African technology startups secured $3.5B in total funding (equity and debt combined) in 2023, marking a 46% decrease from the previous year, spread across 547 deals (-28% YoY) according to a new report by Partech Africa, the VC fund by Partech, dedicated to technology startups in Africa.
The annual Africa Tech Venture Capital report, which aims to provide a comprehensive and in-depth view into the evolution of the Africa Tech VC ecosystem, reveals that the African tech sector saw a significant slowdown in 2023, securing only half the amount of funding it did in 2022.
“Two years into the global downturn, it’s clear the African tech ecosystem is experiencing the full severity of it even though it’s faring much better than the Latin America and Southeast Asia regions” explains Cyril Collon, General Partner at Partech. “Despite this correction, over the last 10 years, the African tech ecosystem has still grown nearly 10x in transactions and funding amount with about $20B invested in roughly 3,000 deals, 68% of it in the last three years”.
The report sheds light on the resilience of debt funding. Despite a 22% drop in the total amount raised from $1.6B in 2022 to $1.2B in 2023, the sector showed resilience with a modest increase in the number of debt deals from 71 in 2022 to 74 in 2023.
According to the report, the African tech ecosystem saw a massive 50% decrease in active investors (569 vs 1,149 in 2022) and a similar 49% decrease in highly active investors who participated in 5+ deals. In the VC downturn, many investors disappeared from the market, leaving startups with fewer options.
There was also a large drop at the Growth stage, where the average ticket size fell by another 31% YoY in 2023 to $34.7M following last year’s severe -50% drop. The Seed and Series A stages experienced drops of 8% and 16% respectively, compared to their 2022 averages. In contrast, the Series B stage maintained a steady average deal size at $18.9M, consistent with the previous year.
“In this dry market, the African tech ecosystem paid much more attention to Francophone Africa growing its share of transaction and funding” comments Tidjane Deme. “The steady growth of this region over the last years is explained by the ability of local investors – who drive more and more of the ecosystem – to expand beyond the top markets visible to global investors. They see the untapped opportunity in Francophone countries.”
South Africa, Nigeria, Egypt and Kenya are still making the top 4 for African VC investment, with their contribution to the total volume amounting to 79%, despite a slight decrease in deal count with 68% of all deals (vs. 77% in 2022). South Africa emerged as the leader of the African tech funding landscape securing $548M in equity, despite a 34% YoY decrease. However, when combining equity and debt, Kenya takes the leadership with $719M raised, thanks to the largest debt haul.
Nigeria, although it experienced a significant 59% drop in total equity funding to $468M, remained at the forefront in terms of the number of equity deals. Egypt faced the most substantial impact among the top four, with its equity deal count plunging by 58% to just 60 deals. Outside of the top 4 countries, Morocco and Ghana are the only other countries surpassing the $50M equity funding threshold.
Francophone Africa stands out, with 52% of the countries (vs. 46% in 2022) that have seen a transaction in 2023, i.e., 14 countries out of 27 countries. This region takes a growing share of equity investment in Africa: 15% of the 2023 funding (vs 11% in 2022) and 20% of transactions (vs 12% in 2022), representing two thirds of the equity funding and deal counts outside the top four markets.
Fintech held its position as the leading sector in the African tech ecosystem, being the first both in deal count, with 113 deals, and in funding amount with $852M, i.e. 37% of the total equity investment. e-commerce and cleantech tie for the second spot, commanding each 13% of the total funding amounts.
Female-founded startups raised 25% of equity deals, up 3 percentage points (p.p.) from 2022. They accounted for $392M (-39% YoY) or 17% of the total equity funding (+4 %p.p. YoY) marking a modest shift towards gender diversification among recipients. But when it comes to debt, female-led startups only account for 2% of the funding.
There was also an increase in debt as a solid alternative source of capital for African tech startups in 2023, representing 35% of the total $3.5B, a jump of 11 percentage points compared to the 24% of 2022. The debt funding is led by Kenya (32% of total debt funding) and focused mostly on Cleantech (50%) and Fintech (26%).