Slowdown in African startup funding raises concerns

African startups face a serious funding slowdown in 2023, with the amount raised by new ventures less than half of what it was at the same time last year.


Image : JonoErasmus / Adobe Stock

It has been a tough start for African startups this year, according to new data. After a record-breaking 2022, with almost $5bn raised, they now face a funding challenge, the amount raised by new ventures being less than half of what it was at the same time in 2022. By the end of April 2023, African startups had raised $536m, compared to $950m in the same period last year, according to data compiled by the online database Africa The Big Deal.

March and April were particularly disappointing months for entrepreneurs seeking capital, with just under $130m raised across the continent in April – 3.5 times less than in April 2022, and also less than in April 2021.

This slowdown in funding in Africa is, however, consistent with the global trend. In the first quarter of 2023, startup funding in the US and Europe more than halved – to -54% and -60% respectively – while in Asia it was -65%, and in Latin America -80%. The global recession due to geopolitical tensions, rising interest rates, and banking sector turmoil is largely held responsible for this sustained a slowdown in investment activity.

Downturn implies re-structuring and a shift in investors’ landscape

Recently, the Africa-focused e-commerce startup Copia shut down its operation in Uganda to focus on profitability in Kenya. Tim Steel, its CEO, admitted that his decision was “consistent with many of the best companies in Africa and across the world, which are responding to the market environment and prioritizing profit”.

But restructuring might not be the only solution for African startup entrepreneurs.

Given the ongoing banking crisis, which has seen the collapse of Silicon Valley Bank and First Republic Bank, both heavily invested in the tech sector, the reliance on American VCs to fund African startups is becoming increasingly questionable.

Currently, about 70% of fintech startup deals are financed by investors headquartered outside of Africa, most of them in North America, according to consulting firm McKinsey.

As a result, alternative sources of funding, such as local investors and government, are expected to play a more significant role in supporting the continent’s entrepreneurial ecosystem.

For instance, in April, the Government of Canada and USAID were involved in more than $7m grant funding in Africa, a small but considerable financing which could presage the involvement of more institutional investors in the future.

Foreign VC funds are likely to make less risky investment which could benefit the fintech sector, usually considered as highly lucrative for investors. 

The rest of the year is likely to be challenging for startup founders, but could also make players in the ecosystem think of alternative financing models to build stronger resilience in the future.

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Leo Komminoth

Leo is tech reporter for African Business, based in Dakar, and also works on data visualisations.