Africa Experienced A Significant Venture Capital Decline In 2023- Report

By Jean-Pierre Afadhali

In 2023, with a total of $3.5B raised in 547 deals, African VC investment experienced a significant downturn with a 46 per cent decline in total funding and, for the first time in 8 years of reporting, a 28 per cent decline in deal count; revealed the report launched by Partech, a global investment platform for Tech and digital companies.

The Partech Africa Report seeks to provide a comprehensive and in-depth view into the evolution of the African tech VC ecosystem with focus on number of deals and amount of investments recorded.

“While in 2022 this region [ Africa] stood out against the global downturn, in 2023 the African tech sector saw a larger decline than the global trend despite a display of resilience on the debt side,” noted Partech in its latest report released on Tuesday.

According to Partech, 2023 proved testing for the African VC tech ecosystem, but South Africa, Nigeria, Egypt and Kenya, still made the top 4 for African VC investment.

Collectively, their total volume of deals amounted to 79 percent despite a slight decrease in deal count with 68 percent of all deals, said Partech report.

South Africa which secured $548M in equity, was number 1 in tech funding on the continent in spite of a 34 per cent YoY decrease.

“African tech was not immune to these macroeconomic headwinds, and the year ended with the region securing just over half of the funding it had achieved in 2022,” stated Partech in its latest VC report.

For instance, total funding, including both equity and debt, fell by 46 per cent year-over-year, from $6.5B to $3.5B.

In line with the global VC downturn, the African tech ecosystem raised a total of $3.5B, a decrease of -46 percent versus 2022.

Major challenges

In 2023, the global venture capital ecosystem faced considerable challenges, leading to significant changes in investment patterns, stressed Partech adding “Global equity funding experienced a sharp decline of 38% YoY to $285B1 while venture debt saw a more modest decrease of 5 percent to $59.2B2.”

Beyond the challenges linked to the global macroeconomic environment such as high interest rates, currency devaluation, inflation, layoffs, two key factors contributed to this contraction in funding.

According to the latest report, Conservative Capital Raising was one of major challenges the continent’s startup faced.” Faced with strong valuation decline and stronger requirements on their economics, many startups focused on cash efficiency over fundraising,” explains Partech

Investor Withdrawal from the Market was also cited as another major setback for VC in Africa last year. “Compared to last year, the number of investors that participated in funding rounds in Africa in 2023 decreased by 50 percent,” explains the global investment platform in its report on Africa.

Partech adds, there was a major decline in participation from major institutional funds, who generally drive the larger rounds.

For instance, we noted only 1 equity and 3 debt megadeals in 2023 (i.e., above $100M), compared to 7 equity and 4 debt megadeals in 2022, stated Partech.

Despite the downward trend, a standout in this landscape was the resilience of debt deals, which continued to be made available to African tech startups, says the report.

The number of deals saw a modest increase from 71 in 2022 to 74 in 2023, and while there was a 22 percent decrease in the amount raised, from $1.6B in 2022 to $1.2B in 2023, it was less severe compared to the overall funding downturn notably thanks to 8 deals above $50M (vs. 7 in 2022).

Perspectives and context

The decline in funding is occurring in the context of a global downturn which appears to be hitting the African ecosystem with a delay of roughly two quarters, explain report authors.

Additionally, Partech says, other emerging markets have been experiencing similar downward trends in VC funding, in the case of Latin America and Southeast Asia, on a larger scale.

“Despite the downturn, current levels of funding still present a significant growth over the past five years – nearly doubling the pre-2021 figures,” revealed the report

Also, the number of deals completed also saw a significant reduction, dropping by 28 percent from 764 to 547 deals, marking for the first time, in the 10+ years of data we have, a decline in deal count in this fast-growing ecosystem.

The African ecosystem saw a massive retreat from investors with -50% decrease in unique participating investors.

Debt was a solid alternative source of capital for African tech startups in 2023, representing 35 percent of the total $3.5B vs 24 percent of last year’s funding.

Despite the last year’s decline, Partech says in total nearly 3,000 investors have been active on the continent over the past 10-year period, committing to African entrepreneurs and their vision.