African startup funding down 39% in 2023, regional split improves

African startup funding dropped 39% in 2023, but the split across the four major regions improved as West Africa's dominance waned.

That's according to new data from Africa startups deals database Africa: The Big Deal which broke down the total funding raised by startups in Africa last year.

Startups on the continent raised US$2.9 billion in 2023, a considerable drop of 39% compared to the previous year, with around 500 of the startups securing $100,000 or more in 2023, compared to 821 in 2022.

"In the context of a global slowdown in venture capital (VC) activity, this performance is actually better than most might have feared," the report said.

"This therefore means that the average deal size has remained stable between 2022 and 2023, again a pretty encouraging fact given the global climate," it added.

Funding raised by African startups, by year (2019-2023).(Source: Africa: The Big Deal)

Africa: The Big Deal tracked all types of deals – including equity, debt and grants but excluding exits. It found that many startups turned to debt to finance their growth, as equity dipped 57% year-over-year (YoY) but the amount of debt raised reached $1.1 billion, a 47% increase YoY.

In 2022, startups in Africa had raised 19 cents of debt for every $1 of equity they'd secured. In 2023, this number went up to 65 cents, and debt made up 38% of all funding raised (vs. 16% in 2022).

The database tracked 19 exits in 2023 worth over half a billion dollars, almost entirely thanks to two Tunisian success stories: InstaDeep's acquisition by BioNTech and Expensya's acquisition by Medius.

East Africa snatches funding crown from West Africa

From a regional point of view, West Africa no longer dominated funding and there was a rebalancing of startup investments across the continent in 2023.

East Africa came out on top, attracting $880 million in 2023, 31% of all the startup investment on the continent. This was aided by the nearly half a billion dollars raised by Sun King and M-Kopa alone.

East Africa moved up from second place in 2022 and fourth place in 2021, despite a 29% YoY drop in funding. Debt represented more than half of the funding raised in the region and, overall, 130 startups raised $100,000 or more during 2023.

Startup funding in Africa, by region (2021-2023).(Source: Africa: The Big Deal)

For the first time, North Africa was the second-most attractive region on the continent, with 24% of the total raised on the continent. Startups there raised $670 million – including more than half a billion dollars by Egyptian fintech platform MNT-Halan alone – and yet the region still saw a 39% YoY decline in funding.

The overall value did not include the value of the InstaDeep and Expensya exits – if included then North Africa would have been in the lead.

In third place was Southern Africa with 22% of the total and it recorded growth of 6% YoY. No startup raised more than $100 million in the region, and the three biggest raises – Planet42, TymeBank and E4 – only represented about a third of the total funding raised.

West Africa saw a considerable decrease in startup funding inflows, dropping from first place in both 2021 and 2022 to fourth place in 2023, with just 21% of the continent's total raises.

West Africa raised just over $600 million during the year, 2.6 times less than in 2022, but did claim the largest number of ventures raising over $100,000 – 191 startups or 39% of the continent's total for that threshold.

Central Africa was the only region showing significant growth, up 33% YoY from $51 million in 2022 to $68 million in 2023. Central Africa, however, took in just 2% of the total funding coming into the continent.

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*Top image source: Image by Freepik.