After defying it Global funding slows in 2022 VC investment in African startups fell significantly last year, mirroring the situation in other regions where capital flows have shut down significantly. The decline, however, was not unexpected as deals had become scarce and investors had started to pull out in the months leading up to the year. Data trackers put the amount raised by African startups in 2023 at between $2.9 billion and $4.1 billion, up from $4.6 billion to $6.5 billion in total funding the previous year.
As equity funding became scarce, many startups struggled to survive, either downsizing their teams or downsizing operations and, in some cases, closing up shop. Others settled for down-and-bridge rounds, with many revising their strategies for sustainability.
However, it wasn’t all bad news. The data shows that investors diversified their risks with more funding and deals in other regions such as French-speaking Africa, exploring beyond the traditional top four African VC markets – Egypt, Kenya, Nigeria and South Africa. These four countries took a huge funding hit in 2023.
“In this dry market, the African tech ecosystem has paid much more attention to Francophone Africa increasing its share of transactions and funding,” said Tidjane Deme, general partner of Partech Africa. “The steady growth of this region in recent years is explained by the ability of local investors – who are increasingly driving the ecosystem – to expand beyond the top markets visible to global investors. They see the untapped opportunity in French-speaking countries.”
Also, while fintech maintained its top spot as the most funded sector, sectoral diversification continued with start-ups in areas such as climate technology, commerce, health and biotech attracting investor interest.
Other major developments in the African startup ecosystem included a fintech unicorn from Egypt and the acquisition of InstaDeep, a Tunis-born, UK-based artificial intelligence (AI) startup, by German biotech company BioNTech SE.
Below, we explore notable facts and trends from 2023 according to findings from data crawlers British Bridges, Partechand The Big Deal compared to 2022.
Total secured financing and raising debt as an alternative source of capital
Partech: Total VC funding in Africa reached $3.5 billion, down 46% from 2022. Equity investment in African startups fell 54% to $2.3 billion, while debt funding fell 22% to $1.2 billion year over year. The report saw a marginal increase in the number of debt deals as it became an alternative source of capital for many venture-backed firms last year, with the number of equity deals falling 32%.
Briter Bridges: Deal volume for 2023 was $4.1 billion, down 21% from last year, according to Briter’s data, which includes debt, equity and acquisitions. Specifically, while there was a slowdown in funding, the company says the number of deals rose 11% to 1,080 due to higher early-stage activity, especially from accelerator programs in Africa that received large venture groups and studios.
The Big Deal: The group says total funding raised in Africa last year was $2.9 billion, a 39% drop from the previous period. This number takes into account all types of funding raised, including debt, equity and grants. According to companyequity financing fell 57% to $1.7 billion, while debt increased 47% to $1.1 billion.
For many years startups complained that there wasn’t enough venture debt available, and it looks like things are changing, and it’s certainly an encouraging trend. — Co-founder of Big Deal 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, claiming an increasing share for the first time since 2019. These countries remain the main hubs for investment, securing 79% of total equity financing volume (up from 72% in 2022) despite a slight decrease in the number of deals, 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 top funding destinations, collectively securing significant investments of $806 million, $675 million, $575 million and $565 million, respectively. This trend is fueled by their role as regional hubs for companies expanding into neighboring countries, Briter noted.
The Big Deal: Kenya emerged as The Big Deal’s top African VC investment destination, securing $800 million. Egypt follows closely in second place with $640 million, South Africa claims third place with $600 million and Nigeria takes fourth place with $400 million.
Pop-up hotspots
Partech: Francophone nations showed increased representation, claiming five of the remaining six spots in the top ten, including Morocco ($93 million), the Democratic Republic of the 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 out the top 10 for data tracking includes Benin Republic ($71 million), Democratic Republic of Congo ($62 million), Ghana ($57 million), Senegal and Rwanda with 44 $ million each and Tanzania ($25 million).
British Bridges: Countries such as Tunisia ($460m+) and Rwanda ($350m+) have become prominent hubs, per Briton, fast approaching Big Four funding levels. This growth is fueled by significant investments and acquisition deals in companies such as Zipline and InstaDeep. Briter also identifies emerging hotspots such as Benin Republic ($125M+) and Ghana ($70M).
Diversification of investor territory is a sign of a maturing African index. There are more investors entering the region with a mandate to invest in “riskier” areas. Investors are also aware of market opportunities and there is money to be made there. — Founder Briter Bridges Dario Williani.
In the past year, new funds such as Saviu and Seedstars Africa Ventures have been established with a focus on startups in relatively untapped VC markets, particularly in French-speaking Africa.
Investor participation
Partech: In 2023, there was a significant drop in the number of investors participating in funding rounds in Africa compared to the previous year, down 50%. This decline was particularly noticeable among large institutional funds that typically lead larger funding rounds. For example, Partech saw only one equity and three large debt deals (ie, over $100 million) in 2023, as opposed to seven equity and four large debt deals in 2022.
The Big Deal: In 2023, data tracking saw a -38% year-over-year decline in the number of unique investors, totaling 619+. This decline is consistent with an overall decline in funding and the number of businesses raising $100,000 or more, both down -39% year over year.
What stands out to me is the 50% drop in investor participation. It explains most of the rest of the data. And it has profound implications for ecosystem structure in the near future. — Tidjane Demegeneral partner at Partech Africa.
Branch allocation
Fintech and cleantech are VC favorites
Nothing new here. As in previous years, fintech is once again recognized as the best funded sector on the continent. The journey to financial inclusion is endless.
According to Partech, fintech startups secured $852 million, 37% of total equity investment. Alternative reports by Briter Bridges and The Big Deal estimate fintech funding at $1B+ and $1.25B (41% of total equity funding), respectively.
Unsurprisingly, clean tech comes second on the lists of data trackers. Briter pegs the total amount raised by cleantech startups at over $800 million. According to Big Deal, cleantech accounts for 28% of funding raised. For Partech, however, the sector ties e-commerce for second place, claiming 13% each of the total African startup funding raised, with health tech and business rounding out the top five.
According to The Big Deal, the next best funded sectors are after fintech and cleantech, logistics and transportation, health and agriculture. For Briter, it’s health, software and mobility.
Gender representation
According to Briter Bridges, significant investment in women-led startups is a trend that is struggling to see significant change. “Despite marginal gains, funding to all women-founded companies remains a tiny fraction of that going to men-founded companies. While deals at all women-founded companies are increasing, the total dollar value raised by these companies is not showing radical increases,” it said.
Partech and The Big Deal are clearer in showing numbers. For example, according to The Big Deal, startups with a solo female founder or an all-female founding team raised 2.3% of total funding last year. Meanwhile, 15% of funding went to a founding team with at least one woman. (Last year both rates were 2.4% and 13%, respectively).
In terms of deal numbers, women-founded startups raised $25% of the equity category in 2023, per Partech (22% in 2022). These startups secured $392 million, representing 17% of total equity funding (13% in 2022) and 2% of debt funding, added the firm, which did not provide data for only groups founded by women.
