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Startups across Nigeria and various African nations sought financial backing of $1.1 billion in 2023 as investor interest in equity funding waned.
According to insights from Africa: The Big Deal, a data analysis firm specializing in tracking startup deals exceeding $100k+ on the continent, the overall funding plummeted by 39%, reaching $2.9 billion in 2023.
The report stated, “African startups secured a minimum of $2.9 billion through deals surpassing $100k, encompassing equity, debt, grants, etc., while excluding exits. In 2023, 500 startups secured at least $100k, a decrease from the 821 recorded in 2022.”
In an intriguing shift, debt emerged as a significant funding source, with many startups opting for borrowing to fuel their expansion. The data highlighted a noteworthy trend, stating, “The debt raised surged to $1.1 billion, marking a YoY growth of +47%, while equity funding dwindled by 57% during the same period. In 2022, startups in Africa secured 19 cents of debt for every $1 of equity. In 2023, this ratio rose to 65%, with debt constituting 38% of all funding raised, up from 16% in 2022.”
In contrast to the global downturn in venture capital funding, the 39% decline in funding on the continent was deemed a commendable performance. The report underlined the resilience shown by African startups, despite the challenging global context.
Unfortunately, West African startups faced a tough year in 2023, experiencing a staggering 2.6 times reduction in total funding compared to 2022. The Western African region, accounting for 23%, witnessed a significant drop from its leading position in previous years.
East African startups emerged as the top performers in 2023, securing a total of $880 million, with 56% attributed to debt, representing 31% of the continent’s total startup investment. Northern African startups followed closely, raising $670 million.
Briter Bridges, a market insight firm, analyzed the global funding scenario, noting a consistent decline from the peak in 2021. Despite a 27% drop in total funding from 2022, African startups raised $3.3 billion across 800+ deals in 2023, showcasing relative resilience in deal flow.
Debt funding constituted nearly a quarter of the total disclosed funding on the continent, indicating a 10% increase from 2022. This shift reflects a broader trend among startups exploring diverse avenues, beyond equity, to sustainably finance their growth.
The report concluded by highlighting the changing trend, noting that in the decade leading up to 2023, startups in Africa had borrowed a total of $2 billion. The evolving landscape suggests a shift in funding dynamics based on new data.
Source: Punch NG