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The African tech startup scene faces a funding winter’ as global financial constraints tighten

The investment landscape for Africa’s technology startups faced significant challenges in 2023, feeling the effects of a global investment downturn often referred to as the “funding winter.” According to the 2023 African Tech Startups Funding Report by Disrupt Africa, there was a near 28% decrease in investment into tech startups across the continent, totaling US$2.4 More The post The African tech startup scene faces a funding winter’ as global financial constraints tighten appeared first on Tech In Africa.
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The investment landscape for Africa’s technology startups faced significant challenges in 2023, feeling the effects of a global investment downturn often referred to as the “funding winter.” According to the 2023 African Tech Startups Funding Report by Disrupt Africa, there was a near 28% decrease in investment into tech startups across the continent, totaling US$2.4 billion for the year.

Despite this setback, the African tech sector had previously demonstrated remarkable resilience in 2022, defying worldwide trends by exceeding US$3 billion in total funding for the first time in history. However, 2023 marked a period of adjustment for the industry.

Although the decline in investment was pronounced last year, it wasn’t as severe as many forecasts had suggested throughout 2023, according to Disrupt Africa. The year remained historically significant, ranking as the third highest in the number of ventures funded and the second highest in terms of total capital raised.

The report detailed that 406 startups succeeded in securing funding in 2023, a steep decline of 35.9% from the 633 startups that managed to do so in 2022. Furthermore, there was a nearly 50% reduction in the count of active investors, alongside a marked decrease in merger and acquisition (M&A) activities.

Africa, along with the rest of the globe, experienced a sharp decline in venture capital, leading numerous prominent startups to either shut down or undergo major restructuring. “From a funding viewpoint, 2023 proved to be extremely challenging for the African tech sector. The struggle to secure financing, as outlined in this report, was vividly reflected in real-world scenarios. Businesses across all phases faced severe difficulties, with some even failing to survive this ‘funding winter,’” explained Gabriella Mulligan, co-founder of Disrupt Africa.

“However, it’s crucial to recognize that this situation is not exclusively an African issue but stems from broader global economic challenges. Moreover, the financial impact wasn’t as severe as initially feared at the close of the first or second quarter,” she further stated.

Capital is being gathered, and funds are being distributed, indicating that for the most promising ventures – and for the ecosystem at large – 2023 is likely to be just a minor setback in their growth trajectory,” he further mentioned.

Earlier this month, a financing report by Africa startups deals database, Africa: The Big Deal, similarly highlighted a significant decrease in startup funding across Africa in 2023.

According to a report by Disrupt Africa, the quartet of Nigeria, Egypt, South Africa, and Kenya continue to dominate the African funding landscape, capturing a greater proportion of total investments in 2023 compared to the previous year. These countries collectively attracted 90.4% of all funding, a significant increase from 80.8% in 2022.

Kenya, surpassing Nigeria, emerged as the frontrunner in attracting investment, receiving nearly US$674 million. This surge in funding was significantly boosted by substantial investment rounds in two Kenyan energy startups.

Following Kenya, Egypt secured its position as the second-highest recipient of funding, with investments exceeding US$590 million. South Africa ranked third, with its startups attracting approximately US$512 million in funding.

Last year, Nigeria experienced a 59% decrease in funding, falling just below US$400 million and dropping to fourth place. Despite this, Nigeria maintained its lead in terms of the number of startups receiving funding, with 124 companies securing investment, surpassing Kenya’s 62.

The funding landscape saw contributions in 26 countries across the continent, a slight decrease from 27 in 2022. Other countries that stood out for their funding activities included the Democratic Republic of Congo (DRC), Rwanda, Ghana, and Morocco.

The fintech sector continued to dominate, attracting more investment than any other industry. In 2023, fintech startups garnered close to US$964 million in funding, significantly outperforming other sectors.

Nonetheless, the fintech sector experienced a 33% reduction in funding compared to the previous year, reflecting a broader downturn across various industries. Fintech did not face the steepest decline, as e-commerce startups witnessed their funding slashed by nearly 79% from the year before, and startups in the marketing domain encountered a 75% reduction in investments. Conversely, the energy sector emerged as the top performer, with investments soaring by over 335% year over year. Additionally, the edtech and recruitment sectors in Africa saw substantial increases in their funding.

 

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The post The African tech startup scene faces a funding winter’ as global financial constraints tighten appeared first on Tech In Africa.

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