Funding for African tech startups goes into decline during 2023

June 5, 2024 in Finance, Investment, Technology & Telecoms by Editor

The best-funded country in Africa for the last two years, Nigeria suffered a sharp fall from grace in 2023. Though Nigeria still saw more startups raise funds than any other country, with 124, its total secured funding of $399,909,000 actually pushed it back into fourth position, behind Kenya, Egypt and South Africa.

Four hundred and six African tech startups raised $2.4 billion during 2023. Although the figure signifies the third best year on record in terms of funded ventures, and the second best for total capital secured, it represents a significant decline on 2022. For the first time since 2017, total funding has not grown by 40pc or more and the number of active investors also fell by almost 50pc, as did the amount of mergers and acquisitions (M&A) activity.

According to the African Tech Startups Funding Report 2023 published by Disrupt Africa the bulk of funding activity continues to take place in the ‘big four’ markets of South Africa, Nigeria, Kenya and Egypt, but 2023 saw activity across 22 other ecosystems.

The number of funded ventures was down 35.9pc on the 633 that raised in 2022. This is the first year a decline has been seen in this regard since tracking began in 2015. The amount of funded startups has increased at varying rates every year, but the 2023 total of 406 is significantly less than the numbers that raised in 2022 and 2021.

A total of 147 startups raised $1 million or over in 2022, representing 36.2pc of the total. This was down from 276 (43.6pc) in 2022, which had been up from 206 (36.5pc) in 2021 and 110 (27.7pc) in 2020. Egyptian fintech company MNT-Halan set a new record for funding raised in a calendar year, raking in $510 million in equity and debt capital, while there were also notable raises by Kenya-based energy companies M-Kopa ($315 million) and Sun King ($150 million). Other significant rounds were raised by the likes of South Africa’s Planet42 ($100 million), South Africa’s Tyme ($77.8 million), South Africa’s Wetility ($48 million), Nigeria’s Moove ($46 million) and the Democratic Republic of Congo’s Nuru ($41.5 million).

Uganda had a poor year. Seven startups attracted backing, more than halving the figure for 2022 (15 startups). The total funds raised also dropped off, with a combined total of $4,168,000, down 94pc on the $69,314,000 secured in 2022. The DRC was one of the positive exceptions to the disappointments of the year. Here, five startups raised funding, up 150pc on the only two to gain backing in 2022. And excitingly, they attracted a whopping $60,578,000 in funding, up 686.7pc on $7,700,000 in 2022. This total was fuelled by the energy sector, with Nuru attracting $41.5 million in pre-Series B funding over the year; and Altech bringing in $18 million.

Tanzania continued the story of decline, with five startups raising, down 37.5pc on eight the year before. Their combined total came to $2,808,000, down 93.5pc on $42,917,000 in 2022. Rwanda gave us some more respite, with a solid performance in 2023. Although only four startups raised – the same number as in 2022 – they netted $44 million, up 917.3pc on the 2022 total of $4,325,000. E-health venture Kasha secured a $21 million Series B round; and transport company Ampersand raised $19.5 million. On a smaller scale, but Ethiopia also did well. Four startups (up from two) raised $2.6 million, up 372.7pc on only $550,000 the year before.

While total funding coming into the African tech space did not decline as sharply as many had predicted, the number of active investors dropped dramatically in 2023 as compared to 2022. There were at least 527 different disclosed investors in African tech startups in 2023, down by almost a half – 46.6pc to be exact – on the 987 disclosed in the previous 12 months. The 2022 figure, which was the largest amount of any year on record thus far, was up 28pc on the 771 tracked in 2021. Yet in 2023, mirroring both continental and global trends, many previously active investors chose to keep their powder dry, or indeed had no powder to deploy. This saw investor numbers fall back to fewer than even 2021, though still more than 2020.

These investors vary in shapes and sizes, with the most active being early-stage funds such as Launch Africa Ventures, Ventures Platform, and LoftyInc Capital Management. Accelerators, both local and international, are also very active, among them the likes of Techstars, Startupbootcamp AfriTech, The Baobab Network, and 500 Global.

It is at later stages where the decline in activity is most evident, however. Leading global investors such as Tiger Global, Sequoia Capital and SoftBank were increasingly active in Africa until 2022, but conspicuous by their absence in 2023.

The best-funded country in Africa for the last two years, Nigeria suffered a sharp fall from grace in 2023. Though it still saw more startups raise than any other country, with 124, its total secured funding of US$399,909,000 actually pushed it back into fourth position, behind Kenya, Egypt and South Africa.

As for the other “big four” markets, all saw fewer startups secure capital, but it was a mixed bag when it came to total funding. Egypt joined Nigeria in witnessing a decline, albeit to a much lesser extent, but Kenya and South Africa actually saw an increase in total investment, with the caveat in the Kenyan case that this was primarily due to big rounds for two energy companies.

Stronger than expected performances in Kenya and South Africa, then, actually meant the share of investment secured by the four leading markets increased. The $2,176,274,000 raised by those four countries accounted for 90.4 pc of the $2,406,914,000 total, compared to an 80.8pc share in 2022. The share of funded startups, however, did decline, to 71.9pc from 75.8pc. Startups raised funding in 26 African countries, down from 27 in 2022, and though there were some surprisingly strong performers, like Morocco and Rwanda, the general story is one of declining investment in the face of the ‘funding winter’.