Africa’s venture capital market experienced a significant decline in funding in 2023, with VC funding in the first half of the year dropping by almost half compared to the same period last year. The increase in interest rates by central banks around the world also impacted venture funding, leading to a decrease in available capital for startups and an increase in the cost of debt financing. In Africa, startup funding plummeted to over $1 billion in the first half of the year, with a 40% reduction in both deal volume and funding compared to the previous year. This downturn led to a shift in focus towards early and late-stage startups and forced many African startups to halt operations due to decreased demand and funding scarcity.
West Africa led venture capital deals in Africa, securing the highest volume in the first half of the year, followed by East Africa, South Africa, and North Africa. The financial sector claimed the largest share of venture capital deals, followed by information technology, consumer discretionary, industrials, healthcare, and communication services. Fintech startups received major investments in South Africa and Nigeria.
CleanTech, which focuses on enhancing environmental sustainability, has gained attention in the global venture capital scene and is now as popular as FinTech among the top 10 highest-funded startups worldwide. In Africa, CleanTech is the second most active vertical among VC-backed technology companies in the first half of 2023, contributing to increased deal activity in the utilities sector. Companies in Africa using technology to enhance environmental sustainability have received significant support.
In the third quarter of 2023, Africa’s startup funding increased by 28% compared to the same period last year. However, the strength of venture debt financing is decreasing, especially in Africa, with fewer deals and lower investment amounts compared to the previous year. Startups operating in multiple sub-regions secured the majority of investments in Q3 2023, with West Africa receiving the second highest share of funds. The finance sector attracted the most funds, followed by utilities, information technology, and consumer discretionary.
Despite the challenges faced, the African startup landscape displays resilience, with entrepreneurs reassessing strategies and exploring alternative funding sources.
