In a recent report by Africa: The Big Deal, Debt financing and Climate Tech have emerged as key drivers of African startup funding in 2024.
According to the report, African startups raised $636 million through $100k+ deals in the third quarter (Q3) of 2024, excluding exits. Of this total, 62% almost $400 million was raised in the form of equity, while 35% came from debt financing. The remaining 2.5% was secured through grants. Notably, the $176 million multi-currency facility raised by d.light accounted for nearly 80% of all debt raised in Q3 ($176 million out of $223 million).
The report further highlights that, for 2024 as a whole, two-thirds of all funding raised by African startups has been in equity, with one-third coming from debt. These figures are consistent with trends observed during the same period in 2023, marking a shift from prior years. The increase in debt financing is attributed to three main factors; (1) the increased offering in terms of debt capital for start-ups in Africa, (2) the maturity of an ecosystem where start-ups don’t always raise equity by default when what they need is debt, and (3) a greater propension for ventures to communicate about debt fundraising compared to previous years.
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However, while debt funding is on the rise, equity funding in 2024 has lagged behind previous years. Startups have raised around $920 million in equity so far this year- comparable to the total equity raised in 2020, but significantly lower than the levels seen in 2021 and 2022. Equity fundraising is also down by 32% year-on-year compared to the first three quarters of 2023.
The report notes that nearly $800 million would need to be raised in Q4 for 2024 to match last year’s equity funding levels a challenging target, given that the ecosystem has not seen such high levels of quarterly equity fundraising since Q2 2022.
Climate Tech Attracts Significant Investment
The report highlights the growing importance of Climate Tech in the African startup ecosystem. In Q3 2024, around 35% of all investments were directed towards climate-related ventures, in line with year-to-date figures. Over half a billion dollars have been invested in Climate Tech in Africa so far this year, mirroring the proportion recorded in Q1-03 2023.
Fintech and Energy Lead Sectoral Funding
The report also reveals that the Fintech and Energy sectors dominated funding in Q3 2024, attracting nearly 90% of total investments. Fintech raised $363 million (57% of total funding), while Energy attracted $199 million (31%). The numbers were heavily influenced by two major deals: MNT-Halan’s $157.5 million raise in Fintech and d.light’s $176 million deal. Five other fintech companies Nala, FlapKap, Fido, valU, and Paymob also secured $20 million or more during the quarter.
Year-to-date, Fintech remains the leading sector, raising $600 million (43% of total funding), followed by Energy with $300 million (21%). Together, the two sectors account for 64% of all investment in African startups. Logistics and Transport came in third, largely due to major deals by Move ($110 million) and Spiro ($50 million) in the first half of the year.
As the funding landscape for African startups continues to evolve, the rise of debt financing and Climate Tech points to a more diversified ecosystem. While equity funding has seen a decline, the increased availability of debt capital and a focus on sustainability suggest that African startups are adapting to new financial realities in the rapidly growing market.