• Friday, May 24, 2024
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BusinessDay

Startup dollar inflows to Nigeria, others fall five-fold

How bootstrapping can fuel startup success as VC fund slows

In the first quarter of 2024, African startups raised five times less than they raised in the third quarter of 2021 because of a funding drought.

The drop in funding to the continent coincides with the recovery of investment in Europe and the US startups.

Generally, only about 0.5 percent of global funding flowed to Nigerian and other African startups in the first quarter of 2024. Funding into the continent continues to represent a negligible proportion of global flows, suffering relatively more than most other regions in Q1.

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A new report from Africa: The Big Deal revealed that African startups attracted 100 times less funding than US startups.

“While it surely feels unfair to compare Africa to the US, it is worth reminding ourselves that this imbalance is much more acute for start-up funding than, say, nominal GDP, for instance (8x times less); and than Africa is home to around 4x times more inhabitants than the US,” the data insight firm that tracks deals above $100,000 said.

Startup funding on the continent declined by 9 percent quarter-on-quarter but grew by 33 percent in the US and 8 percent in Europe. It grew globally by 11 percent. However, the continent still fared better than Asia, where funding fell by 20 percent and LatAm by 38 percent.

The firm noted that Africa continues to perform poorly, with the continent only raising slightly over half of what it raised in Q1 2023. This was not isolated, though, with all regions, except Europe (a three percent increase), recording double-digit decreases.

African startups are raising five times less quarterly than when fundraising peaked in Q3 2021. “This is a more serious contraction than the global average (3.1x), which is very much influenced by Europe and US numbers (2.7x). It is in line with the Asian trend, though, and much less dramatic than the gap registered in LatAm (14x),” the firm stated.

Africa: The Big Deal noted that there is hope for African startups because of the recent year-on-year growth recorded in Europe and the US. “Along with the growth in the number of deals on the continent we’ve covered a couple of weeks ago, these might be the first signs of a future rebound in Africa,” it added.

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Startups on the continent raised about $466 million in the first quarter, and Nigeria accounted for $160 million of this. The fall on the continent represented a 27 percent quarter-on-quarter decrease. Prashant Matta, Partner at Panache Ventures, recently told BusinessDay that ongoing economic challenges, including recession, inflation crises, and economic downturns, have worsened the decline in funding.

Faced with the shortage of foreign investment, local investors have begun to drive the flow of deals on the continent.