Total funding for African startups experienced a significant decline, dropping by 37 percent year-on-year to $4.1 billion in June 2023, according to data from Africa: The Big Deal.
The figures obtained from the African start-up ecosystem database revealed that funding decreased from $6.5 billion during the corresponding period last year.
The data also indicated a widespread downturn across all indices in the ecosystem, with funding raised through equity deals plummeting to $2.1 billion (through 560 deals), compared to $5.6 billion (through 860 deals) in June 2022.
Furthermore, the number of unique investors dwindled from 1,100 to 800 in the previous period.
The analysis by the data insight firm highlighted the emergence of a “funding winter” characterized by a year-on-year decline in funding raised by local start-ups.
This trend initially began in the United States and China in Q1 2022 before extending to all continents, except Africa, in Q2. By Q3, this downturn had become firmly entrenched, marking a year since Africa entered the funding winter.
The report emphasized that while comparing the past twelve months (July ’22 – June ’23) to the previous period, it is essential to acknowledge that July ’21 – June ’22 was an exceptionally active phase, characterized as a “heatwave.”
This period witnessed record-breaking levels of funding activity in Africa, with the ecosystem raising a total of $6.5 billion and engaging in 860 equity deals. The contrast between the heatwave and the current funding winter makes the latter all the more severe.
Despite the overall decline, the proportion of equity funding allocated to the “Big Four” countries in Africa (Nigeria, South Africa, Kenya, and Egypt) remained stable year-on-year at 81 percent.
However, certain markets within these countries were more severely impacted than others. The fintech sector continued to attract the largest share of equity funding, although its lead decreased by 10 percentage points from 53 percent to 43 percent.
This shift can largely be attributed to the fact that during the heatwave period, there were no fewer than seven fintech mega-deals ($100 million+) compared to just one in the past 12 months (MTN-Halan in February 2023).
A gender disparity was also evident in the African startup scene, with male-funded startups securing 84 percent of the funding raised during the period. In contrast, female startups received a disproportionately small portion, with female Chief Executive Officers obtaining a mere seven percent of the overall funding.
The decline in funding activity for African startups presents significant challenges for the ecosystem. As investors and entrepreneurs navigate these frosty conditions, it remains crucial to explore innovative strategies and initiatives to revitalize funding and support the growth of the African startup landscape