The United States contributed the greatest share of VC Funding for startups in Africa last year, according to a VC report released this month.
- The Venture Capital in Africa Report 2023 says 781 investors participated in funding rounds in the continent, compared to 1,148 in 2022.
- 230 indigenous investors in Africa helped raise money for startups last year, slightly trailing the US which accounted for 233.
- Last year’s drop in North American investment led to 50% of the decline in VC funding witnessed in the continent last year, with Europe and Asia-Pacific pulling out accounting for 18% and 9% respectively.
Macroeconomic challenges in the global market caused a significant reduction in VC funding all over the world. Twenty startups in Africa announced their closure, as many others downsized their operations to effectively adjust. The situation also spurred the need for increased homegrown investment, as large corporates and capital allocators were challenged to maximize their efforts in supporting African startups.
“African entrepreneurs relying on Venture Capital backing have cut their teeth in a highly dynamic environment, building the muscle necessary to hold steady in both feast and famine,” the report stated.
Financial startups attracted the lion’s share of VC funding accounting for 38% of the deals. The figure rose slightly from 30% in 2022 but dwarfs the 53% figure in 2021. Startups in the energy, real estate, and communication sectors still lag in the funds race.
“The sectoral distribution of venture debt underscores a strategic approach by lenders to bolster sectors critical to Africa’s economic resilience and growth potential,” the report mentioned. “The emphasis on utilities and financials highlights a trend towards investing in foundational economic pillars.”
Investors in 2023 were attracted to startups that had taken up Artificial Intelligence (AI) in their models, allocating a total of $550 billion globally. Although China and Israel dominated the list of countries where these investments took place, African startups utilizing AI were able to raise $641 million from 103 VC deals between 2022 and 2023 revealing a growing interest in the technology across the continent. P1 Ventures, an African VC, announced in September last year that it intended to allocate a Sophomore fund worth $25 million to software startups using AI in the continent.
VC Funding Preferences
Nigeria retained its dominance in the VC funding sector after securing 19% of the deals last year. South Africa came a close second with 18%, followed by Kenya and Egypt raking 14% and 11% respectively. West Africa saw 142 VC deals topping the regional list but South Africa fetched a greater funding volume totaling $577 million.
The abundance of VC funding in the ‘Big Four’ markets has been reflected in the rapid development of startups in those countries. Investors have greater confidence in these enterprises, allowing them to comfortably pump more money into their expansion and solidification plans. Startups like Mnt-Halan from Egypt, M-Kopa and Sun King from Kenya, and Planet42 from South Africa raised funds above $100 million last year.
Since 2014, more than 3000 deals have been made between VC investors and startups, rolling in $21 billion in the continent’s economies. The interest in Africa’s growth and innovation field is contributed by geopolitical leanings. Investors from the Middle East have a keen focus on startups from North Africa, seeking to outdo Western dominance in the region. The strife underscores the reason why relying heavily on foreign investor funding may hinder the future progress of Africa’s startup ecosystem. The invisible nature of government agencies within the startup industry, with less than 30 deals reported reveals a disconnect between them and innovators.
- Seed-stage VC funding in Africa fell by almost a half last year compared to 2022 but Africa startups performed better than other continents in Series B and C rounds.
- Only 27% of investors last year funded startups with female founders, with 136 such companies raising $485 million signifying the need for greater parity investment.
- VC Fund managers and Investment firms for another year in a row, outperformed other funding sources such as asset managers, accelerators, and angel networks.
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