• Monday, April 22, 2024
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Nigeria remains top venture capital destination despite funding slowdown

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Nigeria retained the top spots for venture capital deals volume on the continent for the third consecutive year.

This is despite its reduced funding value compared to South Africa, Kenya, and Egypt. Overall, Nigeria accounted for 19 percent of VC deal volume in Africa in 2023, according to the ‘Venture Capital in Africa Report’ by the African Private Capital Association (AVCA).

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The country’s enduring prominence underscores Nigeria’s vital role in Africa’s silicon savannah, alongside South Africa (18 percent), Kenya (14 percent) and Egypt (11 percent), the company said. Africa’s ‘Big Four’ emerged as the primary destination for venture capital, as 62 percent of VC deals went to startups in these countries.

In 2023, VC funding on the continent was characterised by several strategic shifts and a recalibration in deal activities. The volume and value of venture capital investment decreased, marking the industry’s first decline in a decade.

“With the inclusion of venture debt, venture inflows to Africa last year clocked in at $4.5 billion across 603 deals—$2 billion less than the year prior,” the market intelligence company said.

South Africa’s VC deal value was $541 million, Kenya was $473 million, Egypt was $431 million, and Nigeria raised $389 million in 2023.

The total number of deals concluded on the continent in 2023 declined by 31 percent year-on-year from 787 to 545. The African venture capital ecosystem experienced a downturn in 2023, mirroring broader declines in funding for startups in the global market. This funding drought led several early-stage companies to either downscale operations or shut down.

Nigerian genomics firm 54gene, South African transit data provider WhereIsMyTransport, and Kenyan logistics platform Sendy were some of the startups to shut down in 2023, AVCA highlighted.

About 20 tech startups on the continent formally announced their closure in 2023, erasing a combined $200 million in operational investments as the total number of active investors who may have provided further funding dropped by 33 percent.

“This capital flight demonstrates a distinct lack of investor sentimentality as those that made opportunistic rather than dedicated investments in Africa exited in favour of more familiar shores,” AVCA said.

The slowdown in funding forced many startups to rely on venture debt rounds in 2023. The company highlighted that some startups raised low-ticket venture debt funding rounds. In contrast, the majority raised mid- to large-ticket debt funding through various instruments, including direct lending, convertible debt, and securitised bonds.

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AVCA added that 25 per cent of companies that raised venture debt in 2023 in the mid-ticket range did it in the $5 – 20 million range. In the big-ticket range, a reported six companies raised debt of over $50 million in value.

Despite recording the highest number of startups to raise $100k or more in funding, Nigerian startups recorded a fall in investments to $410m in 2023 from $1.2bn in 2022, according to Africa: The Big Deal.

The research firm noted that the country lost the top spot to Kenya in terms of the value of investments.