How African startups raised funding in 2023

There was considerable debt uptake and regional VC diversification

SPECIAL REPORT | BIRD AGENCY |   After defying the global funding slowdown of 2022, Venture Capital (VC) investments in African startups dropped considerably in 2023, mirroring the situation in other regions where capital taps were significantly turned off. According to Techcrunch; the drop was not unexpected as months preceding the year, deals had become infrequent as investors began to pull away. The American global online newspaper that focuses on high tech and startup companies says data trackers set the amount raised by African startups in 2023 at between $2.9 billion and $4.1 billion, from $4.6 billion to $6.5 billion in total funding the previous year.

With equity funding becoming rare, several startups found it hard to survive, leading them to either cut down their teams or scale down operations and, in some cases, close shop. Others settled for down-and-bridge rounds, with many triggered to reevaluate their strategies for sustainability.

Yet it wasn’t all bad news; data shows that investors diversified their risks with more funding and deals in other regions like Francophone Africa, exploring beyond the traditional top four African VC markets – Egypt, Kenya, Nigeria, and South Africa. These four countries took a massive funding hit in 2023.

“In this dry market, the African tech ecosystem paid much more attention to Francophone Africa growing its share of transaction and funding,” said Tidjane Deme, general partner at Partech Africa. “The steady growth of this region over the last years is explained by the ability of local investors – who drive more and more of the ecosystem – to expand beyond the top markets visible to global investors. They see the untapped opportunity in Francophone countries.”

Meanwhile, the bird story agency says The Big Deal identified at least 619 unique investors who participated in deals of $100k or more within the continent, 35% of these investors were headquartered in Africa, making it the region with the most investors in African startups. The Big Deal is a weekly publication that covers the African investment eco-system.

Its analysis from Africa shows that this shift came after a dramatic 47% year-on-year drop in the number of North American-based investors involved in the continent, according to the report.

“The fact that Africa was the continent where most investors in Africa were headquartered actually contrasts with the previous two years when the number one spot was held by North America (the U.S., really),” the analysis observed.

In previous years, North American investors, particularly from the U.S., have led the charge in startup funding across the continent.

European investors remained significant, with a stable 25% representation, closely following African investors and indicating a potential rise in interest from this region as well.

When considering individual countries from around the world, however, the United States maintained its position as the single largest external investor in Africa.

South Africa stands out as the primary African country with active investors, highlighting its role as a significant hub for investment on the continent.

The top five countries hosting active investors has remained reasonably stable, with the United States, South Africa, Nigeria, the United Kingdom, and France (replacing Egypt) making the list.

Notably, France is the only country among the top 10 to see an increase in the number of investors involved in African deals from 2022 to 2023.

Despite common perceptions, China did not rank among the top 20 countries for disclosed investors active in African startups, suggesting either a lesser involvement than assumed or a lack of disclosure regarding Chinese investment activities.

Growing intra-African investment comes as the investment landscape on the continent becomes increasingly diverse, with more women and younger investors getting involved.

This diversification is expected to bring fresh perspectives and innovative approaches to funding, potentially leading to a more inclusive and dynamic startup ecosystem.

Female-led startups, for example, have begun to receive more attention and funding, reflecting a gradual shift towards gender parity in the investment space.

However, challenges remain. Despite the positive trends, many startups in Africa still face difficulties in accessing capital, particularly in the early stages of development.

Also, while fintech sustained its top position as the most funded sector, there was continued sectoral diversification with startups in spheres such as climate tech, commerce, health, and biotech, capturing investor interest.

Other significant events in the African startup ecosystem included a fintech unicorn from Egypt and the acquisition of InstaDeep, a Tunis-born and U.K.-based artificial intelligence (AI) startup, by German-based biotech company BioNTech SE.

Below, Techcrunch explores notable figures and trends from 2023 as per findings from data trackers Briter Bridges, Partech, and The Big Deal compared to 2022.

Total funding secured and growth of debt as an alternative capital source

Partech: Total VC funding in Africa stood at $3.5 billion, a 46% drop from 2022. Equity investment into African startups dropped by 54% to $2.3 billion, while debt funding saw a year-on-year drop of 22% to $1.2 billion. The report notes a marginal growth in the number of debt deals as it became an alternative source of capital for many venture-backed businesses last year, with equity deal count dropping by 32%.

Briter Bridges: The 2023 deal volume was $4.1 billion, a 21% drop from the previous year, according to Briter’s data, which includes debt, equity, and acquisitions. Notably, while there was a funding slowdown, the firm maintains that the number of deals grew by 11% to 1,080 owing to more activity happening at the early stage, especially from accelerator programs in Africa taking in large cohorts and venture studios.

