As of November 30, 2023, debt financing for African start-ups has surged to $1.1 billion, outpacing a slowdown in equity funding. According to data from Africa: The Big Deal, Nigerian and other African start-ups collectively secured $270 million in funding in November, contributing to a total funding of $2.6 billion for the year, indicating a downturn compared to previous years.
The data insight firm, specializing in deals above $100,000, highlighted the dominance of debt financing in 2023, revealing that $1.1 billion in debt has been raised, a substantial increase from $676 million and $257 million during the same period in 2022 and 2021, respectively. Notably, for every $1 of equity announced, start-ups raised 70¢ in debt in 2023, a significant shift from 19¢ in 2022 and 7¢ in 2021. This trend suggests that African start-ups are increasingly turning to debt to fuel their growth, particularly evident in large deals, with nearly $700 million in debt raised so far this year. Major contributors to this surge include MTN-Halan, Sun King, and M-Kopa, accounting for almost two-thirds of the total debt raised.
Breaking down the funding in November, debt reached $154 million, surpassing equity at $101 million. While total funding for African start-ups in 2023 is at 60% of the amount raised during the same period in 2022, the decline is less severe than initially anticipated. However, the equity component tells a less optimistic story, with 2023 only representing 40% of the levels seen in 2022 and 2021, amounting to $3.7 billion.
A prior report from the firm had predicted a potential decline in funding for African start-ups to $3 billion by the end of 2023, indicating a $1.5 billion shortfall compared to 2022. The increasing reliance on debt financing is a notable trend, potentially mitigating the overall impact of the downturn in funding.
Source: Punch NG