African Tech Startup Funding Sees 27.8% Decline in 2023

The African tech startup ecosystem faced a challenging year in 2023 as total investments plummeted by 27.8%, reaching $2.4 billion.

The African tech startup ecosystem faced a challenging year in 2023 as total investments plummeted by 27.8%, reaching $2.4 billion. This downturn, highlighted in the ninth edition of the annual African Tech Startups Funding Report by Disrupt Africa, reflects the broader impact of a global capital shortage on the continent.

In 2022, Africa’s tech space defied global trends, surpassing the $3 billion funding mark for the first time. However, 2023 marked a reset, with 406 startups raising a combined total of $2.4 billion, down 35.9% in funded ventures compared to the previous year. Despite being the third-best year in terms of funded ventures and the second-best for total capital secured, it represented a significant decline.

The number of active investors also saw a nearly 50% decrease, and mergers and acquisitions (M&A) activity witnessed a significant decline. This is the first time the sector has seen a decline since 2016, though the drop in funding of less than a third is considered an improvement from earlier projections that suggested a 50% decline in 2023.

The global “funding winter” affected Africa similarly, leading to a drying up of venture capital. Several leading startups were forced to cease operations or undergo significant restructuring to navigate the challenging environment.

Nigeria, Egypt, South Africa, and Kenya continue to be Africa’s “big four” in terms of funding, securing a larger share of total funding between them compared to 2022. Nigeria, however, experienced a substantial funding decline of 59%, dropping to just under $400 million, pushing it into the fourth position overall.

The fintech sector, consistently attractive to investors, saw a 33.4% decline in investment, totaling $964 million. Despite the challenges, the report emphasizes that the African tech ecosystem remains at an early stage of its journey, with plenty of room for growth.

Disrupt Africa co-founder Gabriella Mulligan commented on the difficult year, stating, “The difficulties in obtaining funding quantified by this report are borne out by events on the ground, with companies of all stages battling – and some failing – to stay afloat in this ‘funding winter.’ Yet, it must be remembered that this is not a phenomenon unique to Africa, but rather the result of global headwinds.”

Co-founder Tom Jackson expressed optimism about the future, suggesting that the current “winter” will eventually turn to “spring,” with investment expected to rise again in the coming 12-to-18 months. He emphasized the importance of startups adjusting to the “new normal” and focusing on sustainable growth and good governance.

Acknowledging the challenges faced by the ecosystem, the report is now available for free download as part of an open-sourcing initiative in partnership with Flourish Ventures, AAIC Investment, and Atlantica Ventures. Previously a paid publication, the move aims to make valuable information accessible to African entrepreneurs.

Ameya Upadhyay, venture partner at Flourish Ventures, expressed optimism about the future of the tech ecosystem on the continent, emphasizing the importance of continuous dissemination of information for sustained growth. Partners AAIC Investment and Atlantica Ventures also highlighted their contributions to fostering long-term development and industry insights.

Despite the setbacks in 2023, the report suggests that for the best ventures and the ecosystem as a whole, the year should be viewed as a temporary blip on the growth curve, with the potential for a rebound in the near future.