In defiance of the global investment downturn in 2022, venture capital (VC) investments in African startups witnessed a significant decrease last year, reflecting the broader scenario of stringent investment measures in other regions. This drop, however, was anticipatable as investment deals started dwindling in the months leading up to the year.
Estimations by data trackers place the total raised by African startups in 2023 between $2.9 billion to $4.1 billion, a decrease from the preceding year’s total funding of $4.6 billion to $6.5 billion.
Confronted with the dwindling availability of equity financing, numerous startups found survival challenging, leading them to downsize teams, scale back operations, or in extreme cases, shut down. Some opted for lower and bridge funding rounds, prompting many to reassess their sustainability strategies.
However, it wasn’t a completely grim picture; data indicates that investors looked to mitigate their risks by expanding their investments into other regions, such as Francophone Africa, moving beyond the usual top four African VC markets — Egypt, Kenya, Nigeria, and South Africa. It’s worth noting that these four nations experienced a significant reduction in funding in 2023.
In this dry market, the African tech ecosystem paid much more attention to Francophone Africa growing its share of transaction and funding. 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.
Tidjane Deme, General Partner, Partech Africa
Additionally, even though fintech maintained its lead as the most funded industry, the diversification of sectors continued with startups operating in areas like climate tech, commerce, health, and biotech, gaining investor attraction.
Other remarkable occurrences in the African startup ecosystem included the emergence of a fintech unicorn in Egypt and the acquisition of InstaDeep, an AI startup originating from Tunisia and based in the UK, by German biotech firm BioNTech SE.
In the following sections, we delve into the noteworthy figures and trends from 2023 and compare them to those of 2022, drawing on insights from data trackers Briter Bridges, Partech, and The Big Deal.
Sum total of acquired funding and the rise of debt as an alternative source of capital
Partech: The total VC funding in Africa was pegged at $3.5 billion, marking a 46% decrease from 2022. Investments in African startups saw a 54% plunge, totaling $2.3 billion, while debt funding experienced a 22% year-on-year decline, mounting to $1.2 billion. Despite these declines, the count of debt deals saw a slight increase as it became an alternate capital source for numerous venture-backed companies last year, whereas the number of equity deals experienced a 32% decrease.
Briter Bridges: As per Briter’s findings, the total deal volume in 2023 stood at $4.1 billion, indicating a 21% drop from the prior year. This figure encompasses debt, equity, and acquisitions. While there was a funding slowdown, the firm upholds that deal numbers increased by 11% to 1,080, fueled largely by activities at the nascent stage, notably with accelerator programs in Africa accepting large cohorts and venture studios.
The Big Deal: The group reported that the total funding garnered in Africa last year amounted to $2.9 billion, reflecting a 39% drop from the earlier period. This data incorporates all forms of funding raised, including debt, equity, and grants. The firm’s records indicate a 57% plunge in equity funding to $1.7 billion, while debt observed 47% growth, rising 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.
Maxime Bayen, Big Deal Co-founder
Market Representation
The Prominent Four continue to hold their Positions
Partech: According to Partech, South Africa ($548 million), Nigeria ($468 million), Egypt ($433 million), and Kenya ($335 million) continue to dominate the market, experiencing a growth in their collective share for the first time since 2019. Despite a small drop in the number of deals, these countries remain the main investment centers, attracting 79% of the total equity funding volume (up from 72% in 2022) and representing 68% of all deals (down from 77% in 2022).
Briter Bridges: The leading four markets — Kenya, Egypt, Nigeria, and South Africa — have further solidified their status as key funding destinations, collectively securing significant investments of $806 million, $675 million, $575 million, and $565 million respectively. This trend is reinforced by these countries’ function as regional hubs for firms looking to expand into nearby nations, as noted by Briter.
The Big Deal: As per The Big Deal, Kenya emerged as the leading African VC investment destination, garnering $800 million. Closely following in the second spot is Egypt with $640 million, South Africa takes the third position with $600 million, and Nigeria ranks fourth with $400 million.
Emerging Hotspots
Partech: French-speaking countries have seen an uptick in representation, holding five of the remaining six spots in the top ten, including Morocco ($93 million), the Democratic Republic of Congo ($42 million), Rwanda ($38 million), Tunisia ($33 million), and Senegal ($27 million). Concurrently, startups based in Ghana secured $75 million in funding.
The Big Deal: The other countries making up the top 10 in the tracker data 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+) are emerging as notable hubs, quickly closing the gap in terms of the funding levels of the “Big Four”. This rise is spurred by substantial investments and acquisitions involving companies like Zipline and InstaDeep. Briter also highlights up-and-coming hotspots like the 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.
Dario Giuliani, Briter Bridges Founder
Over the past year, newly established funds like Saviu and Seedstars Africa Ventures have centered their attention on startups operating in relatively unexplored VC markets, with a specific emphasis on Francophone Africa.
Investor Participation
Partech: In 2023, there was a notable reduction in the number of investors involved in African funding rounds, experiencing a 50% decrease compared to the preceding year. This decline was especially pronounced among major institutional funds usually leading larger funding rounds. For instance, Partech recorded only one equity and three debt megadeals (i.e., exceeding $100 million) in 2023, in stark contrast to the seven equity and four debt megadeals observed in 2022.
The Big Deal: During the same year, The Big Deal documented a year-over-year decrease of -38% in the number of unique investors, amounting to over 619. This downward trend aligns with the overall funding decrease and the reduction in the number of enterprises raising $100,000 or more, with both experiencing a year-over-year drop of -39%.
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, Partech Africa
Sector Breakdown
Fintech and Clean Tech Remain VC Favorites
Consistent with previous years, fintech once again tops the list as the most funded sector across the continent, testament to the ongoing drive towards financial inclusion.
Partech reveals that fintech startups bagged $852 million, constituting 37% of the total equity investment. Meanwhile, separate reports from Briter Bridges and The Big Deal estimate fintech funding at over $1 billion and $1.25 billion (41% of total equity funding) respectively.
Predictably, clean tech secures the second spot in the data trackers’ rankings. Briter indicates that clean tech startups raised over $800 million in total. According to The Big Deal, clean tech amounts to 28% of the raised funding. Yet, for Partech, the sector ties with e-commerce for the second position, each claiming 13% of the total funding raised by African startups, with health tech and enterprise completing the top five.
Following fintech and clean tech, the most funded sectors according to The Big Deal are logistics and transport, health, and agriculture. For Briter, the sectors are health, software, and mobility.
Representation of Gender
Briter Bridges indicates that convincing investment in startups led by females is a trend that has found it difficult to undergo substantial change. The firm stated, “Despite slightly increased figures, funding for startups solely founded by females remains considerably low compared to the funding directed towards startups founded by males. While the number of deals involving startups founded by females are increasing, the total monetary value raised by these companies hasn’t seen drastic improvements.”
Partech and The Big Deal further clarify the situation by providing figures. For example, as per The Big Deal, startups with either a single female founder or an entirely female founding team received 2.3% of the total funding last year; in contrast, 15% of the funding was obtained by founding teams that included at least one woman. (The ratios were 2.4% and 13%, respectively, in the previous year.)
In terms of the deal count, startups founded by women raised 25% of the equity volume in 2023, as mentioned by Partech (22% in 2022). These startups secured $392 million, representing 17% of the total equity funding raised (13% in 2022) and 2% of debt funding. The firm did not provide specific data for startups with entirely female founding teams.
