Funding for early-stage startups dries up – reportFunding for early-stage startups dries up – report

African early-stage startups have seen funding dry up over the past three years, with later-stage deals grabbing more attention and more money. That is one of the key findings from the African Venture Capital Report 2024 from WeeTracker Media and Future Africa.

The fact that there has been a global downturn in startup investment over the past few years is common knowledge and Africa has not been spared from the so-called "funding winter."

The report found that early-stage startups have been disproportionately affected by the lower funding levels, and the share of early-stage investments in overall funding dropped from 31% in 2021 to just 9% in 2024.

"In particular, commercial capital has left the early stages, leaving mostly accelerator and grant capital as the only option for early-stage founders, which typically comes in small amounts (US$10K-US$100K) and is often insufficient to grow a startup into a valuable venture fast enough. We have observed founders hopping from accelerator to accelerator to pick up the limited capital available," the report's authors said.

The research classified deals as early-stage if they were part of acceleration/incubation, prizes/grants, pre-seed and seed stages.

Future Africa Managing Partner and Co-Founder of DukaConnect Mia von Koschitzky-Kimani said that most angel investors have left the African market given the lack of exits and higher return potential in low-risk securities.

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"Early-stage funds have either raised larger funds and moved to Seed+ stages or have struggled to raise smaller funds. Grants and small accelerator checks are what is left," she said.

She also warned that the market should expect a shortage in the pipeline at Series A+ stages in years to come, with the first signs of this already showing.

"The bar to attract early-stage commercial funding has increased – funders at pre-seed stages are already looking for a clear path to US$1 million in revenue in a capital-efficient way, after which funding becomes more available," von Koschitzky-Kimani added.

(Source: African Venture Capital Report 2024)

A point to note is that the report only considers publicly disclosed deals for analysis, and therefore could be undervaluing the size of unreported early-stage deals. However, the authors said this is to ensure the integrity and reliability of the data.

"By focusing solely on disclosed deals, we are able to maintain consistency across data sets over the years, providing a comparable and accurate representation of the funding landscape," they explained.

Growth-stage and late-stage capital

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WeeTracker Media and Future Africa found that the share of capital aimed at the growth stage (Seed+ to Series C stages) increased from 42% in 2023 to 52% in 2024.

"The good news is that we have seen a lot of capital raises being announced by Africa-focused funds investing at Seed+ to Series B stages, which makes funding at this stage a lot more resilient due to international capital looking at African deals opportunistically," the researchers said.

Late-stage investments (Series D and beyond and including debt) are dominated by a few big deals each year, which tends make it more volatile in terms of the share in overall funding.

Late-stage funding took up 24% of overall funding in 2021. This rose to 27% in 2022, up again to 49% in 2023, and dropped down to 38% in 2024.

All the funding at this stage went into either climate or fintech deals in 2024.

The report puts total startup funding during 2024 at $2.07 billion – including equity, debt and non-dilutive funding raised.

This is 4.5% growth in overall funding compared to the data gathered the previous year, while the deal volume dropped by 2%. (These figures differ from previously published reports from Partech Africa and Africa: The Big Deal.)

Unicorns on the rise, fintech focus remains

2024 saw the rise of two new African unicorns (with valuations of over $1 billion): Nigeria's Moniepoint, which raised $110 million in a Series C round; and South Africa's Tyme Group, which raised $250 million in a Series D round.

Other big deals included Moove Africa's $100 million raise, M-Kopa's $51 million raise, and Spiro's $50 funding round.

When it comes to sectors, unsurprisingly fintech (finance and blockchain) continues to take at least half of all investment in 2024 – a trend evident since 2019 (with only one dip in 2020).

(Source: African Venture Capital Report 2024)

Meanwhile, energy- and environment-focused companies have become the rising stars. Energy and environment funding took just 2% of total funding in 2022, but over 27% in 2024 on the back of a surge in climate-focused capital.

The other sectors combined have had ups and downs in funding, and the third biggest sector in 2024 was mobility, transport and logistics.

(Source: African Venture Capital Report 2024)

Global investment sentiments trickle down to Africa

The report highlighted that the VC ecosystem in Africa closely follows global VC funding trends, particularly those of other emerging markets like India, and is highly impacted by and connected to global investment sentiments.

Both the US and India experienced similar funding levels in 2019 and 2020, followed by a big upswing in 2021.

Then, 2022 saw a decline compared to 2021 and 2020 followed by a further decline in 2023, while 2024 became the first year of moderate growth again.

"The reality is that 2021/2022 heydays of cheap and abundant capital will not return anytime soon, and founders will have to build scalable ventures in a highly capital-efficient way and with a short path to profitability to succeed in this new reality," said Future Africa founding partner Iyinoluwa Aboyeji (also the co-founder of two of Africa's first unicorns: Andela and Flutterwave).

(Source: African Venture Capital Report 2024)

The report suggested that Africa will likely close 2025 at similar levels to 2024.

"Africa's venture capital landscape reflects this recalibration as players adopt a more measured approach to funding, seeking to balance growth aspirations with market realities. This shift signals a maturation of the ecosystem, where long-term value creation takes precedence over short-term euphoria," the report said.

The report covers venture capital activity on the continent between January 1 and December 31, 2024, and it only includes publicly disclosed deals. The report includes startups with primary operations or main activities based in Africa, even if they are headquartered outside of the continent.