A recent report by Africa: The Big Deal, which provides a database and insights on start-up funding in Africa, has reported that start-ups in Africa raised at least $2.9 billion in funding in 2023.
The report disclosed that funding on the continent fell -39% year-on-year (YoY), compared to 2022, where African startups raised $4.8 billion.
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.
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Recall that VC funding in the African startup ecosystem significantly declined in 2023, causing concerns amongst experts about the future of the once fast-growing sector.
This funding crunch triggered mass layoffs, slashed valuations, and the liquidation of several African startups.
Part of the report reads,
“Last year, startups in Africa raised at least $2.9 billion through deals $100k and above. That’s if we count all types of deals (equity, debt, grants, etc.), but exclude exits. For reference, we tracked 19 exits in 2023 worth over half a billion dollars, almost entirely thanks to two Tunisian success stories: InstaDeep’s acquisition by BioNTech and Expensya’s acquisition by Medius.”
Overall, 500 start-ups raised at least $100k in Africa in 2023, compared to 821 in 2022, signifying that the average deal size has remained stable between 2022 and 2023.
“Funding on the continent fell -39% YoY. In the context of a global slowdown in VC activity, this performance is better than most might have feared. 500 start-ups raised at least $100k in Africa in 2023, compared to 821 in 2022 (also -39% YoY). This therefore means that the average deal size has remained stable between 2022 and 2023, again a pretty encouraging fact given the global climate”, the report stated.
Beyond the total number, the firm reported that one interesting thing to note is that many start-ups in Africa have turned to debt to finance their growth. It reported that The amount of debt raised reached $1.1 billion, a +47% growth YoY; in comparison, equity funding fell by -57% during the same period.
In 2022, start-ups 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% of all funding raised (vs. 16% in 2022).
The trend of startups turning to debt financing is however 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 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.