The Big Deal: The team says the total funding raised in Africa last year was $2.9 billion, a 39% drop from the previous period. This figure considers all types of funding raised, including debt, equity, and grants. According to the firm, equity funding dropped by 57% to $1.7 billion, while debt grew by 47% to $1.1 billion.

For many years startups were complaining about the fact that there was not enough venture debt available and it looks like things are changing, and it’s definitely and encouraging trend. – Big Deal co-founder Maxime Bayen.

Market representation

The Big Four remain the Big Four

Partech: South Africa ($548 million), Nigeria ($468 million), Egypt ($433 million), and Kenya ($335 million) dominate the market, per Partech, reclaiming a growing share for the first time since 2019. These countries remain the key hubs for investment, securing 79% of the total equity funding volume (compared to 72% in 2022) despite a slight decline in deal count, accounting for 68% of all deals (down from 77% in 2022).

Briter Bridges: The top four markets – Kenya, Egypt, Nigeria, and South Africa – further strengthened their positions as leading funding destinations, collectively securing substantial investments of $806 million, $675 million, $575 million, and $565 million, respectively. This trend is reinforced by their role as regional hubs for companies expanding into neighboring countries, Briter noted.

The Big Deal: Kenya emerged as the Big Deal’s leading African VC investment destination, securing $800 million. Egypt follows closely in second place with $640 million, South Africa claims the third spot with $600 million, and Nigeria takes fourth place with $400 million.

Emerging hotspots

Partech: French-speaking nations experienced increased representation, claiming five out of the remaining six spots in the top ten, including Morocco ($93 million), Democratic Republic of Congo ($42 million), Rwanda ($38 million), Tunisia ($33 million), and Senegal ($27 million). Meanwhile, Ghanaian startups secured $75 million in funding.

The Big Deal: Rounding up the top 10 for the data tracker include the Benin Republic ($71 million), the Democratic Republic of Congo ($62 million), Ghana ($57 million), Senegal, and Rwanda at $44 million each, and Tanzania ($25 million).

Briter Bridges: Countries like Tunisia ($460 million+) and Rwanda (350 million+) have become prominent hubs, rapidly approaching the funding levels of the “Big Four.” This surge is fueled by substantial investment and acquisition deals in companies like Zipline and InstaDeep. Briter also identifies emerging hotspots such as Benin Republic ($125 million+) and Ghana ($70 million).

Investor region diversification is a sign of a maturing African marker. There are more investors entering the region with the mandate to invest in “riskier” regions. Investors are also aware of market opportunities and there’s money to be made there. – Briter Bridges founder Dario Giuliani.

In the past year, new funds like Saviu and Seedstars Africa Ventures were established with a focus on startups in relatively untapped VC markets, particularly in Francophone Africa.

Investor involvement

Partech: In 2023, there was a significant drop in the number of investors participating in funding rounds in Africa compared to the previous year, witnessing a 50% decrease. This decline was particularly notable among major institutional funds that typically led larger funding rounds. For example, Partech observed only one equity and three debt megadeals (i.e., above $100 million) in 2023, contrasting with seven equity and four debt megadeals in 2022.

The Big Deal: In 2023, the data tracker noted a year-over-year drop of -38% in the number of unique investors, totaling 619+. This decline is consistent with the overall decrease in funding and the number of ventures raising $100,000 or more, both experiencing a -39% year-over-year reduction.

What stands out for me is the 50% decrease in investor participation. It explains most of the rest of the data. And it has deep implication on the structure of the ecosystem in the near future.  Tidjane Deme, general partner at Partech Africa.

Sector breakdown

Fintech and clean tech are VC darlings

Nothing new here. As in years past, fintech is once again recognized as the best-funded sector on the continent. The journey toward financial inclusion is unending.

According to Partech, fintech startups secured $852 million, 37% of the total equity investment. Alternative reports by Briter Bridges and The Big Deal estimate fintech funding at $1 billion+ and $1.25 billion (41% of total equity funding), respectively.

Unsurprisingly, clean tech comes up second in the data trackers’ lists. Briter pegs the total amount raised by clean tech startups at over $800 million. Per The Big Deal, clean tech accounts for 28% of the funding raised. For Partech, though, the sector ties e-commerce for the second spot, claiming 13% each of the total funding African startups raised, with health tech and enterprise rounding up the top five.

Per The Big Deal, the following best-funded sectors are after fintech and clean tech, logistics and transport, health, and agriculture. For Briter, it’s health, software and mobility.

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Source: The Big Deal, bird story agency