Venture capital inflows into African technology and start-up firms decreased by 31% in 2023 to US$4.5 billion due to economic challenges such as weak currencies and high inflation, according to a survey.
VC Funding for African Startups Drops to 31%
The economic headwinds deterred investors from actively engaging in the region’s burgeoning tech ecosystem.
The number of deals, including both equity and debt, declined to 545 from a record 781 in 2022, with the number of active investors in the region down by a third, as reported by the London-based African Private Capital Association.
The association stated that “the withdrawal of North American investors was responsible for 50% of the overall decline in investor numbers in 2023, significantly overshadowing the retreats of European and Asia-Pacific investors, which accounted for 18% and 9% of the decrease.”
The decline in global liquidity, along with rising geopolitical conflicts and challenging macroeconomic conditions, prompted investors to diversify their assets across different regions to mitigate risks.
Foreign Investors are Currently Backing African Economies
Foreign investors shifted their focus away from African economies grappling with high inflation and currency devaluation.
“Those who made opportunistic investments in Africa exited in favor of more familiar shores,” emphasized the association. The importance of indigenous capital allocators with a long-term commitment to the continent was stressed.
The funding shortage compelled some tech and start-up firms to scale back cross-border expansion plans, streamline operations, or close down completely.
For instance, Paystack, a Nigerian start-up and a unit of Stripe, reduced its workforce in Europe and the United Arab Emirates to concentrate on its operations in Africa.
West Africa Attracted the Largest Share of Venture Capital
According to the survey, West Africa attracted the largest share of venture capital deal volume in Africa at 26%, driven by Nigeria, which led in terms of transaction volume at 19%.
The financial sector accounted for 23% of transactions, followed by IT at 20% and consumer discretionary at 17%.
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