya. These four countries account for nearly 75 % of the total funds raised on the continent in 2023. Specifically, FinTech companies continue to dominate fundraising efforts.

Recession trend over the past year

Fundraising shows a downward trend from one quarter to the next, decreasing from 1.2 billion USD in the first quarter to 877.8 million USD in the next. In the third quarter, funds raised amounted to 492.7 million USD. Nevertheless, a slight increase is recorded in the fourth quarter, with funding totaling 551.2 million USD. Investments in startups in Africa show regional disparities :

  • North Africa captures the largest share of funding, representing 33.67 % of the total
  • East Africa mobilizes 26.22 % of the funds
  • Southern Africa with 19.94 %
  • West Africa with 17.89 %
  • Central Africa with only 1.92 %

Main causes of investment reduction

The reduction in funds raised in 2023 is mainly due to macroeconomic uncertainties. Several African countries are experiencing inflation and currency devaluation against the dollar. This is notably the case for Nigeria with the depreciation of the naira and Ghana with the cedi. Additionally, concerns regarding debt, counterparties, and high interest rates add to the challenges.

Recovery through startup valuations

The strong interest in venture capital and investments in startups, often in innovative sectors like technology, impact transactions made in Africa. According to Andreata Muforo, partner at TLcom in Nairobi, many global investors flocked to Africa in 2021 and 2022.

Due to this enthusiasm, estimates of the financial value of African companies open to investment were very high. Currently, a downward adjustment of these high valuations is observed. Estimates of company valuations are becoming more realistic and modest. Despite this adjustment, the situation remains generally positive, with funding continuing to grow significantly over ten years. These efforts contribute to unleashing the potential of SMEs for sustainable development in Africa.

Stable growth despite a decline

Apart from the impact of a major acquisition, the decrease in investments in African technology in 2023 is relatively moderate. This shows that the African tech sector maintains stable growth, even despite a broader slowdown in funding globally.

Moreover, at the beginning of 2024, new investors and established players reinforced their commitment to the African tech ecosystem. The European Investment Bank (EIB) is injecting 30 million USD into Seedstars, focusing on Francophone Africa. Another example is the African Development Bank (AfDB), providing additional funding of 10.5 million USD.

Venture capital mobilization : Outlook for 2024

Transaction flows have not improved since the decline in funds raised in 2023. African startups raised only 77 million USD in January 2024, a 27 % decrease compared to the same period last year. Fundraising corresponds to 38 transactions, with 74 % in equity financing and 26 % in debt financing.

The distribution of funds raised by the country reveals that the Big Four account for 90 % of the total funding value. These four main hubs of the African tech ecosystem also concentrate 75 % of the recorded transactions. Egypt and Kenya, each with 24 million USD, top the ranking. They are followed by South Africa with a total of 7 million USD and Nigeria, which mobilizes 5 million USD.

Sectors attracting the most investments in January

The sectors attracting the most funding are respectively :

  • Agrifood tech: agriculture and food take the lead by attracting 24 million USD
  • Climate tech : startups operating across technologies and innovative solutions to combat climate change total 16 million USD, representing 21 % of the total collected
  • Healthcare records 14 million USD
  • FinTech raises nearly 13 million USD

Other sectors previously highly favored record a decrease in funding compared to previous years. This is due to a preference for less risky investments in times of crisis. In general, funders concentrate more resources on startups demonstrating success during periods of economic uncertainty.

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