The African startup landscape, including Nigerian ventures and others across the continent, has attracted a substantial investment exceeding $20 billion in the past 15 years, according to the H1 2023 Africa Investment Report by Briter Bridges.
Briter Bridges’ report highlights that the funding in Africa for the first half of 2023 alone surpassed $2 billion, contributing to a cumulative investment of over $20 billion within the sector over the past decade and a half.
Amid concerns within the ecosystem about the future prospects of investing in Africa, the report sheds light on a pivotal moment for the region’s innovation industry. The report acknowledges that Africa’s innovation sector has now grown to a valuation of more than $21 billion. However, this growth has unfolded against the backdrop of shifting global macroeconomic dynamics, which have raised uncertainties about the feasibility of investing in startups, particularly in Africa.
These shifts in the funding landscape are causing notable challenges for startups and investors alike. The report underscores that numerous startups are being forced to close down, while investment funds are grappling to reach their intended financial goals. Consequently, some investors have had to reevaluate their valuation models and implement significant workforce reductions.
The report further indicates that investors are modifying their focus, pivoting away from growth-stage startups to favor late and early-stage ventures. Notably, a series of substantial deals within the fintech, logistics, and climate tech sectors have dominated the late-stage sub-ecosystem, contributing substantially to the funding amassed during the first half of the current year.
Despite a drop of 26 percent in total funding during the period under examination, Nigerian startups maintain a prominent presence on the funding landscape. While Nigeria’s funding volume currently ranks fifth on the continent at $280 million, the top four positions are held by Kenya ($520 million), Egypt ($510 million), South Africa ($400 million), and Rwanda ($280 million).
The report highlights that the African tech ecosystem has now been in a downturn for about 18 months. Funding for startups in Africa experienced its peak from Q3 2021 to Q1 2022, after which a decline in funding volume began in Q2 2022. This trend continued, with Q4 witnessing a more than 50 percent decrease in the volume of deals compared to the peak.
The mounting pressures faced by startups and investors are prompting reflections on the sustainability of venture capital in Africa. The report suggests that innovative approaches to financing are required, with debt financing emerging as an increasingly attractive option for startups to explore.
