A recent report by Africa: The Big Deal has revealed that African startups raised $2.9 billion in funding in 2023, marking a 39% decrease compared to the previous year. The decline in funding was expected due to the global slowdown in venture capital activity. However, the report emphasized that the results were better than anticipated given the challenging circumstances.
The African startup ecosystem experienced a significant decline in VC funding in 2023, raising concerns about the future growth of the sector. This funding crunch resulted in mass layoffs, reduced valuations, and the liquidation of several startups across the continent.
Despite the decrease in funding, the report highlighted some positive trends. Overall, 500 startups raised at least $100k in Africa in 2023, compared to 821 in 2022, indicating that the average deal size remained consistent. This stability is an encouraging sign considering the global climate.
Furthermore, the report noted that many startups in Africa resorted to debt financing to sustain their growth. Debt raised by startups reached $1.1 billion in 2023, registering a 47% year-on-year growth. In contrast, equity funding experienced a 57% decline during the same period. Debt financing constituted 38% of all funding raised in 2023, a significant increase from 16% in 2022.
This trend of startups turning to debt financing is not limited to 2023 alone. According to a recent report by Briter Bridges, African startups borrowed $2.1 billion between 2014 and 2023. Over the past decade, debt financing in the African startup ecosystem surged due to the decline in equity funding, which dropped from $2.6 billion in 2022 to $1.4 billion in 2023.
The Briter Bridges report also highlighted that digital, technology-enabled, and green companies in Africa raised over $2 billion in disclosed debt funding from more than 140 funders, totaling over 200 deals. This underscores the growing reliance on debt as a means of financing growth and expansion in the African startup landscape.
In summary, African startups faced a 39% decline in funding in 2023 compared to the previous year. Despite this setback, the amount raised was better than anticipated given the global slowdown in venture capital activity. The reliance on debt financing has increased significantly, with startups opting for this option to support their growth. The future of the African startup ecosystem will rely on strategic financing measures and continued resilience in the face of challenges.
