Nigeria startups have raised $415 million in debt financing in the first half (H1) of 2023, according to a new report on Debt financing in Africa’s innovative ecosystem.
According to the Briter Bridges report, startups in Africa acquired $2.1 billion in debt financing with disclosed deal values only between the year 2014 and H1 2023. However, Out of the total deals made by startups in Africa, 75 percent of the debt funding volumes are raised by startups in Nigeria, Kenya, Egypt, and South Africa.
“Over the past ten years, more than $2 billion in disclosed debt funding has been raised by digital, technology-enabled, and green companies in Africa from more than 140 funders for more than 200 deals. This accounts for about 10 percent of the total funding raised over this period in Africa. Like equity, more than three-quarters of debt funding has gone to Nigeria, Kenya, Egypt and South Africa,” it said.
The report disclosed that startups in Kenya acquired $800 million, which is the biggest amount raised in H1’23 in debt financing, Nigeria followed in second place, raising $415 million, while South Africa obtained $280 million, and Egypt secured $190 million.
Debt refers to the financial obligation that a company incurs when it borrows money to fund its operations, expansion, or other financial needs. Unlike equity, it is not in return for ownership of a business but rather funding for a certain amount of time for a certain cost.
The report also revealed a significant shift in funding trends throughout 2023, with debt financing experiencing a notable increase while equity funding declined. Despite the decline in equity, debt funding continued its upward trajectory, making up over a quarter of the total funding allocated to innovative companies in Africa.
“One of the biggest drivers of debt’s rise in Africa’s startup ecosystems may be the dramatic fall in equity funding, which fell from $2.6 billion in 2022 to $1.4 billion in 2023.”
“A nearly 50 percent drop off. This is affecting companies and investors who are struggling to raise their funds and show returns, which results in a greater push towards alternatives to equity. Yet, while debt certainly has a role in Africa’s innovative ecosystems, it is not a silver bullet,” it reports.
Briter’s findings indicate that, in contrast to equity, a significant portion of debt funding is directed toward companies possessing collateral. Approximately 75 percent of debt financing has been channeled 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.