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Global 'funding winter' hits African tech startups

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Africa's tech startup ecosystem was not as well supported by investors in 2023 as the impact of the global capital shortage, or "funding winter," took hold on the continent.

Disrupt Africa's African Tech Startups Funding Report 2023 showed that investment into tech startups dropped by almost 28% year on year to US$2.4 billion in 2023.

While the African tech space had an impressive 2022, bucking global trends to see total funding increase beyond the US$3 billion mark for the first time on record, 2023 signified a reset for the market.

The regression last year was not, however as bad as many were predicting across the course of 2023, Disrupt Africa said, and 2023 was still the third best year on record in terms of funded ventures, and the second best for total capital secured.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

"While African tech, against the odds, continued to see increased investment in 2022, in 2023 it could buck global trends no more," the researchers said.

According to the report, this is the first time the sector, which has expanded exponentially in the last few years, has declined since 2016.

A total of 406 startups raised capital in 2023, down 35.9% on the 633 that raised in 2022. In addition, the number of active investors fell by almost 50%, and merger and acquisition (M&A) activity also witnessed a significant decline.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

Africa, like the rest of the world, has been affected by venture capital drying up and several leading startups were forced to cease operations or significantly restructure their operations.

"On the face of it, 2023 was a very bad year indeed for African tech from a funding perspective, with the difficulties in obtaining funding quantified by this report borne out by events on the ground, with companies of all stages battling – and some failing – to stay afloat in this 'funding winter,'" said Disrupt Africa co-founder Gabriella Mulligan.

"Yet, it must be remembered that this is not a phenomenon unique to Africa, but rather the result of global headwinds, and the numbers are certainly not as bad as it was looking like they would be back at the end of Q1 or Q2," she added.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

This is the ninth edition of the annual report from startup news and research portal Disrupt Africa, and this year's report was released in partnership with Flourish Ventures, AAIC Investment, and Atlantica Ventures.

In spite of the general decline in 2023, the number of funded ventures increased by 224.8% and total funding was up 1,195% since 2015.

Disrupt Africa co-founder Tom Jackson said the funding winter would soon turn to spring, with investment inevitably rising again in the coming 12 to 18 months, though perhaps not immediately to the levels of 2022.

"African tech is still at an early stage of its journey, with plenty of room to grow, and one relatively bad year from a funding perspective does not change that. The key thing for now is for startups to adjust to this 'new normal' by plotting a path to more sustainable growth while also ensuring good governance is enshrined within their organisational structures," Jackson said.

"Funds are being raised, and capital is being disbursed, and for the best ventures – and the ecosystem as a whole – 2023 should prove to be little more than a blip on the growth curve," he added.

A funding report from Africa startups deals database Africa: The Big Deal released a similar report earlier this month also showing a major startup funding drop in Africa in 2023.

Kenya leads 'big four' countries

Disrupt Africa's report shows that Nigeria, Egypt, South Africa and Kenya remain Africa's "big four" from a funding perspective, securing a larger share of total funding among them than in 2022.

In fact, these four nations accounted for 90.4% of the total capital raised in 2023, compared to 80.8% in 2022.

However, Nigeria's crown has been taken by Kenya, which secured the biggest piece of the funding pie with almost US$674 million going to the East African nation's startups. This was aided by big funding rounds for two Kenyan energy companies during the year.

Egypt was the second-best-funded country, with over US$590 million in investment, and then South Africa with around US$512 million.

Nigeria saw a 59% funding decline last year, to just shy of US$400 million, pushing it into fourth place. Nigeria, however, still had more funded startups that any other market with 124 companies receiving investment compared to just 62 in Kenya.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

Across the continent, startups raised funding in 26 countries, down from 27 in 2022, and other strong performers included the Democratic Republic of Congo (DRC), Rwanda, Ghana and Morocco.

Fintech still the flavor of the year

The fintech sector was, yet again, the most attractive to investors in 2023, with more fintech startups securing funding than any other sector and a combined total of almost US$964 million, which dwarfed all others.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

This was, however, a 33% decline year over year for the fintech sector, mirroring a general decline across all sectors. But fintech wasn't the biggest loser – e-commerce startups received almost 79% less than the previous year and marketing-focused startups saw a 75% decline year over year.

The energy sector was the biggest gainer during the year, with funding rising over 335% year over year, and there were also decent gains by edtech and recruitment startups in Africa.

(Source: Disrupt Africa's African Tech Startups Funding Report 2023)

Equity funding was still preferable to debt funding for most startups with only 43 of the 406 funded startups raising any debt funding across any of their rounds.

However, the share of 10.6% in debt funding in 2023 was a significant leap from 5.2% in 2022 and 4.6% in 2021.


Follow Connecting Africa on our new X account @connect__africa to get the latest telecoms and tech news across Africa.


"The perceived risk of African tech startup investments means companies remain much more likely to raise equity capital, but later-stage startups, especially those in the energy sector, are increasingly able to take on debt funding, and this year in particular some earlier-stage ventures have taken on debt as bridging capital as VC funding declines," the researchers explained.

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*Top image source: Image by peoplecreations on Freepik.

— Paula Gilbert, Editor, Connecting Africa

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