African Startup Funding Drops 39% to $2.9 Billion in 2023 TechKudi
In 2023, startups across Africa experienced a notable shift in their funding landscape, as they collectively secured $2.9 billion.
African Startup Funding Drops 39% to $2.9 Billion in 2023
In 2023, startups across Africa experienced a notable shift in their funding landscape, as they collectively secured $2.9 billion, signaling a 39% year-on-year decrease, according to a comprehensive report titled ‘Africa: The Big Deal.’ This contrasts with the $4.8 billion raised in 2022, indicating a substantial downturn in funding momentum.
Despite the decline, the report suggests that the performance of African startups exceeded expectations, given the global slowdown in venture capital activity throughout the year. The research platform disclosed that 500 startups in Africa managed to secure at least $100,000 in funding in 2023, marking a 39% decline from the 821 startups that achieved this in 2022.
Delving into the specifics of capital raise activities, the report highlighted that, in 2023, African startups secured a total of $2.9 billion through various deals (equity, debt, grants, etc.) excluding exits. Notably, 19 exits worth over half a billion dollars were tracked in 2023, largely attributable to the success stories of Tunisian companies InstaDeep and Expensya.
The report emphasized the resilience of African startups, emphasizing that the -39% year-on-year decline in funding did not significantly impact the average deal size, remaining stable between 2022 and 2023—an encouraging aspect in the context of the global economic climate.
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The Shift from Equity to Debt in African Startup Funding
One significant trend identified in the report was the shift from equity to debt financing among African startups. The data revealed that debt raised by startups reached $1.1 billion, marking a substantial 47% year-on-year growth, while equity funding experienced a corresponding decline of -57%.
This shift towards debt financing has been an ongoing trend, as indicated by a recent report from Briter Bridges. The report revealed that between 2014 and 2023, African startups borrowed a total of $2.1 billion. The proportion of debt financing in the overall funding landscape for ventures in Africa grew significantly from 4% in 2019 to 26% in H1 2023, reflecting a decline in equity funding.
Briter Bridges pointed out that the rise in debt financing in Africa’s startup ecosystem was not solely a 2023 phenomenon. Over the past decade, digital, technology-enabled, and green companies in Africa raised more than $2 billion in disclosed debt funding from over 140 funders, encompassing more than 200 deals.
Conclusion
The decline in equity funding from $2.6 billion in 2022 to $1.4 billion in 2023 was identified as a major driver behind the increased reliance on debt financing in Africa’s startup landscape.
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