Funding for African tech startups declined by 39% in 2023, a new report says.
Acccording to the ‘2023 the Year of Debt‘ by Africa the Big Deal, total funding raised by African tech startups amounted to $2.9 billion. The year’s funding figures were significantly lower compared to 2022 when tech startup funding reached its peak at $4.6 billion.
Despite the decline in funding during 2023, the report highlighted that the outcome was better than many had anticipated. The slowdown in funding during the year was attributed to various factors, with global inflation being a chief contributor to the subdued investment activity in the tech startup sector.
According to the report, debt financing seems to be gaining traction among startups across the continent emerging as the sole category of funding that experienced growth in 2023. Out of the total $2.9 billion raised in 2023, $1.1 billion was attributed to debt financing. This marks an impressive 47% year-on-year increase in debt financing for startups in Africa.
Equity funding made up $1.7 billion of the total $2.9 billion raised, indicating a substantial 57% year-on-year decline, as reported in the study.
In the first half of 2023, the entire continent collectively secured $1.43 billion in funding, marking a significant 53% year-on-year decline. The decrease was attributed to venture capitalists directing their resources toward late-stage startups, resulting in a substantial drop in funding for early-stage startups during that period.
According to the Africa the Big Deal report, in 2023, 500 startups in Africa raised at least $100k, marking a 39% year-on-year decline compared to the 821 startups recorded in 2022.
Several global factors have influenced tech startup funding, including the volatility induced by the ongoing Russia-Ukraine war, making investors cautious.
Additionally, central banks worldwide raising interest rates, the predicted global inflation for 2023 driven by factors such as escalating fuel prices and diminished consumer demand, and a decline in tech stocks globally have collectively made investors more risk-averse.
Here are more stats from the report:
- Eastern Africa attracted $880 million in 2023, 31% of all the start-up investment on the continent with Kenya attracting 28% of the continent’s total
- For the first time, Northern Africa was the second-most attractive region on the continent with start-ups there raising $670 million (-39% YoY). Egypt dominated with 95% share of the region’s funding
- Southern Africa was the only one of the four main regions to record moderate-yet-positive growth (+6% YoY) with South Africa dominating at 97% of the regional funding
- With ‘only’ just over $600 million in funding raised – 2.6x times less than in 2022! – Western Africa dropped from #1 to #4 with Nigeria dominating at 68% of the regional funding
- While being the only region to grow significantly (+33% YoY), from $51 million in 2022 to $68m in 2023, Central Africa continues to represent a fraction of the total funding (2%)
- 29% of the start-ups that raised $100K or more in 2023 were located outside the Big Four Regions
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