African startup funding faced a 39 percent year-on-year decline in the entire period of 2023, a new report shows.
According to the Africa: The Big Deal, startups across Africa raised a total of $2.9 billion in 2023 compared to the $4.8 billion raised in 2022.
Despite this downturn, the report highlighted that the results were better than anticipated, given the global slowdown in venture capital (VC) activity during the year.
The research platform disclosed that 500 startups secured at least $100,000 in funding in 2023, indicating a 39 percent decrease from the 821 startups that achieved this in 2022. However, the report emphasised that the average deal size remained stable between 2022 and 2023, offering a glimmer of encouragement amidst the challenging global climate.
A significant shift noted in the report was the increasing reliance of African startups on debt financing to fuel their growth. Debt raised by startups surged by 47 percent year-on-year, reaching $1.1 billion, while equity funding experienced a notable 57 percent decline during the same period.
“In 2022, startups in Africa had raised 19 cents of debt for every $1 of equity they’d secured. In 2023, this number went up to 65 cents, and debt made up 38 percent of all funding raised (vs. 16 percent in 2022),” stated the report.
The trend of startups turning to debt financing is not isolated to 2023. According to a recent report by Briter Bridges, African startups borrowed $2.1 billion between 2014 and 2023. Over the last five years, debt financing in the African startup ecosystem has increased significantly due to declining equity funding.
From 2019 to H1 2023, debt as a share of the total funding volume for ventures in Africa surged from 4 percent to 26 percent. The decline in equity funding played a pivotal role in this shift, dropping from $2.6 billion in 2022 to $1.4 billion in 2023.
Briter Bridges highlighted that over the past decade, more than $2 billion in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from over 140 funders, accounting for more than 200 deals.
“In contrast to equity, a significant portion of debt funding is directed toward companies possessing collateral. Approximately 75 percent of debt financing has been channelled to asset-heavy businesses operating in sectors such as cleantech, mobility, agriculture, and logistics.”
“Nearly half of all disclosed debt funding went to cleantech companies. The exceptions are fintech and digital lending. Fintech accounted for around 20 percent of the total disclosed debt funding. In cleantech alone, debt funding represented 50 percent of the total funding raised,” it reports.
