There has been a major decline in global venture capital (VC) funding in 2023. Data from the research firm PitchBook shows that VC funding in the first half of 2023 nearly dropped by half compared to the same period last year. Interest rates raised by central banks around the world also impacted venture funding. An increase of 1% in interest rates resulted in a 3.2% decrease in venture capital fundraising, diminishing the capacity of VC funds to attract capital from investors. The heightened interest rates not only curtailed the available VC capital for startups but also raised the cost of turning to debt financing as an alternative. 

Africa, like other regions affected also had a funding meltdown. In the first half of 2023, startup funding on the continent plummeted to over $1 billion. 263 VC deals were completed, totalling $2.1 billion, this marks a 40% reduction in both deal volume and funding compared to the previous $3.5 billion last year. This downturn spurred investors to shift their focus towards early and late-stage startups. Consequently, many African startups have also been forced to halt their operations due to decreased demand and funding scarcity. Some of these African startups include Dash, Sendy, Wabi, Lazerpay, Zumi, 54gene and Hytch. 

West Africa led venture capital (VC) deals across the continent, boasting the highest volume in the first half of the year. It secured 68 deals, constituting more than half of the total deals in Africa. East Africa ranks second with South Africa and North Africa trailing behind respectively. 

The majority of venture capital deals were secured by the financial sector, claiming 26% of the total. Other sectors include information technology (20%), consumer discretionary (15%), industrials (9%), healthcare (9%), and communication services (6%). Fintech startups stayed in the lead, with major investments like the $35 million Series B round for South African digital lender, Lulalend and the $30 million pre-Series B funding for Nigerian payment service provider, Nomba.

CleanTech is gaining attention in the global venture capital scene and is now as popular as FinTech among the top 10 highest-funded startups worldwide in the first half of the year. European VC investors are increasingly interested in CleanTech, renewable energy, and energy storage, particularly due to the ongoing Russia-Ukraine war and concerns about energy availability and costs over the last 18 months.

The global rise of CleanTech is also visible in Africa’s early-stage ecosystem, where CleanTech is the second most active vertical among VC-backed technology companies in the first half of 2023. While CleanTech doesn’t focus on a specific sector, it has contributed to increased deal activity in the utilities sector in recent years. Despite being considered an emerging investment area, companies using technology to enhance environmental sustainability, such as Madagascan clean energy provider WeLight receiving €19 million and Qotto, a solar kits provider in Burkina Faso and Benin, securing a US$8 million Series A funding, are gaining support.

In the second half of 2023, precisely the third quarter, Africa’s startup funding increased by 28% in Q3 2023 compared to the same time last year. According to The African Private Capital Association (AVCA), the strength of venture debt financing is decreasing, especially in Africa. In the third quarter of 2023, there were 13 debt financing deals totalling $230 million, down from 20 deals worth $367 million in the same period in 2022.

Breaking down the investments by sub-region, startups operating in multiple sub-regions secured 61% of the total investments in Q3 2023. West Africa came in second with 13%, beating Southern Africa (11%), East Africa (8%), Central Africa (5%), and North Africa (2%). In terms of sectors, the finance sector attracted the most funds (70%), followed by utilities (10%), information technology (6%), and consumer discretionary (5%).

Despite the current challenges, the African startup landscape displays resilience. Entrepreneurs are actively reassessing their strategies, exploring alternative funding sources, and leveraging existing resources to navigate this period of uncertainty. 

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